Let’s follow the basic rules: banks and intermediaries should know their customers
We have to focus on the middlemen too in our fight for tax justice
The last Panama Papers hearing on the role of lawyers, accountants and bankers in the Panama Papers, which took place Thursday 9 February, was once again shocking. Middlemen don’t even follow the basic rules: if you enter into a business relationship, it should be normal to know who your customers are. But last week we learned that this is actually not the case.
Instead of following the basic rule of ‘know your customer’, banks and intermediaries are actually trying to avoid officially knowing their customers.
Thankfully Katrin Keikert, a former compliance officer from Berenberg bank, gave us detailed insights in the German case. The Panama Papers revealed that there were at least 80 letterbox companies from Mossack Fonseca with bank accounts at Berenberg. The whole compliance process was outsourced to Mossack Fonseca. A short note from Mossack Fonseca saying “they are an honest client” was sufficient for Berenberg to conduct business. So the German bank managed offshore accounts for clients they apparently didn’t even know. We now know that the bank’s clients were involved in activities ranging from drug trafficking and the arms trade to money laundering and tax evasion. When she realised who the real clients were and reported this information to the management, Katrin Keikert and her former colleague from the compliance department were fired.
Instead of following the basic rule of ‘know your customer’, banks and intermediaries are actually trying to avoid officially knowing their customers. Self-regulation does not work. This is why we have to implement binding rules.
Talking to the vice-president of the German Federal Bar, the Bundesrechtsanwaltskammer, another highly important issue came up. Lawyers are obliged by law to find the most efficient models of tax avoidance (but not evasion) for their clients. If they don’t, they are liable for damages. So it’s our duty to close all the loopholes being exploited by multinationals — or their intermediaries.
The latest hearings of the Panama Papers inquiry committee again revealed the important role played by middlemen, or intermediaries, in the world of money laundering and tax avoidance and evasion. Moreover, the academics and experts we spoke to at the Panama Papers inquiry confirmed that evasion and avoidance wouldn’t be possible without the help of advisors, banks and other middlemen. It has to be noted that the Panama Papers include 14,000 intermediaries, of which about 19% are located in the EU.
Therefore we need to reiterate our call for more transparency and sanctions. Aggressive tax-planning regimes must be fully disclosed. Following the UK’s example, a harmonised EU framework for disclosure regimes has to be implemented. If tax-planning schemes that meet certain criteria are promoted, the intermediaries have to report the scheme to the tax authority. Additionally, taxpayers using such schemes must report this on their tax returns. If intermediaries fail to comply with this requirement they will be labelled as promoters of tax-avoidance schemes, leading to financial penalties and public shaming. But before we take these further steps the basic rules have to be followed: intermediaries have to — at least — know their customers.
 PANA, DG Internal Policies, Budgetary Affairs: role of advisors and intermediaries in the schemes revealed in the Panama Papers