International long-standing law firm with a major information leak, exposing the seedy under belly of the world’s elite, with governments scrambling to cover their own crafty investments. Sounds like the latest John le Carré novel, but as we all know it is actually the fiasco that’s come out of Panama. Mossack Fonseca, the Panama based law firm, leaked 11.5 million documents, touching an already exposed nerve around socio-economic disparity.
While the political grandstanding make for a more refined version of Big Brother, it became dicey recently when direct rule was proposed as a solution to HMRC’s 17,000 page tax code. The wide reaching ramifications on the Channel Islands, the Isle of Man, Gibraltar and other offshore jurisdictions, boggles the mind.
The tidal wave of regulation that has washed over these jurisdictions since the financial crisis has brought about considerable reform. Firms of all shapes and sizes have had bright lights shone into their darkest corners, and some have off loaded countless clients or even shuttered offices. Many firms based in Crown Dependencies and Overseas Territories prided themselves on early adoption of new regulations, and so the most recent bad press is tearing open a wound that was already on the mend.
Like a global game of dominoes, the effects from the Panama leak are already being felt in Offshore jurisdictions. Some would say that the leak will have long-term positive effects; fewer tax havens, more regulation, and more taxable income to fund social benefits. But the positives are still a long way off. The short- term effects have been immediate and impactful. Many people feel outraged, hard done by, and thoroughly aggrieved. Panama has acted like a wedge, further dividing the classes. Parliamentarians are calling for sweeping change without cause. And newspaper headlines agitate the masses, while spreading fallacy.
Misunderstanding about these jurisdictions, misrepresentation of information about trusts and tax laws, and general malcontent around tax havens could adversely affect these economies. High net worth individuals will not stop their investments, and an over haul of global tax law is years (if not decades) in the making, but the battle for talent in these jurisdictions will become an all-out war. The most prevalent and immediate result of the Panama leak has been a severe lack of talent. There are two talent pools for offshore jurisdictions; on-island candidates and off-island candidates and each have their own advantages and disadvantages. Locals know the island, the community, the regulations, the challenges (the fog!), and the opportunities. Relocators offer a fresh perspective, more resource in a tight hiring market place, niche experience not found on island, and are often looking for a long-term move to add to a new community. The economy cannot be successful without both.
The Panama leak has been like a piranha in the relocation pool. Relocators now fall into a sliding scale ranging from unreceptive to a move, to wary of the legalities of a role in one of these offshore jurisdictions. Some are still interested in a move, but now for the wrong reasons. They want to move for money. Not for the community, not for career progression, not for the long term, but for the short term financial advantages. And these type of people, while open to a move, could have other negative long-term effects on offshore jurisdictions.
As for the on-island candidates, already the best staff are poached, seldom moving from firm-to-firm. If they don’t move, they often stay in situ on an overstuffed salary (ensuring they won’t be leaving any time soon, nor will they have another pay review for the foreseeable future). The game of cat and mouse creates an untenable culture of wage inflation. Firms unwilling to pay a bumper salary are left without essential staff. As a buoyant industry, there is a continuous need for fund accountants, lawyers, business developers, trust administrators and all the business support staff in between. Continuing it’s upwards trajectory, the wage inflation creates a real world game of Jenga, with professionals as the building blocks. To overcome shortages and ever growing wage inflation, there has historically been a healthy flow of talent from all over the world to these offshore jurisdictions… but not right now.
There is no quick fix, but steps are being taken as more firms are employing internal recruitment functions and wide spread advertising campaigns to raise awareness about the locations, and a different career path. As part of the solution, Michael Page Offshore partners closely with both our clients and candidates, talking knowingly about the jurisdictions and the opportunities on offer there. With more information being published daily, all eyes will continue to be on locations like the Channel Islands and the Isle of Man. As politicians fumble their way through this tax quagmire, the talent war will rage on.
To find out more about our capabilities, speak to someone at Michael Page Offshore today.
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