The offshore model will evolve with more transparency and tighter controls

A leak of documents revealing the offshore holdings of clients of a Panama law firm shone a spotlight on the largely unknown world of offshore financing – The Latin American Lawyer spoke to offshore specialists Jaime Aleman, partner at Aleman Cordero Galindo & Lee and Gian Castillero, partner at Arias Fabrega & Fabrega, to gauge the initial impact.

Panama´s reputation as a global financial centre might be on the line in the wake of the global media storm generated by the leak of 11 million files belonging to a local law firm. Castillero says that, as Panama has been an “important and trusted provider of financial services for over 70 years”, any news that might tarnish the reputation of its corporate and financial centre must be closely followed. He argues that it seems the media is overly focusing on Panama with a degree of sensationalism: “The investigation largely ignores the legitimate uses of offshore structures and alleges that every client on the list is doing something questionable.” Aleman argued that Panama is a “serious jurisdiction which fulfils its duties and requirements with GAFI and also other KYC (know your client) protocols – this will help the nation overcome this situation”.

The financial services sector in Panama is tightly regulated and must comply with strict global protocols to prevent abuse of the financial system, money laundering, terrorist financing and tax evasion. Castillero says that Panama regulations demand that every corporate services provider identifies and keeps a register of shareholders, sources of funds and final beneficiaries of every entity to which it provides services. He adds: “This information is kept so it can be reviewed by the relevant authorities in any investigation.”

Aleman highlights the prevalence of hacking and, consequently, the need for organisations to take steps to protect themselves and their clients when “even the Pentagon and major Swiss banks have been victims of hacking”. He adds: “Technology is your best friend but as shown in this case, it could be your worst enemy – for example, in our law firm we never microfilm documents, to prevent confidential documents being leaked.”

Both partners are satisfied that the offshore model has a future, despite the current public scrutiny. Aleman forecast more transparency and tighter controls for the offshore model “which is not necessarily all bad, it is critical to prevent abuses of the system”. Castillero underlines that the overwhelming majority of offshore structures are for legitimate business reasons and that “to make offshore synonymous with tax evasion is to ignore the reality of doing business”. He adds that the offshore model will evolve as it has done before and become stronger so abuses can be avoided. 

Ignacio Abella