Decoding offshore accounts

By Manjula Fernando

With the legitimacy of offshore accounts becoming a hot topic post Panama Papers, an expert on offshore accounts at the Attorney General’s Department spoke to the Sunday Observer on the issue of legitimacy of such accounts.

The source said that there are instances of legitimate businesses – such as companies engaged in exports maintaining such accounts – which are legal –while the majority of offshore accounts are maintained to stash away black money.

“It seems that, people who have black money –money they cannot or do not wish to declare –possibly due to the source of such wealth being corruption, crime, drugs, arms or human trafficking – have obtained the services of the controversial law firm to have companies incorporated in Panama, and through such companies maintained bank accounts in Panama itself and elsewhere, to retain black money, to be used when required, specifically to finance both legitimate and illegitimate businesses.”

It is possible that persons who make lawful money through legitimate businesses too have used such off-shore companies to retain proceeds of legitimate trading activities, away from the watchful eyes of local tax collectors.

The source explained that, therefore, a Sri Lankan who is said to be a shareholder or a director of a company incorporated by Mossack Fonseca in Panama, should be questioned on the purpose of incorporating a company far away from Sri Lanka. It should also be verified whether in the name of such company, the beneficiary opened a bank account in Panama itself or in a third country. Further, the source of money too needs to be verified.

The expert was of the view that most Sri Lankans featured in the leaked papers are likely to be persons who wish to retain their foreign exchange saved in a location other than Sri Lanka, to evade payment of full taxes to the Department of Inland Revenue(DIR).

The investigators, he said, could also uncover where the moneys went to and identify the locations of the shell companies, including Panama, the British Virgin Islands, the Bahamas or elsewhere. The identified countries are well known for attracting black money due to lax tax systems and financial control systems.