A Swiss lawyer has posted YouTube adverts, giving tips on how to “save your black money in Switzerlandexternal link” with “bonanza tax loopholesexternal link”. It raises the question of how far intermediaries, like lawyers, can go in defending their clients’ assets in an age of increased transparency and litigation.
In his videosexternal link, Enzo Caputo informs potential clients of “100% legal” loopholes in the global automatic exchange of tax information system. He advises on how to “fly under the radar” by investing outside of the banking system in gold, real estate trusts, classic cars or artifacts, such as original signatures of Einstein.
Offering to connect clients with dealers, or accompany them to auctions, Caputo signs off one video by saying: “Be rich, and remain rich.”
Enzo Caputo strongly denies that his Zurich-based Caputo & Partners practice assists tax evaders. His videos are part educational and part “pure marketing instrument with the goal of shaking up clients emotionally and to bring them to give me a call”, he told swissinfo.ch in a written statement.
The end goal is to persuade clients to come clean by entering voluntary disclosure schemes. “My core business is to make clients’ money legal” using such programmes, he said. The purpose of moving assets out of banks is to buy clients time until they have received the best legal advice and identified the best means of declaring assets.
“Calculating taxes and penalties can be very complicated and difficult. Until such disclosure has taken place, the client should fly under the radar of the tax authorities. Once the tax authorities have discovered the client, he loses the right to participate in such [voluntary disclosure] programmes,” Caputo says.
Pressure groups, such as Public Eye, have had lawyers and other intermediaries like Caputo in their sights ever since the Panama Papers leaks of a year ago, which exposed the role of middle men in setting up questionable offshore companies and trusts.
Olivier Longchamp, tax expert at Public Eye, said Caputo’s strategy of offering the “full tool box” of measures to keep assets outside the scope of tax authorities until a “more favourable climate” emerged in which to declare, is a “grey area”.
“I’m not sure this is what we need to make Switzerland’s financial centre compliant with international standards,” he explained. “While these measures are legal, they are bound to attract people who will seek to exploit them for darker purposes, such as money laundering.”
Longchamp is concerned that many activities of lawyers are not covered by anti-money laundering legislation. He called on Switzerland to respond by closing loopholes that still allow assets to hide beyond the gaze of the authorities.
Caputo argues in his videos that clients need protection from a global over-reaction to the problem of tax evasion. “All the countries around Switzerland have run out of money,” he says. “OECD countries are desperate. Desperate countries are doing desperate things. They have already started filing illegal fishing expeditions [group requests] with Switzerland.”
Caputo cites a group claim submitted by the Netherlands, which was declared illegal by one Swiss court – a ruling that was overturned on appeal last year. “When money is involved there is no space for legal arguments,” Caputo states. “Illegal arguments prevail in such a political playing field.”
Global policing bodies
Arrayed against offshore banking clients are a number of heavyweight global agencies, such as the Organisation for Economic Co-operation and Development (OECD), and the affiliated Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) and Financial Action Task Force (FATF).
Last month, JITSIC drew up a “target list” of 100 intermediaries after tax officials from 30 countries met in Paris to share Panama Papers intelligence. Supported by the OECD, JITSIC coordinates the tax evasion efforts of 37 member countries.
In a statement following its Paris meeting JITSIC vowed to “work closely with other domestic agencies to identify beneficial owners, and the role of intermediaries and institutions in facilitating tax evasion”.
Neither JITSIC nor the OECD would give details of what sort of offences these intermediaries have allegedly committed. But lawyers and other middlemen would find themselves in hot water if they intentionally try to hide untaxed assets indefinitely or failed to carry out background checks on clients or the sources of their money.
The Financial Action Task Force (FATF) also took aim at the regulation of middlemen despite giving largely positive marks in a report on Switzerland in December. It called on the Swiss regulator to more effectively audit self-reporting organisations that regulate financial intermediaries.
“The risks associated with the creation of companies in offshore centres or non-cooperative countries, and the role of financial intermediaries involved in the process to create them also needs to be assessed,” the FATF Switzerland report stated.
The role of lawyers, trust fund managers, accountants and other middlemen was highlighted by the International Consortium of Investigative Journalists when it leaked the so-called Panama Papers documents last year, focusing on Panamanian law firm Mossack Fonseca.
The ICIJ data shows that the Panamanian company Mossack Fonseca worked with 1,233 Swiss middlemen who created more than 34,000 offshore shell companies over the last 40 years. Only Hong Kong specialists were responsible for more creations (37,675).
In Switzerland, some activities of financial intermediaries are covered by anti-money laundering (AML) legislation. This applies chiefly when intermediaries take possession of assets and actively manage funds. They then come under the purvey of the Swiss financial regulator.
Even when AML does not apply, banking laws require intermediaries to know their clients or beneficiaries of funds and to reasonably ensure that assets are not connected to criminal activities.
When the activities of intermediaries are not covered by the financial regulator, they should be signed up to one of 12 self-reporting organisations which cover lawyers, insurers, asset managers, financial advisors and notaries. Self reporting helps protect client- layer confidentialtiy.
SROs come under the umbrella of the Swiss Financial Market Supervisory Authority (FINMA), which has the power to spot-check and audit their activities.