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  • Writer's pictureD.R.

Pandora Papers – opinions and reactions from the compliance community

Are we, in the financial crime prevention space, getting numb towards leaks – we’ve had Panama Papers, Paradise Papers, FINCEN Files, Bahamas Papers, and more?

The news and headlines these days are reserved for the findings in the newest, largest leak from the offshore world – Pandora Papers.

The presented so far information involves politically exposed persons, celebrities, and information on shell companies. But besides the news, we found it interesting to observe the compliance community responses and analysis of the unveiling leaks. We dug into our LinkedIn feed and recent opinions shared from experts to present what the “tsunami” of information makes us think of.

We aren’t really shocked, however…

Certainly, some of the information we see isn’t shocking (at least for our community). We are familiar with the threats posed by secrecy locations, we should be aware of sources of wealth, tax avoidance, risks associated with PEPs and etc. There are voices, reminding us that it is different between tax evasion and tax avoidance and that it is not always for illicit reasons that offshore entities are established. For example, an article of the Spear’s “Pandora Papers: In defence of offshore trusts” compared this leak to “data theft”, as they claim often offshore is a choice for privacy reasons and tax optimization.

Some even say the Pandora box of papers is “an empty box of useless information” (Richard Paxton in his “Pandora’s Box of Papers is Empty”). We, at Compliance Time, do not believe in useless information, we still think there are lessons to be learned from this leak. As Graham Barrow (The Dark Money Files) puts it in his LinkedIn post: “Whilst these are important stories, they add nothing new to the conversation. However, they deeply reinforce what we already know.

On a more positive note, as mentioned by Alison Taylor, the difference is that now there is growing awareness and concern over offshore finance. While she recognizes the consequences from these leaked details are rather limited, “the impact on public consciousness from the work of the International Consortium of Investigative Journalists (ICIJ) is remarkable and is having a massive long term impact on how we think about power, opportunity, and more.”

… we focus on what we do best.

There are also multiple compliance experts and people working in the domain who are ready to do the work – pick up all the stories and double the effort in the fight against money laundering and illicit finance.

We are reminded across LinkedIn that as compliance professionals, we are to stay away from the scandals and focus on the anti-money laundering program risks highlighted by "Pandora Papers" (Brett Wolf). Because the juicy gossip detracts from the point that should be made – we must keep the focus on legislation change, and proceed to do our work in due diligence. As Jim Richards (RegTech Consulting LLC) said “if we're going to learn, re-learn, forget, re-learn anything from the ICIJ's "Papers" series (Panama in 2015, Paradise in 2017, now Pandora in 2021, sprinkled with Mauritius Leaks in 2019 and the FinCEN Files in 2020), it's that the common element is the professional enablers that enable these mopes and mobsters to move and hide their ill-gotten gains. As the OECD put it so well, we need to end the shell game by cracking down on professionals who enable tax and white-collar crime.

"Under God the People Rule"

It seems that ICIJ managed to open Pandora’s box at a time when tax transparency and fairness are very much in the public eye. In the 2020 Financial Secrecy Index prepared by the Tax Justice Network, the US ranks second, only behind the Cayman Islands. As reported in Bloomberg Tax by Kelly Phillips Erb, “a high ranking, the organization notes, doesn’t necessarily mean a country is more secretive but does mean that “the country plays a bigger role in enabling wealthy individuals and criminals to hide and launder money extracted from around the world.”

“Nearly 30 of the U.S.-based trusts examined in the Pandora Papers—about 15% of those examined—held assets connected to people or companies accused of fraud, bribery, or human rights abuses.”

As reported by Washington Post, South Dakota is now considered a top destination for global wealth, trust companies oversee more than $360 billion in assets, state data shows. The Post and the ICIJ investigation identified a series of international clients who moved their assets into trusts in South Dakota in recent years, including a Colombian textile mogul implicated in an international scheme to launder drug proceeds and a Brazilian orange juice executive accused of colluding to underpay local farmers.

The U.S. has traditionally resisted calls to reveal ownership of assets inside its own borders, despite our insistence that other countries, like Switzerland, do so. According to the ACAMS Analysis, in addition to the beneficial ownership, another issue is the misuse of “legal persons.” As Rosalind Lazar stated, “misuse” is not just about the formation of the legal person, it is also about the illegal purpose of that legal person’s account. “If there is a misuse of a legal person, the true beneficial owner should be prosecuted for money laundering or for misappropriation, corruption, tax evasion, sanction evasion or other predicate offenses.”

Did hope come out of the box?

In the myth about Pandora’s box, after all evil was released from the box, hope remained closed inside. For the Pandora Papers, it seems that hope for change is not entirely trapped. There are legislative and regulatory measures underway that can assist in the battle against illicit money, corruption, and financial crimes.

Experts wrote in ACAMS article about past efforts in improving the regulatory environment such as the 2016 London Anti-Corruption Summit, EU’s Fifth AML Directive that required members states to establish public registers of beneficial ownership data by January 2020, and U.K.’s proposed draft legislation in 2018 to set up a register for overseas entities and their beneficial owners, which still needs to be moved through parliament.

Additionally, there are efforts on the US side with the Corporate Transparency Act (CTA) which requires businesses to identify their true beneficial owners to the Treasury Department; the registry of those owners will not be publicly available but will be accessible to law enforcement and regulatory agencies. The Treasury Department has started the associated rulemaking, which is due by January 2022 (Jodi Vittori). And finally, the ENABLERS Act proposed by a bipartisan group of lawmakers aims to introduce requirements for trust companies, lawyers, art dealers, and others to investigate foreign clients seeking to move money and assets into the American financial system.

All of these efforts are not yet complete, and most certainly it will be a challenging task, considering the longstanding offshore game and practices. But hope is not dead yet.




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