Your foreign structures could be vulnerable to data leaks

South Africa

Your foreign structures could be vulnerable to data leaks - consider what the consequences of that could be

The release of the Pandora Papers shows that, in the modern world, where data is easily accessible and manipulable, there are numerous channels through which persons with illegitimate structures can be detected.

Clearly, not all estate planning structures, and in particular offshore estate planning structures, contravene regulations or are in any way improper. Many structures are carefully implemented to ensure a range of legitimate outcomes, including seamless succession for descendants and asset protection, to name a few.

However, there are still many structures that may not be fully compliant with the law, or the ultimate beneficial owners of the structure are not certain whether or not the structure complies with all legal requirements. Of course, where one has an offshore structure, there may be regulations in more than one jurisdiction which one needs to adhere to.

Over and above data leaks such as the Pandora Papers, governments are also exchanging information under programmes like the Common Reporting Standards, which is a multi-lateral agreement to exchange information about assets held by nationals of one state in another jurisdiction. It is thus more important, now more than ever, to ensure that structures are robust.

What sort of things should one consider to make sure that your structure is not vulnerable to attack?

Firstly, documentary evidence is important: there should be a long trail of transactional and recorded information available, including:

  • audited financials of the various entities within the structure;

  • records of resolutions passed by the administrators of the structure and minutes of meetings held;

  • transactions with the structure, such as funding transactions (a loan or donation) should be recorded in agreements.

Small due diligence regarding the recorded history of the structure can be easily carried out and supplemented if there are gaps.

Opinions should be sought from appropriate professionals. These can either be done ideally at the time of the transaction or in arrears, if necessary. However, cross-border transactions are necessarily complex, and not obtaining advice leaves one vulnerable when questions are asked. Obtaining cheaper advice from the wrong people (for example structuring parties who are not registered tax professionals) can also leave one vulnerable if the advice is not properly formulated. While engaging consultants is expensive, it is a necessary part of ensuring that the structure is robust and can withhold scrutiny and that all required disclosures to regulators have been made.

Touch base with the administrators of your structure and make sure you know who they are reporting to and what information is being passed to ensure that you are comfortable with it. Lastly, make sure that their cyber security standards are up to scratch.