A6.1 In April 2016, the International Consortium of Investigative Journalists (ICIJ) coordinated the release of data leaked from the Panamanian law firm Mossack Fonseca, also known as the 'Panama Papers'. In May 2016, the ICIJ published the additional information containing details of entities implicated in the Panama Papers, including office holders and intermediaries connected to those entities.1162
A6.2 There were 200,000 entities mentioned in the Panama Papers which consisted of 11 million documents covering a period of almost 40 years from 1977 to 2015. The entities were tax resident in a wide range of countries including Australia.1163
Global regulatory and market response
A6.3 Two days after the Panama Papers were first publically reported, the OECD called an emergency meeting in Paris. In the months following this meeting, 150 major inquiries, audits and investigations were commenced by 79 countries involving more than 6,500 entities and individuals. For example, the European Parliament agreed to establish a 65-member committee to investigate potential money laundering and tax fraud, the authorities in Iceland referred 46 cases of potential tax evasion to prosecutors and Europol, Europe's law enforcement agency, reported that 3,469 of the individuals revealed by the Panama Papers had known links to organised crime, tax fraud and terrorism. India had commenced the country's largest-ever tax inquiry by establishing a special taskforce to investigate the offshore affairs of 415 Indians and France's Ministry of Finance commenced audits of 560 taxpayers. Announcements were also made by the CRA regarding the commencement of investigations into 85 individuals for tax evasion. Similarly, HMRC commenced 66 criminal and civil investigations that were expected to raise an additional £100m in tax revenue.1164
A6.4 The largest loss in the financial markets, as a result of data leaks or corporate scandals, was also experienced with approximately $135 billion of the value for 400 publicly traded companies being lost. According to some academics, the drop in value reflected a belief by investors that the companies were exposed to potential fines for tax evasion and would find it more difficult to avoid paying tax in future.1165 Accordingly, some of the world's largest financial institutions were reported to have formed response teams to identify suspicious accounts and customers of higher risk in an effort to minimise their exposure to potential criminal offences such as those involving money laundering and assisting clients to evade tax.1166
ATO and other agency responses to the Panama Papers
A6.5 On 4 April 2016, the ATO published a statement indicating that it had identified more than 800 individual taxpayers and had linked 120 of them to an offshore service provider located in Hong Kong. It advised that the data included taxpayers who were previously investigated by the ATO, including a small number who had previously made voluntary disclosures. However, the data also included a large number of taxpayers who had not disclosed their arrangements to the ATO including a number of high wealth individuals.1167
A6.6 Through the SFCT, a range of agencies conducted activities during a 'week of action' in September 2016. This included the ATO conducting '15 unannounced access visits in Victoria and Queensland and executed search warrants following analysis of the leaked information'. The AFP and ACIC executed these search warrants as part of two criminal investigations into a number of individuals linked to the Panama Papers. AUSTRAC and ACIC both issued media releases indicating their involvement and support for the operations.1168
A6.7 Specifically, as part of the SFCT's response, AUSTRAC engaged with domestic and international banks to build a picture of offshore service providers as they relate to Australian individuals and entities and identified professional facilitators, including accountants and lawyers, who had facilitated the creation of offshore structures and vehicles to conceal and move illicit wealth.1169
The ATO's work on the Panama Papers
A6.8 Within the ATO, the oversight of Panama Paper related activities was managed under the Offshore Tax Evasion Steering Committee, the SFCT Treatment Forum and operational interagency meetings. In addition, the ATO had a Data Steering Group to prioritise analytical needs.1170
A6.9 The ATO analysed ten data sets associated with the Panama Papers leak and obtained an additional seven data sets which were sourced through cooperation with revenue agencies in other jurisdictions and law enforcement authorities.1171
A6.10 The ATO commenced a program of work to confirm the identity of names listed in the Panama Papers against taxpayer records in its possession. For example, as at 31 August 2017, the ATO's Smarter Data business line identified the TFNs of 1,184 of the 1,400 names published in the ICIJ Panama Papers and completed a preliminary risk assessment in relation to those taxpayers. Of these, 572 taxpayers were assessed as requiring further review and of those, 244 were identified as PGI taxpayers.1172
A6.11 The ATO has advised that 83 of the identified taxpayers were involved in previous compliance activities and nine taxpayers were linked to Project DO IT. In addition, 244 public corporate taxpayers were also profiled to determine whether they had links to Panama Papers' entities involved in cross-border arrangements.1173
A6.12 The PGI business line commenced a project to confirm whether identified taxpayers had connections to Mossack Fonseca and, if so, verify whether there was an indication of tax mischief or non-compliance. If necessary, the ATO would engage with the taxpayer to gain voluntary disclosure or begin compliance action.1174
A6.13 The above ATO compliance actions to date have determined that the majority of the taxpayers had 'met their obligations, as they were non-residents, had not derived any income or were operating legitimate businesses'.1175
A6.14 In a statement made on 13 November 2017, the ATO advised that their work on the Panama Papers had raised more than $50 million in liabilities and uncovered an additional $40 million of omitted income. The ATO's achievements in relation to the Panama Papers are summarised in the table below.1176
Table F.1: Results of ATO's activities on Panama Papers, as at 31 December 2017
|Periods||ATO activity||Total cases||Cases in progress||Cases completed||Liabilities raised||Cash collected|
|1 Jul 2017– 31 Dec 2017||Watching brief||9||104||74||$50,556,560||$3,789,128|
Source: ATO communication to the IGT, 12 February 2018
6.15 As indicated by the table above, as at 31 December 2017, the ATO has completed 288 cases, with 269 cases in progress, and collected cash of $8.3 million.
The ATO's model for future analysis of data sets
A6.16 Following its response to the Panama Papers, the ATO developed a strategy, namely: the Offshore Tax Evasion system, which aims to analyse future data received from partner agencies. The Offshore Tax Evasion system has 12 steps including cleansing data received from partner agencies and matching them against existing data sets before conducting compliance activities into those assessed to be high risk.1177
A6.17 The Panama Papers highlight the importance of international cooperation amongst revenue authorities to obtain relevant information about taxpayers and transactions. The OECD has noted that the use of cross-agency networks in the Panama Papers has 'resulted in a better understanding of evasion and avoidance arrangements, especially the role of intermediaries in these arrangements, improved exchange of information practices and an agreed collaborative approach to future data leaks'.1178
A6.18 Furthermore, incidents such as the Panama Papers provide a stimulus for revenue authorities to share information with one another in line with their information sharing agreements1179 and establishes methods of working collaboratively to process and analyse large data sets.
A6.19 Legislatures in many countries have proposed to enact regulations and laws to address weaknesses pinpointed by the Panama Papers. These include requiring companies, who wish to set up in the US, to report their real owners to appropriate agencies.1180 The European Union, as well as a number of other countries such as New Zealand1181 have also introduced similar measures.
1162 ATO, 'PGI Panama Papers Project Communication Strategy 2017' (Internal ATO document, 2017).
1163 Above n 575; Elise Worthington, 'Panama Papers: Vladimir Putin associates, Jackie Chan identified in unprecedented leak of offshore financial records', Australian Broadcasting Corporation (online) 5 April 2016.
1164 Will Fitzgibbon and Emilia Díaz-Struck, 'Panama Papers Have Had Historic Global Effects — and the Impacts Keep Coming', ICIJ, 1 December 2016; Rajeev Syal, 'HMRC's struggling to deal with fallout of Paradise Papers leak', The Guardian (online) 12 January 2018.
1165 James O'Donovan, Hannes F. Wagner and Stefan Zeume, 'The Value of Offshore Secrets – Evidence from the Panama Papers'(Paper presented at the HKUST Finance Symposium 2017, Hong Kong, 19 April 2016) p 5.
1167 ATO, 'ATO statement regarding release of taxpayer data' (Media Release, 4 April 2016).
1168 The Hon. Kelly O'Dwyer, MP, Minister for Revenue and Financial Services, 'No one hides from the tax system' (Media Release, 6 September 2016); Commonwealth, Senate Economics Legislation Committee, Proof Committee Hansard – Estimates, 25 October 2017, p 74 (Deputy Commissioner of the PGH business line); AUSTRAC, 'AUSTRAC follows the Panama Papers' money train' (Media Release, 6 September 2016); ACIC, 'ACIC response to Panama papers' (Media Release, 6 September 2016).
1169 The Hon. Kelly O'Dwyer MP, Minister for Revenue and Financial Services, 'No one hides from the tax system' (Media Release, 6 September 2016).
1170 ATO communication to the IGT, 12 February 2018; ATO, 'Smarter Data Edition 18' (Internal ATO document, undated).
1171 ATO, 'International tax evasion, including Panama Papers, Swiss bank matter and other data sets Senate Estimates Deputy Commissioner brief October 2017' (Internal ATO document, October 2017) p 3.
1172 ibid.; ATO, 'Case Context Document Panama Papers Part 1' (Internal ATO document, 31 July 2017).
1173 ibid.; ATO communication to the IGT, 12 February 2018.
1174 ATO, 'Case Context Document Panama Papers Part 1' (Internal ATO document, 31 July 2017).
1175 Above n 1171.
1176 ATO, 'Paradise Papers and the ATO' (Media Release, QC 53909, 13 November 2017); ATO communication to the IGT, 12 February 2018.
1177 ibid.; ATO, 'Offshore Tax Evasion Strategy System Map - DRAFT' (Internal ATO document, undated).
1181 David Pegg and Hilary Osborne, 'EU to force companies to disclose owners with directive prompted by Panama Papers', The Guardian (online) 15 December 2017; ABC News, 'Panama Papers: New Zealand to tighten trust laws after being named in leaks', Australian Broadcasting Corporation (online) 13 July 2016.