FINANCIAL PRIVACY, ANTI-MONEY LAUNDERING, TAX CRIMES, AND ANTI-CORRUPTION
Thursday, April 14, 2016
Posted by: Bruce Zagaris
This article was originally published in the April 2016 issue of the International Enforcement Law Reporter, www.ielr.com, a highly respected publication covering issues in criminal law, financial crime and more. It is reprinted with the kind permission of attorney, financial crime expert, and ACFCS Advisory Board member Bruce Zagaris.
By Bruce Zagaris
April 14, 2016
On April 3, 2016, the International Consortium of Investigative Journalists (ICIJ) published a series of stories about a massive leak of documents from Mossack & Fonseca, a Panamanian law firm that is reputedly the largest corporate formation agent in the world with branches in Hong Kong, Miami, Zurich, and more than 35 other places around the world. The files cover from 1977 through the end of 2015 and reveal the offshore holdings of 140 politicians and public officials from around the world. Current and former world leaders in the data include the Prime Ministers of Iceland and Pakistan, the President of Ukraine and the King of Saudi Arabia. More than 214 offshore entities appear in the leak, connected to people in more than 200 countries and territories.
The cache of 11.5 million records reveals how a global industry of law firms and big banks sell financial secrecy to a wide variety of clients, including politicians, fraudsters and drug traffickers, as well as billionaires, celebrities and sports stars.
A team of more than 370 journalists from 76 countries reviewed the leaked records.
The files reveal offshore companies controlled by the Prime Ministers of Iceland and Pakistan, the King of Saudi Arabia and the children of the president of Azerbaijan.
The cache also has data on at least 33 persons and companies blacklisted by the U.S. government because of evidence that they had been involved in wrongdoing, such as doing business with Mexican drug lords, terrorist organizations like Hezbollah or rogue nations like North Korea and Iran.
- Politically Exposed Persons and Grand Corruption
Political leaders who have led anti-corruption initiatives ironically are prominent in the leaked documents. The files reveal offshore companies linked to the family of Xi Jinping, China’s top leader who has promised to fight “armies of corruption.” The data also discusses companies connected to Ukrainian President Petro Poroshenko, who has promised anti-corruption reform. The data provide new details of offshore dealings by the late father of British Prime Minister David Cameron, a leader in corporate transparency and tax transparency.
Thousands of Icelanders took to the streets of Reykjavik on April 4 to demand the resignation of Prime Minister Sigmundur David Gunnlaugsson following the disclosure by ICIJ, Reykjavik Media, and SÜddeutsche Zeitung that he and two members of his cabinet had owned or controlled secret offshore shell companies.
On April 5, Iceland’s president refused a request from Prime Minister Gunnlaugsson to dissolve parliament and call snap elections, according to the Guardian.
After initially refusing to resign, Gunnlaugsson tendered his resignation on the afternoon of April 5.
The leaked files show how Prime Minister Gunnlaugsson and his wife secretly owned an offshore firm that held millions of dollars in Icelandic bank bonds during that country’s financial crisis.
Gunnlaugsson has said that his wife’s overseas assets were taxed in Iceland and no tax wrongdoing occurred. However, critics say the findings of the Panama Papers raised questions about conflicts of interest and other possible improprieties nearly eight years after Iceland’s banking system collapsed amid the global financial crisis.
According to an Icelandic government spokesman, the company owned by Anna Sigurlaug, Gunnlaugsson’s wife, held bonds totaling more than $4.1 million in some of the collapsed banks. The leaked documents give rise to the accusations of possible conflicts by Gunnlaugsson, who oversaw negotiations with the banks’ creditors.
The records disclose a pattern of covert maneuvers by banks, companies and people linked to Russian leader Vladimir Putin. The records show offshore companies linked to this network moving money in transactions as large as $200 million at a time. Putin associates disguised payments, backdated documents and gained hidden influence within the country’s media and automotive industries.
- FIFA and Soccer
According to the ICIJ reports, the leaked documents show that the law firm of Juan Pedro Damiani, a member of FIFA’s ethics committee, had business relationships with three men who have been indicted in the FIFA scandal – former FIFA vice president Eugenio Figueredo and Hugo and Mariano Jinkis, the father-son duo accused of paying bribes to obtain broadcast rights to Latin American soccer events. The records indicate that Damiani’s law firm in Uruguay represented an offshore company linked to the Jinkises and seven companies linked to Figueredo.
In response to the news reports by the ICIJ and its media partners, FIFA’s ethics panel has started a preliminary investigation into Damiani’s relationship to Figueredo. A spokesman for the committee said Damiani first informed the panel about his business connections to Figueredo on March 18. This occurred one day after the reporting team sent questions to Damiani about his law firm’s work for companies tied to the former FIFA vice president.
The new data shows that Lionel Messi, the renowned Argentine soccer player, and his father owned a Panama company, Mega Star Enterprises, Inc. His offshore transactions are currently in litigation in a tax evasion case in Spain.
- Roles of Gatekeepers
The documents raise issues about the roles of gatekeepers in the structuring and formation of entities. Ramon Fonseca, is quoted as saying the firm has no responsibility for what clients do with the offshore companies the firm sells.
Recently the German and Brazilian governments are reportedly investigating the firm as a result of the partial leaks of the firm’s files.
In February 2015, Süddeutsche Zeiting reported that German law-enforcement agencies had started a series of raids targeting one of the country’s largest banks, Commerzbank, in a tax-fraud investigation that authorities said could result in criminal charges against Mossack Fonseca employees.
German tax authorities bought a smaller number of Mossack Fonseca documents from a whistleblower, resulting in raids in Germany in early 2015. These files have reportedly since been offered to tax authorities in the U.K., the U.S., and other countries.
In Brazil, authorities are reportedly investigating the firm for bribery and money laundering, as part of the “Operation Car Wash” (“Lava Jato”) investigation, which has led to criminal charges against leading politicians, an investigation of popular former president Luiz Inacio Lula da Silva, and an impeachment attempt against Brazilian President Dilma Rousseff.
Ramón Fonseca resigned his position as adviser to Panamanian president Juan Carlos Varela after his law firm was caught in “Operation Car Wash.” Mossack Fonseca closed its Brazilian office after individuals who had opened accounts with the firm were implicated in the kickback scandal. Fonseca said the investigations had not mounted to anything and the firm may reopen its Brazilian office in the future.
The ICIJ reports allege that Mossack Fonseca may have helped persons involved in laundering money for the Brink’s-Mat plotters.
Sixteen months after a major robbery, Mossack Fonseca allegedly formed a Panama shell company called Feberion Inc. Jürgen Mossack was one of the company’s three “nominee” directors. An internal memo written by Mossack indicates he was aware in 1986 that the company was “apparently involved in the management of money from the famous theft from Brink’s-Mat in London. The company itself has not been used illegally, but it could be that the company invested money through bank accounts and proprieties that was illegitimately sourced.
The Mossack Fonseca records from 1987 allegedly show fugitive money launderer Parry Gordon was behind Feberion. The law firm allegedly helped prevent British police from gaining control of the company.
After police obtained the two certificates that controlled the company’s ownership, Mossack Fonseca allegedly arranged for Feberion to issue 98 new shares, thereby depriving the British police from obtaining control of the company.
Only in 1995, three years after Parry went to prison for his role in the robbery, Mossack Fonseca terminated its business relationship with Feberion.
A Mossack Fonseca spokesman said the allegations the firm helped hide the proceeds of the Brink’s-Mat robbery “are entirely false.”
British Virgin Islands authorities fined Mossack Fonseca $37,500 for violating anti-money laundering rules because the firm incorporated a company for the son of former Egyptian President Hosni Mubarak but failed to identify the connection, even after the father and son were charged with corruption. 
Ramón Fonseca said his firm did not deal with end-clients directly and that in its early days, before the introduction of tougher global and Panamanian regulations and know-your-customer laws, it would not even have known their identities. He observed that some of the files leaked dated back to the 1980s and its firm has opened more than 250,000 companies. He characterized its standards as “very high”.
- Tax Transparency
After the ICIJ revelations, Pascal Saint-Amans, the head of Tax Division at OECD, said “there will be political pressure and commercial pressure” on Panama. The OECD has criticized Panama for not agreeing to participate in the Common Reporting Standard (CRS). The OECD has not mentioned the U.S. even though the U.S. has not signed the CRS and recently the IRS Commissioner Mr. Koskinen has said the U.S. needs authority from Congress before it can sign. In February 2016, the Financial Action Task Force removed Panama from its “grey list” of anti-money laundering high-risk countries after the FATF said it recognized Panama had “made significant progress” in improving its AML regime (e.g., tightening its rules on bearer shares at the end of 2015).  Panama had been on the grey list since 2014. Some governments will take advantage of the Panama papers to put Panama on a blacklist. On April 5, 2016, French tax authorities restored Panama to their list of non-cooperative countries. The Panama papers increase pressure for regulators and law enforcement to impose increased pressure on small international financial jurisdictions to increase their regulatory standards.
The Caribbean Community, in a statement, said the loose attribution of the ‘tax havens’ label ignores the reality that the regulation of this sector in CARICOM is fully compliant with international standards.
Prior ICIJ stories and data dumps have led to legislation and official investigations in dozens of countries and scared offshore customers concerned that the public and especially law enforcement authorities will learn of their secret investments.
The International Consortium of Investigative Journalists is a global network of more than 190 investigative journalists in more than 65 countries who collaborate on in-depth investigative stories. They had a project called “Secrecy for Sale: Inside the Global Offshore Money Maze.” Their findings included that: government officials and their families and associates in China, Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Mongolia and other countries have embraced the use of covert companies and bank accounts; the mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people; many of the world’s top’s banks – including UBS, Credit Suisse and Deutsche Bank – have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways; a well-paid industry of accountants, middlemen and other operatives has helped offshore patrons shroud their identities and business interests, providing shelter in many cases to money laundering or other misconduct; and Ponzi schemers and other large-scale fraudsters routinely use offshore havens to pull off their shell games and move their ill-gotten gains.
Another ICIJ project has been “Lux leaks.” On November 16, 2015, representatives from some of the world’s best known multinational companies, including Disney, IKEA, Google and HSBC, faced a grilling from European parliamentarians, part of a probe into corporate tax policies initiated following the publication of ICIJ’s Luxembourg Leaks investigation.
Eleven of the thirteen multinational corporations invited to participate sent representatives to the final meeting of the European Parliament’s TAXE Committee.
The committee was established after ICIJ’s Luxembourg Leaks investigation revealed how secret agreements between Luxembourg authorities and some of the world’s biggest multinational corporations allowed more than 370 companies - including Disney, IKEA, Pepsi and Deutsche Bank - to avoid billions of euros in taxes on profits channeled through Luxembourg.
“The time has come to end this and to replace the law of the jungle. So when it comes to company taxation there will be a before and after LuxLeaks,” Lamassoure said in opening the committee hearing.
Questions from MEPs ranged from grilling companies over operations in known tax havens to quizzing their representatives about whether the companies would support transparency measures such as public country-by-country reporting of profits.
Undoubtedly investigators and prosecutors will read the ICIJ reports and use them to start investigations. Already, law enforcement authorities in the U.S., Germany, U.K., France, Spain, Australia, Costa Rica, Austria, Belgium, India, Sweden, Mexico, and Norway have started law enforcement investigations. Most likely, civil society will use the information to demand better transparency form governments and international organizations.
Answers varied, but most companies used the opportunity to reiterate that their corporate structures and tax activities complied with all relevant laws, and that they would continue to comply with tax laws and policies as they change in each jurisdiction.
The revelations show that financial privacy is a thing of the past.
 International Consortium of Investigative Journalists (ICIJ), Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption, Apr. 3, 2016 https://panamapapers.icij.org/20160403-panama-papers-global-overview.html
 Id. With respect to China see also Ana Swanson, More relatives of Chinese leaders cited in Panama Papers, Wash. Post, Apr 7, 2016.
 Ryan Chittum and Hamish Boland-Rudder, Investigations, protest, and call for election in Iceland as world responds to Panama Papers, Apr. 5, 2016 https://panamapapers.icij.org/blog/20160405-global-response.html
 Brian Murphy and William Branigin, Iceland’s premier offers to step down, Wash. Post, Apr. 6, 2016, at A1, col. 1. See also Steven Erlanger, ‘Panama Papers’ Put Scrutiny on Iceland Leader’s Offshore Holding, N.Y. Times, Apr. 5, 2016, at A10, col. 1.
 International Consortium of Investigative Journalists, Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption, supra. Michael Birnbaum, Kremlin denies Putin is linked to alleged secret bank accounts, Wash. Post, Apr. 5, 2016, at A7, col. 1.
 International Consortium of Investigative Journalists, Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption, supra.
 Jude Webber, Mossack Fonseca founder dismisses Panama Papers as ‘witch hunt’, Fin. Times, Apr. 5, 2016.
 Webber, supra.
 Vanessa Houlder, Jim Brunsden and Catherin Belton, Panama faces pressure to come into the fold, Fin. Times, Apr. 4, 2016.
 Kejal Vyas and Juan Forero, Panama Chafes at Its Rap as Money-Laundering Center, Wall St. J., Apr. 6, 2016, at A11, col. 1.
 Tom Fairless, Tax Haven Crackdown Leads to Global Whack-a-Mole, Wall St. J., Apr. 6, 2016, at A11, col. 1.
 CARICOM concerned about resurgence of 'tax havens' label in wake of Panama Papers leak, Caribbeannews.com, on April 9, 2016.
 Houlder, Jim Brunsden and Catherin Belton supra.
 International Consortium of Investigative Journalists, Secrecy for Sale: Inside the Global Offshore Money Maze, http://www.icij.org/offshore.
 Chittum and Boland-Rudder, supra.
 Editorial, The Panama Papers in perspective, Wall St. J., April 5, 2016.
 Hamish Boland-Rudder, Companies grilled by EU politicians over tax dodging, Nov. 17, 2015 http://www.icij.org/blog/2015/11/companies-grilled-eu-politicians-over-tax-dodging