‘Panama Papers’ Leak to Spur Governmental Inquiries

Editor’s note: This article was originally published on ACAMS moneylaundering.com.

The leak of millions of records purporting to show widespread exploitation of offshore financial centers by global leaders, lenders and criminals is expected to draw governmental scrutiny of illicit finance, however unevenly.

On Sunday, the International Consortium of Investigative Journalists (ICIJ), German newspaper Süddeutsche Zeitung and other media outlets said that the records obtained from a Panamanian law firm reveal offshore assets held on behalf of 140 public officials, including current and former leaders of Russia, China, Iceland, Pakistan, Ukraine, Saudi Arabia, Morocco and five other nations.

The law firm, Panama City-based Mossack Fonseca, has also aided Ponzi schemers, drug traffickers and celebrity tax dodgers to disguise their financial activity through some of the world’s largest banks with operations in offshore tax havens, according to the outlets, which reviewed a cache of 11.5 million records allegedly citing more than 214,000 corporate entities.

The revelations, which follow similar leaks of institutional data, could soon translate into new or expanded investigations.

“Any time something like this comes up, we always take a look to see how it may impact existing cases and if there are bases to open new cases,” said Douglas Leff, the FBI’s special agent in charge of the San Juan field division. “The FBI has a priority initiative in place to address these kind of issues and is ready when new facts such as these come to light.”

A U.S. Treasury Department spokesperson declined to comment on the specifics of the reports but said that the United States and its governmental sanctions enforcer, the Office of Foreign Assets Control, investigates possible instances of illicit financial activity “using all sources of information, both public and non-public.”

French financial prosecutors, in a statement Monday, said they would open a preliminary investigation of possible tax fraud based on the Panamanian law firm’s leaked documents, according to France24.

“The [data] will give us more of a reason to put the pressure on,” said Annaliese Dodds, a British member of the European Parliament, in an interview. “But it’s unfortunate that the information came through a leak.”

The political will to make use of the leaked data will vary among jurisdictions, according to Richard Murphy, a U.K.-based economist who studies tax havens. While the governments of Australia and Norway, for example, could soon act on the disclosures it remains unclear whether the United Kingdom will follow suit, he said.

“We could well see another whitewash because, quite simply, I don’t think they’ve given the HMRC the resources to deal with this,” said Murphy, echoing concerns also voiced by Dodds. “Elsewhere, the pressure is going to rise.”

An HMRC spokesperson said Monday that the agency is “fully resourced to tackle offshore tax evasion with the funding, expertise and technology needed to close in on tax dodgers” and that it “always acts on intelligence.”

Transparent Problem

The documents show some of the world’s largest banks working “hand-in-glove” with other entities to transfer assets on behalf of wealthy clients, including known criminals and blacklisted individuals, according to ICIJ and Süddeutsche Zeitung.

Of the nearly 15,600 shell companies created by Mossack Fonseca at the behest of over 500 banks between 1977 and 2015, approximately 15 percent stem from clients of HSBC and its affiliates, the report said. The British bank remains the subject of U.S. scrutiny following its $1.92 billion monetary settlement in 2012 for violations of anti-money laundering (AML) and sanctions rules.

In a statement, HSBC spokesman Robert Sherman said that the bank’s “policy is clear that offshore accounts can only remain open either where clients have been thoroughly vetted [for know your customer checks], where authorities ask us to maintain an account for the purposed of monitoring activity, or where an account has been frozen based on sanctions obligations.”

Credit Suisse, UBS, Commerzbank and Société Générale—all subject to U.S. Justice Department settlements since 2009—collectively registered thousands of shell companies with the Panamanian firm, ICIJ said. The banks have paid the United States a total $3.5 billion for violations of AML, sanctions and tax laws that resulted in prosecution-related agreements or criminal convictions.

Mossack Fonseca has also been the focus of regulatory scrutiny. In 2013, the British Virgin Islands’ Financial Services Commission fined the law firm $37,500 for failing to meet customer due diligence obligations for a high-risk client. Although the firm did not disclose the identity of other questionable clients, the agency upheld its license to operate in the jurisdiction, according to the Guardian.

The U.S. Office of Foreign Assets Control (OFAC) identified Mossack Fonseca in its 2008 sanctions designation of Ridgepoint Overseas Development Ltd before delisting the company in 2014.

Mossack Fonseca, which has separately been linked to Brazil’s “Operation Car Wash,” aided some 33 individuals and companies that have been included on U.S. sanctions lists, according to ICIJ.

Political Exposure

Although little-known in the public sphere before Sunday, the law firm counted some of the world’s most powerful leaders, or their close associates and family members, as clients, according to the reports.

Approximately $2 billion in transfers—some linked to swaps of corporate shares, the issuance of financial penalties and the sale of multimillion dollar loans for $1—have ties to close allies of Russian President Vladimir Putin, the news organizations said. The transactions benefited Putin’s inner circle and immediate family and bolstered the Russian leader power, they said.

Chinese President Xi Jinping and Ukrainian President Petro Poroshenko—both cast as reformers in their countries—have ties to offshore companies and assets linked to Mossack Fonseca, the organizations alleged.

Ian Cameron, the late father of British Prime Minister David Cameron, used the firm in 1982 to form Blairmore Holdings, an investment fund incorporated in Panama and run from the Bahamas that remains in operation today, according to the Guardian, which also reviewed the records. Cameron, like other global leaders, has vowed to fight the exploitation of secrecy jurisdictions.

The U.K. government under Cameron has pressured Britain’s overseas territories, including the British Virgin Islands, to create central or public registries identifying the owners of corporations—an effort that has seen limited success. As of February, the negotiations remained ongoing and the U.K. had relented in its demand that the databases be open to the public, according to a British parliamentarian.

The leaks also indicate the existence of seven offshore companies tied to Juan Pedro Damiani, an attorney who serves on FIFA’s ethics committee, and Eugenio Figueredo, a former vice president of the organization, which is separately the subject of multiple national corruption and bribery probes. U.S. officials arrested Figueredo last year on charges of corruption and have since extradited him to Uruguay.

The new organizations, which identified political figures and celebrities with apparent shell companies, noted that some of the offshore holdings did not indicate criminal activity.

Regulatory Focus

That the assets are held offshore, even when legitimate, reflects an international response to tightened financial rules back home, according to Richard Gordon, director of the Financial Integrity Institute at Case Western University. A recent focus by governments on identifying the beneficial owners of companies has proven challenging and ineffective, he said.

“With the new laws on criminal proceeds, if I had any of that kind of money, I would certainly not want to put it in my bank account, but not even in an offshore vehicle under my control,” said Gordon. “I would have a company set up in an offshore jurisdiction and have it in the name of associates functioning as my fronts.”

At the behest of the Paris-based Financial Action Task Force, the United States and other nations have promised tighter controls over corporate formation and, more recently, property markets.

“The timing of [the leaks] is exceptional, particularly because [the U.S. Treasury Department] just recently issued a geographical targeting order regarding money laundering through real estate, most notably focusing on cash or non-leveraged real estate transactions here in Miami and Manhattan,” said David Schwartz, chief executive officer of the Florida International Bankers Association.

For some in the financial compliance community, the disclosures held no surprises.

“What’s different is the geographic scope. We now have info we didn’t have before on what was always assumed to have been taking place,” said Ross Delston, a Washington, D.C.-based attorney who advises on AML compliance. “We know now that the scope is larger than we thought. It’s a phenomenon that encompasses countries like Iceland, which was viewed as being relatively low-risk.”

The involvement of Panama in financial dealings has been a “red flag for many years,” said Simon Dilloway, principal of Lopham Consultancy, “It’s possible banks might revisit their risk assessment of Panama.”

Irene Madongo, reporter, ACAMS, London, U.K., imadongo@acams.org

Valentina Pasquali, reporter, ACAMS, Washington, D.C., USA, vpasquali@acams.org

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