On Panama Hats

4 mins. to read
On Panama Hats

I thought that we were all supposed to be against the hackers, weren’t we? I mean, people who download confidential files from law firms and then use them to blackmail people indiscriminately are normally called criminals – aren’t they? Apparently not if the ultimate purpose is the international moral crusade against tax evasion with which all the Left, and apparently much of the Centre, are obsessed right now.

And who were the hackers who thoroughly discombobulated the Mossack Fonseca servers? I’m not a techie, but I imagine it would take considerable ingenuity and resources to download eleven and a half million confidential documents (or whatever it was). But I don’t suppose that the Süddeutsche Zeitung nor the International Guild of Investigative Reporters (or whatever it is called) are going to tell us who did it. In so doing they are tacitly inciting criminal activity.

And since when, in a globalised world, was it illegal, or morally dubious, to own overseas assets in overseas jurisdictions? Yes, there were some dodgy customers – the Brinks Matt boys and their ilk – but the overwhelming majority of offshore arrangements in which the Mossack Fonseca people indulged were entirely legitimate – whether you like it or not. I’ll leave it to others – my colleague Evil Knievil amongst them – to explain why for many business ventures which involve partners from many jurisdictions, offshore structures often offer efficient, low-cost solutions. (Why should anyone pay more tax than they have to?) And if you close these offshore centres down, Mr Corbyn, by imperial decree, you’ll have a slew of UK Overseas Territories with little source of revenue other than the banana trade. And the UK taxpayer will have to keep them afloat.

A quick aside on the Russians. I know that some readers think that I am a bit soft on President Putin, but I would just like to pose one question on his behalf. Why would a Russian billionaire seek to route income through Panama, which has an income tax rate of 15% when the income tax rate in Russia is a flat 13%? Russia is itself a tax haven where banks are coy about anti-money laundering procedures – that is another reason why Mr Putin has appealed for exiled oligarchs to come home.

What about due diligence? I can’t help but remember when some years ago I persuaded a venerable Oxford college to invest a pretty sum in a portfolio of hedge funds. The custodian for this portfolio (located in the Isle of Man and a subsidiary of a bank domiciled in a balmy UK Overseas Territory) demanded the Oxbridge college’s bona fides. When I conveyed this demand to the College Bursar, he replied quite crossly: I rather think that we should be supplied with their bona fides… Most people who have worked in financial services in the UK will tell you that our standards are amongst the most rigorous in the world. When you make a system too restrictive, that incentivises the movement of capital to less intrusive regimes. One of which is our neighbour and EU partner, Ireland.

But my central point is a simple one which seems to have been drowned out in the shrill chorus of moral outrage in which even normally quite sensible people seem to have joined. We are now being pushed in the direction of total tax transparency on Scandinavian lines where everyone (except presumably people on benefits) will have to disclose their tax return on the internet. (That way, Mr Corbyn would be unable to lose his.) This will do even more to put off high-achievers who have made a few bob from coming into politics.

My point is that, before you choose a lawyer, or an accountant, or a bank – or even a telecoms provider for that matter (remember TalkTalk?) – you should get a handle on how secure their systems are against hackers. When we put money on deposit with a bank we can evaluate their credit standing by looking at their capital ratios, their liquidity ratios and even their Bank of England stress tests. All this stuff is available on the internet. But where can we get metrics on a company’s computer security regime?

Well, there are providers who specialise in evaluating and certificating company computer security. I have just located an interesting website entitled Top 25 Cybersecurity Companies to Watch in 2016[i]. Some of the firms listed are household names like Intel (NASDAQ:INTC) and IBM (NYSE:IBM) but how many of us have heard of Japan’s Trend Miro Inc. (TYO:4704) or Sophos Group PLC (LON:SOPH) located in Abingdon, UK? Not to mention a clutch of upcoming outfits which are as yet unlisted.

I am surely not alone in thinking that this is a space to watch. Posting everybody’s tax return online will just give joy to the pruriently nosy and will serve no economic purpose; but giving every service company a rating on computer security (just as restaurants collect Michelin stars) would be hugely useful to society and the economy. I suspect that Mossack Fonseca will get the proverbial nul points.

Meanwhile, if you are going to the Master Investor Show on 23 April, do be wary of people wearing panama hats…


[i] http://www.itbusinessedge.com/slideshows/top-25-cybersecurity-companies-to-watch-in-2015-24.html

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