Defamation and Reputational Damage – Disclosures of Involvement in Tax Avoidance and Tax Evasion
DEFAMATION AND REPUTATIONAL DAMAGE
DISCLOSURES OF INVOLVEMENT IN TAX AVOIDANCE AND TAX EVASION
Mossack Fonseca was a Panamanian law firm and corporate service provider which provided services to a wide range of influential business people and wealthy individuals across the world.
In early 2015, a hacker using the pseudonym “John Doe” began leaking confidential documents about the 200,000 offshore companies established by Mossack Fonseca. 11.5 million confidential documents have now been leaked. The leaks detail financial information about offshore investments and include the identities of shareholders and directors of offshore companies. These include Australia, British and European Prime Ministers and leaders!
Of course, there are many reasons why a person may wish to set up an offshore company. Most are for legitimate business purposes and are entirely legal. The problem for these innocents is that the press have focused on the illegal uses of offshore companies for fraud, drug trafficking, prostitution, money laundering and tax evasion and they are being tarred with the same brush. No one likes a story about an innocent taxpayer lawfully structuring his or her affairs.
This means that the mere publication of the identify of an individual shown to be using an offshore structure, even if it is legitimate, could cause that person significant damage. The person’s reputation will have been effected adversely.
What type of legal remedies would be available for such an innocent or law abiding business person?
The clients whose affairs have been exposed may have claims against Mossack Fonseca in negligence, breach of confidence and breach of data protection legislation for failing to secure their private and confidential information. However, if this information is published to a wider audience, and is picked up in the local, national or international press or social media networks, what rights would such a client have?
If an allegation is published that the client is corrupt or is in engaged in illegal activities by virtue of his, her or its association with Mossack Fonseca, then this allegation may be defamatory. If the allegations are true, then an action in defamation may lie against the publisher. Remedies include the removal of the allegations from online sources, the publication of a correction and apology, an injunction restraining further publication and payment of damages. However, if the allegations are true, the publisher may have a complete defence against the client.
The publisher may also argue that their publication is in the public interest. The success of such a defence might depend upon whether the individual exposed as being involved in an offshore structure is in the public arena and, if so, what their stance has previously been on offshore tax avoidance schemes. For instance, if the individual is a politician and has previously been outspoken on the subject of tax avoidance, a court might conclude that it was in the public interest to correct a hypocritical public image.
Some publishers might try to avoid liability for any potential defamation action by simply publishing the facts without any commentary. The problem they will face is that entirely lawful tax planning and unlawful tax evasion are often perceived by many people to be the same in the current media environment. The publication of an article which simply sets out the facts might still be understood by a member of the general public to be imputing an allegation of dishonesty or corruption about the client of Mossack Fonseca. This would especially be the case if a link were drawn in the article between the individual involved and someone who was already known to be corrupt or disreputable in the area of tax evasion. If so, the mere publication of the facts could potentially be defamatory.
Another cause of action is for breach of confidence. The Panama Papers leaked from Mossack Fonseca are confidential legal documents and are likely to be covered by legal professional privilege. Any claim by a client for breach of confidential information will face difficulties. Again, if the documents which were leaked reveal a dishonest intent such as to engage in taxation evasion or which relate to the commission of a crime or fraud, then legal professional privilege will not apply anyway. The activities are illegal and there is a public interest in exposing them.
What if the documents leaked concern activities that were plainly legal? It is not illegal to obtain advice relating to offshore tax planning. However, the publisher will argue that tax avoidance schemes also fall within the public interest in the current climate and that there is no breach of confidence. This will be a key battleground in the reputational sphere.
Any individuals considering the commencement of legal proceedings for a breach of confidential information as a result of a leak from a confidential source such as a law firm or bank is advised to proceed cautiously and take legal advice before responding to reputational threats made by the disclosure to publishers.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.
For any further information concerning this article, please contact Michael Pickering, Principal, Judicate Lawyers – Barristers and Solicitors of Unit 11 / 233 Cardigan Street, Carlton, Victoria, 3053. His contact details are as follows: