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Panama Papers: family offices likely to remain unfazed, reputation biggest threat

The scandal over offshore investments is not set to influence the investment decisions of family offices, experts say, although reputational risk is a key consideration.

The Panama Papers revelations are unlikely to influence the decisions that ultra-high net worth (UHNW) families make over their finances, according to a leading specialist.

There are only likely to be “very, very limited” effects on how family offices operate, said Sascha Klamp, managing director and chief investment officer of London-based CITE Investments.

More than 11 million documents from the Panama-based law firm Mossack Fonseca were leaked to the International Consortium of Investigative Journalists, shedding light on how clients, including heads of state or government or their associates, have used offshore structures to avoid paying tax or to launder funds.

The scandal has already claimed the job of the Icelandic prime minister, Sigmundur David Gunnlaugsson, who stepped aside after details emerged of an offshore company linked to him and his wife, and with ties to the country’s banks.

The Russian president, Vladimir Putin, has close links to a number of those named as having large amounts of offshore assets.

Despite the publicity the revelations have resulted in, Klamp, a long-time adviser to a major family office, does not think UHNW individuals will rethink their investment strategies.

“If you want to structure deals in a more tax-efficient way, however you define that, there will always be a way to do so, with Panama or not,” he said.

“There are enough other offshore tax places in place - the Caribbean, I’m not talking about Mauritius - those places available that will attract capital. It’s the nature of business.”

He suggested that countries that are popular as offshore investment destinations would be unlikely to take action that would discourage the inflow of capital, since “for certain nations it may be a sizeable chuck of revenue”.

“I can only see a challenge potentially for multi-family offices or those with third-party capital, because there might be demands from third-party capital or other families in the structure, to not be as aggressive and be more transparent from a corporate governance perspective,” said Klamp.

Some, however, see likely changes afoot in how offshore investments are structured, with the potential for reputational risk causing investors to be more conservative in their decisions.

Philip Augar, a former equities broker and author of the books The Death of Gentlemanly Capitalism and The Greed Merchants, said he thought, “public opinion towards tax avoidance is shifting”.

“Basic schemes, such as using all available allowances, are likely to remain uncontroversial; more exotic offshore avoidance schemes will attract attention and criticism. A rule of thumb to apply is, ‘If this became known, what would people say?’” he said.

Meanwhile, the UK introduced new rules on 6 April, at the start of the country’s 2016/17 financial year, requiring companies to keep a register of “people with significant control” (PSC), defined as those with more than a quarter of shares or voting rights, or control over the appointment or removal of most board members.

In a statement, a government minister, Baroness Lucy Neville-Rolfe, said the rules, formulated before the Panama Papers scandal emerged, were the first of their kind in the world and would “help tackle abuse of corporate entities”.

“Companies that disguise who owns or controls them are not playing by the rules and have something to hide,” she said.


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