WASHINGTON, April 6, 2016 — A massive leak of financial records from a Panamanian law firm revealed an extensive network of offshore “shell companies” set up on behalf of wealthy and powerful people from around the world.
The leak included more than 11.5 million files from Panamanian law firm Mossack Fonseca & Co, showing how the firm hid funds around the world using a complex web of shell companies. The documents show that world leaders, including Russian President Vladimir Putin and Syrian dictator Bashir al-Assad, hid trillions of dollars in secret accounts.
The documents, originally obtained by a Munich newspaper, detail financial activities of a wide variety of the worlds most powerful people. they detail secret offshore companies linked to families of Egypt’s former President Hosni Mubarak and Libya’s former dictator Muammar Gaddafi. Also included is Ian Cameron, the late father of British Prime Minister David Cameron, who died in 2010.
It also details a money-laundering ring controlled by a Russian bank which was owned by one of Putin’s closest allies and implicates FIFA president Gianni Infantino in a bribe deal he made with TV rights dealers to air FIFA matches.
The illegal financial activities were hidden from the public thanks to a web of shell companies, used to cloak the true owners of the accounts. A shell company is a corporation without any active business or operations. It may have had operations in the past that have become dormant or been wound down.
Shell corporations have long been used to commit fraud, because they are difficult to trace or identify. In many jurisdictions, including Panama, lax corporate laws allow the true owners or beneficiaries of a company to remain hidden.
One surprising revelation of the Panama Papers is that there so far are no Americans involved in the massive scandal. However, this does not necessarily mean Americans are not involved. Instead, it suggests that US citizens used law firms, local registered agents, or other mechanisms to conceal their involvement. After the 11 million pages are digested and investigated, there are likely to be more individuals named, some of which almost certainly will be American.
The move to offshore havens, such as Panama, has increased over the last several years as international banking laws have strengthened. The U.S. require financial institutions including banks, credit card companies and life insurers to report certain transactions to the Department of the Treasury. Cash transactions in excess of a certain amount must be reported on a currency transaction report (CTR), identifying the individual making the transaction as well as the source of the cash.
The law originally required all transactions of US$5,000 or more to be reported, but due to excessively high levels of reporting the threshold was raised to US$10,000.
UK money laundering offences are not limited to the proceeds of serious crimes, nor are there any monetary limits. Financial transactions need no money laundering design or purpose for UK laws to consider them a money laundering offence. A money laundering offense under UK legislation need not even involve money, since the money laundering legislation covers assets of any description.
The reach of the individuals involved in the financial plunder revealed in the Panama Papers is breathtaking, and the leak is likely to ripple through governments around the world. Already, the Prime Minister of Iceland has resigned after revelations of misdeeds, and others are likely to follow. In countries like Brazil, already reeling from a major government scandal, more revelations could be staggering, threatening the stability of the country ahead of the Summer Olympics.
Countries around the world will have to grapple with loss of public trust while also attempting to recover significant amounts of monies stolen from public treasuries.
The only question now is how deep and wide the investigation of financial impropriety will spread, and whose heads will roll.