After another big leak of data, the wealth management industry must become less reactive and more assertive in making the case for legitimate privacy. And firms must co-operate with other stakeholders in foiling bad actors.
The wealth management sector must work better to show why the boundary between legitimate privacy and illegal activity matters, and be less reactive when problems hit, industry figures say.
The latest data “leak” from The International Consortium of Investigative Journalists – including details of 330 politicians’ financial affairs – throws more fuel on the fires of debate about respect for privacy. The Pandora Papers leak followed the Panama Papers and Paradise Papers revelations of recent years. (See related discussion here.)
The importance of financial privacy isn’t a big political issue – at least not when it appears that high net worth individuals, rather than the broader public, are in the potential net. However, that might change as central banks adopt digital currencies, for example, which might make it easier to track people's spending, saving and investing habits. Mainland China’s “social credit system” – granting or removing freedoms based on a score of how “well” a person behaves – could spread around other parts of the world. COVID-19 has seen governments require individuals to hand over health data in various track-and-trace programmes and through vaccination certificates held online.
How should the wealth industry address the aftermath of the Pandora Papers?
“The industry can do a better job of explaining the differences between privacy, legitimate tax efficiency, and unlawful tax evasion. The situation is better than five or 10 years ago,” Rob Rathmell, a lawyer at Kobre & Kim, told this publication. Rathmell is dual-qualified as an English barrister and US lawyer.
The line between legitimate and illegitimate secrecy has been “obliterated” by the consortium’s leak of the data, he said. The leak also raises questions about whether regulatory structures such as the European Union’s GDPR regime has been seriously violated.
“This is an invasion of privacy but not revealing anything that people didn’t really already know,” he continued.
“What we have now is a dangerous trend…it undermines the heroic work of investigative journalists in other fields. Instead, what this is about is journalists enforcing a sort of moral code of their own design. Everyone is entitled to a level of privacy,” Rathmell said.
“Separating legitimate funds from illicit funds is a real operational challenge from the financial institutions’ perspective,” Rachel Woolley, director of financial crime, at Fenergo, told this news service. “One thing we need to call out is that a lot people in these papers are not acting illegally. If their wealth is legitimate then it may be reasonable to use an offshore vehicle. The issue is with criminals using these vehicles to hide ill-gotten gains. Separating the two is the big challenge.
“It is interesting that we don’t yet know the true source [of the leaks]…. With the FinCEN files the whistleblower is now serving a prison sentence,” Woolley, who also spoke in this WEALTH TALK video, said.
Woolley’s FinCEN reference is to a former Financial Crimes
Enforcement Network (FinCEN) official who provided 2,100
suspicious activity reports to BuzzFeed News -
confidential banking documents that would form the basis of the
explosive “FinCEN Files” investigation. She was sentenced to six
months in prison. The person is Natalie Mayflower Sours Edwards,
a former senior advisor at FinCEN. She was sentenced in early
June this year.