Island said to be on shaky ground
Bermuda is “up the creek without a paddle” after a massive leak of documents stolen in a cyberattack on Bermudian-founded law firm Appleby, an expert in compliance rules said yesterday.
The source, who asked not to be named, said: “This is actually really, really bad and it's bad because it demonstrates Bermuda's jurisdictional attitude to shifting public opinion and reality and the rather rigid line of legality.”
He added: “Bermuda is looking down the barrel of a gun — there has been the Panama Papers and that play is still ongoing. We haven't seen the end of it.”
The source, with experience in international business and compliance on an international level, added: “In Bermuda, it's perceived a thing is OK if it's legal, but morality issues and the social contract precede the making of law.
“We're talking about jurisdictions who are going to respond to this situation based on public opinion — not on the back of Bermuda law and international law.
“They don't care if something's legal; what they care about is the tax bill they could have had.”
The source was speaking after the International Consortium of Investigative Journalists, working with more than 90 media organisations around the world, highlighted financial dealings offshore in the cache of documents hijacked from Appleby last year.
The 13.4 million documents, dubbed the Paradise Papers, included more than six million taken from Appleby.
The leak of the data followed a similar, but smaller, release of the Panama Papers last year when the ICIJ released more than 11 million documents obtained from law firm Mossack Fonseca, based in the Central American country. The source said that tax information exchange agreements signed by Bermuda with other countries were held up as a shield against allegations the island was a secretive tax haven.
But he added that tax information agreements worked only if overseas authorities knew “exact details” like where the asset was held, in whose name and who the beneficiaries were. And he added that Bermuda's claim to have operated a register of beneficial ownership for decades did not stand up in the court of world opinion.
He said: “Anyone who says that that's always existed is referring to the old model, which was not all that helpful because people had to know half the information already to make a sensible request.”
The source added that Appleby “doesn't have one kind of client — they have hundreds of kinds of clients, high net-worth individuals doing estate planning, multinational corporations and local Bermuda companies”.
He said that it was hard to predict what kind of backlash may come in the wake of the release of the papers.
The source added: “It's yet to be seen; it's anybody's guess. This has happened only once before — to Mossack Fonseca.
“We just don't have a template for this because there has never been public opinion in this space before. The public didn't participate in financial services — now they are because of transparency and the involvement of everyone from the Organisation for Economic Co-operation and Development, and the Financial Action Task Force.
“There is now a transparency that wasn't there before and the full light of public scrutiny.”
The expert said that Bermuda's politicians had made the situation worse by trumpeting Bermuda's strict approach to offshore investments.
He explained: “It's partly Bermuda's own fault because it has been wandering around the world telling everyone all the good things it does — and the world is going to check at some point.”
He said government representatives from places like the Caymans in the Caribbean, the Indian Ocean country of Mauritius, and Jersey in the Channel Islands, all also branded as tax havens, were less obvious on the international stage.
The source added: “Bermuda politicians regularly appear on international media extolling the island's virtues when sometimes it might be better just to shut up.
“Bermuda seems to have absolutely no control over how loud it shouts and it draws attention to it.”
The expert said: “I would say because we have no precedent here, Bermuda is literally up the creek without a paddle.
“We have no idea of how this is going to play out.”