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Jean-Yves Gilg

Editor, Solicitors Journal

Uncertainty will plague the untruthful

Uncertainty will plague the untruthful


The timing of the Mossack Fonseca leak less than a year after the rulings in Sharland v Sharland and Gohil v Gohil is uncanny. Dishonest former spouses beware

This week saw one of the biggest leaks of confidential information in history explode into the headlines of many national and international newspapers. To put it into context, the information leaked from Panamanian law firm, Mossack Fonseca, constituted some 11.5million documents (or 2.6 terabytes of data to be precise).

This leak vastly dwarfs previous ones, such as the information leaked by Wikileaks in 2010 regarding diplomatic cables from the U.S. State Department (1.7GB) and the information leaked by Edward Snowden from the intelligence community in 2013.

The information obtained by German newspaper Sueddeutsche Zeitung, which was shared with the International Consortium of Investigative Journalists and 107 different media organisations across the globe, has already sent shock waves through the international community.

The Icelandic Prime Minister has been forced to resign and allegations have fallen squarely at the feet of the Russian President, Validmir Putin, due to his association with someone believed to be at the centre of a $2bn scandal regarding hidden funds from Russia's state banks. Prime Minister, David Cameron, is faced mounting pressure to explain his father's associations with an off-shore scheme and in total, twelve world leaders are facing intense scrutiny for their relationships with Mossack Fonseca.

High-net-worth hide and seek

However, the furore created by the leak does not extend solely to world leaders, government officials or politicians. The rich and famous the world over have enlisted the services of the secretive Panamanian based firm. It appears that a plethora of methods are available which are designed to take advantage of the regime offered by the Caribbean tax haven.

In addition, innovation solutions designed to conceal the full extent of an individual's assets by using structures such as shell corporations to conceal beneficial ownership are being investigated.

With the judgments handed down by the Supreme Court in the cases of Sharland v Sharland and Gohil v Gohil, which concerned the deliberate concealment of assets on the division of matrimonial finances, including the proceeds of criminal activity as in the case of Gohil, are fresh in the minds of family law practitioners; this startling story could lead to divorce settlements being set aside.

Off-shore structuring is not illegal and it is legitimately used by many people for inheritance and wealth planning purposes. However, specialist advice should always be obtained in order to avoid falling foul of national or international treaties and agreements governing schemes designed to evade tax and launder money.

Open the floodgates?

For example, it has already been suggested that Scot Young, the infamous husband in the long-running and much publicised case of Young v Young, used the services of Mossack Fonseca to deliberately conceal his £500m fortune. And so, one cannot help but wonder whether the leaking of these documents is going to open the flood gates to a raft of Sharland and Gohil style set-aside applications being made, as the existence of previously concealed assets emerge.

For Sharland style applications, the pivotal question will be one of disclosure: it may well be that during the financial remedy process, a perfectly legitimate and legal off-shore inheritance or tax planning fund is disclosed. However, if it is found that such a fund was not disclosed and that the concealment was deliberate (i.e. fraudulent) then the ramifications of the Sharland decision are likely to come into play.

Having regard to the fact that the Supreme Court in Sharland emphasises that the duty to provide full and frank disclosure underpins the validity of any order made, be that one made with the consent of the parties or following a contested final hearing, comprehensive disclosure of assets held in a legal structure akin to those offered by Mossack Fonsecca must be made during the process of negotiations and to the court, to ensure finality of litigation.

Indeed, some of the papers already obtained following the leak suggest that in one case, involving a marriage between a Dutch couple when a divorce was 'on the horizon', the husband was looking to set up a structure to 'avoid access to the ex-wife as creditor'.

Nothing is certain, yet

It does not follow that the activities leaked through Mossack Fonseca suggest potential criminal activity. Nonetheless, speculation in this regard will no doubt be rife. Those who specialise in the field of family law should perhaps closely scrutinise the judgment in Gohil accordingly.

The case concerned the inclusion of fresh evidence on a set-aside application in circumstances where the true extent of the husband's wealth was found to have been substantially inflated, as a result of his criminal activity. The justices in the Supreme Court concluded that those assets which were matrimonial in nature were open to attack by the wife.

One thing is for certain: it is unlikely that politicians are going to be the only victims of this unprecedented leak. It remains to be seen whether divorced spouses will start reaching for the panic button should it transpire that they have been less than candid with regard to their assets, as the information leaked from Mossack Fonseca continues to permeate into the public domain. Likewise, former spouses are likely to be keen to pursue arguments of non-disclosure should their former spouses be found to have had any involvement in the schemes.

In all of these cases, it will be necessary to bear in mind the practical difficulties that will inevitably arise when trying to extract information and assets from a tax haven like Panama, irrespective of whether the funds have been legitimately invested or not.

Ros Bever is a partner and head of the family team at Irwin Mitchell