by Richard Coulson
First published in The Tribune, Monday, December 4, 2017.
Two years ago, publication of the Panama Papers caused the principals of law firm Mossack, Fonseca to be arrested by Panamian authorities for assisting their clients managed from that somewhat shady Latin American base. Now, the Paradise Papers cause Appleby, the blue-chip firm in straight-laced Bermuda, to stoutly insist that its clients are innocent of any wrong-doing, and that confidential documents were stolen by determined internet hackers.
Meanwhile, Bahamian lawyers stand aside, meekly remote from the fray – at least for the moment.
Some 13.4 million private records from Appleby and other sources are now in the public domain. They have no “sex appeal” and make stupefyingly tedious reading, yet a vast public appetite keeps growing for their titillating revelations. A whole industry has sprung up to tell the breathless world how the rich and powerful use offshore facilitators to avoid taxation and keep their wealth obscure. The original disclosures were leaked to the aggressive German newspaper Süddeutsche Zeitung, but the flow of information soon demanded the resources of powerful media like The Guardian, the New York Times and the BBC.
The lead role has now been taken by the International Consortium of Investigative Journalists (ICIJ) which coordinates the efforts of over 200 journalists in 70 countries and supervises its own investigative staff in Washington D.C. and key international cities. With non-profit status under US income-tax law, ICIJ is able to tap charitable donations to cover its substantial expenses for salaries, investigative travel, and its own publicity programs.
ICIJ and its backers argue that its reporting is essential to publicize major companies that pollute the environment or bribe public officials, to expose questionable tax avoidance schemes, and to restrict money laundering by influential parties that could be used for drug dealing or movements of weapons or helpless refugees. No doubt many of these beneficial results are achieved, but the ICIJ publicity also produces trashy headlines like “Secrets of the Global Elite”, telling us that the Queen of England’s advisors keep part of her wealth in Caribbean trusts or that the billionaire US Treasury Secretary has a long-time investment in a vessel chartered to a Russian oligarch. These are the kind of “gee-whiz” items that help newspapers sell financial gossip pages but do not wreck the world’s economy.
The ICIJ and bodies like Tax Justice Network share the underlying view that if all the untaxed offshore moneys (alleged trillions of dollars, totally absent any realistic estimate) were “brought home” and taxed, we would see vast new investment in all manner of worthy causes like schools, hospitals, nursing homes, highways, and research facilities. This is a dubious proposition, far from the reality of how government budgets really work. Clearly it is not shared by Appleby and their legal colleagues, who tenaciously defend their work as both legally approved and economically beneficial, for law-abiding clients. If you want Apple, Amazon, and Nike to change their shrewd tax policies and pay more to the Treasury, then ask the US to change its laws, they argue.
The ICIJ is now engaged in a running battle with Appleby, periodically announcing that it has found shady internal practices, Illustrating its own You Tube film with shots of investigators calling on Appleby’s handsome premises in Bermuda, while the firm vigorously denies the accuracy of these charges.
We can thank the Paradise Papers for telling us about the so-called Offshore Magic Circle of nine law firms – Appleby and Conyers in Bermuda; Maples & Calder and Walkers in Cayman; Harneys in the British Virgin Islands (BVI); and several in Jersey and Guernsey. Each has opened in one or more of the other jurisdictions, and group members have variously spread to offices in the Isle of Man, Dublin, London, Luxembourg , Geneva, Gibraltar, Dubai, Mauritius, the Seychelles, Singapore, Hong Kong and Shanghai. Client demands and preferences clearly require a wide geography—everywhere but The Bahamas.
Appleby, the oldest dating from 1898, has ten offices, 60 partners, 200 lawyers and 470 non-legal staff, and the other firms are comparable. Appleby’s Group revenues are said to be about $100 million annually, but this is a conjectural figure wrapped in traditional secrecy. The offshore fraternity is still far from the openness found in the US, where any issue of the American Lawyer can provide financial statistics for several hundred major law firms, including the most revealing metric of profits per partner, rising to several million dollars for the most successful. Firms in the UK are beginning to raise capital via public offerings that will disclose every detail about their finances.
Perhaps the ICIJ should campaign to get the same disclosure about offshore lawyers as it demands about the clients they look after.
Whatever the exact figures, clearly the Magic Circle group, with a total of several hundred profit-earning partners, is a major industry in its own right, representing heavy Foreign Direct Investment for each of its island economies.
The Bahamas Bar has virtually no spoon in this gravy. Our largest firms have about 20 partners and only a few have opened small branches to capture business in other offshore centers. David Marchant, owner and editor of Offshore Alert and frequent conference organizer , with unparalleled insights of the offshore world, wrote this to me:
“It’s not surprising that the Bahamas didn’t feature in the Paradise Papers. None of the most prominent offshore law firms have operations in the Bahamas because the legal industry there is run as a closed shop, which is one of the many reasons why the Bahamas’ legal system is considerably inferior to rival jurisdictions like Bermuda, the Cayman Islands and the BVI.”
Our lawyers have plenty of expertise to handle domestic legal issues and to look after the local needs of foreign-owned banks, hotels and resort projects. But they have little or no interest in competing for the complex international transactions that are the life blood of the Magic Circle firms. Why? simply because the “closed shop” prevents lawyers with the requisite foreign training and contacts from practicing here.
The Bar Association has deliberately supported that regressive, narrow-minded position. I recall former president Ellsworth Johnson making the fatuous argument that we have plenty of smart young attorneys who can learn the international business on their own, without the essential step of serving as juniors to experts.
Our legal leaders are free to accept or reject whatever types of legal practice they wish. If they prefer to avoid the challenges of complex financial transaction and tax minimization structures, that is their privilege. But our Ministers of Finance and Financial Services cannot be happy to see million-dollar foreign legal fees abandoned, together with related revenues for bankers, accountants, and investment managers, all flowing into the treasuries of Bermuda, Cayman and even minuscule BVI. Perhaps Mr. Johnson, now that he holds a senior post with the Attorney General, will change his views and adopt a more enlightened position, one that could actually increase legal employment rather than restrict it. Our economy could certainly use the shot in the arm.
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Mr. Coulson has had a long career in law, investment banking and private banking in New York, London, and Nassau, and now serves as director of several financial concerns and as a corporate financial consultant. He has recently released his autobiography, A Corkscrew Life: Adventures of a Travelling Financier.
