Pandora’s box was recently opened when a major leak of the personal financial information of many of the world’s most rich and powerful individuals resulted in 6.4 million documents, nearly three million images, over one million emails, and half a million spreadsheets falling into the hands of the International Consortium of Investigative Journalists (ICIJ), working alongside hundreds of international media outlets. For months, journalists have been sorting through the collective smorgasbord of classified documents and digging up all types of dirty laundry. Early results of what has evolved into one of the largest multinational journalism investigations in world history have revealed striking findings that include money laundering, tax evasion and other significant financial crimes by individuals and organizations. These revelations are opening the eyes of many as to just how deeply entrenched illicit finance remains in every day life on a global scale.
Among the more notable names revealed in the leak were retail tycoon Sir Philip Green and his wife, Tina “Lady” Green, who were found to have gone on a luxury property-buying spree after off-loading their struggling BHS retail store chain, which ultimately went on to completely collapse less than a year after the sale. The King of Jordan, Abdullah II bin Al-Hussein, was caught spending £70m to build a multinational property collection in the UK and US via a network of secretly-owned firms established to keep his identity a secret. Other unnerving financial improprieties spilling into the real estate market unveiled in the Papers involved Azerbaijan’s leading family’s hidden involvement in property deals in the UK worth more than £400m, while also revealing that Czech prime minister Andrej Babis – who was up for re-election earlier this month – failed to declare an offshore investment company used to purchase two French villas for £12m.1 Sadly, the list of transgressions from many once-trusted public officials goes on and on.
In all, more than 330 politicians from 90 different countries were exposed for unethical activities of some form as part of the Pandora Papers – with the common denominator in most cases being the use (or misuse in this case) of offshore properties and shell companies to conceal the origin of their funds and ultimately their respective identities. Despite legislation being developed in many developed countries to snuff out the use of sophisticated networks of faux-companies for the sole purpose of hiding money and attempting to obfuscate any form of paper trail for financial criminals and politically exposed persons (PEPs), clearly there are still ways around these safeguards – at least for the time being. Unfortunately, it is not difficult for individuals (especially extremely wealthy ones) to create new, seemingly legitimate companies in various countries around with the world with weak money laundering laws (i.e. tax havens) for the purpose of exploiting the global financial system for personal gain. Countries that are synonymous with practices of this variety (i.e. those that effectively turn a blind eye to overseeing incorporation from multinational firms regardless of potential red flags, while also providing minimal tax liability to foreign enterprises and individuals) also generally have little to no legislation in place to identify layers of ownership within companies. Universal examples of such jurisdictions would include the Cayman Islands, the British Virgin Islands, and Switzerland.
Though the use of these havens often suggests having something to hide, storing money offshore in various countries is not in and of itself an illegal practice. It cannot be proven than someone is breaking laws or laundering money simply from having knowledge that they have offshore bank accounts or are direct investors in foreign companies. The problem is that it is nearly impossible to know how much of the money found offshore across the global financial system is of illicit origin, much less if it is being used for illegal means. The International Consortium of Investigative journalists (ICIJ), which has been leading the coalition of journalists examining the Pandora Papers, estimates that between $5.6 and $32 trillion dollars are hidden in tax havens around the world.1 Given that this incredibly large sum is virtually untouchable, estimating what percentage is possibly criminal is all but unthinkable. Granted, the ease with which individuals and organizations are able to effectively hide money through this method ensures that at least some percentage of offshore accounts have nefarious motives behind them.
While the practice of cracking down on tax havens and illicit offshore activity remains an uphill battle, several international alliances in the fight against money laundering and other forms of illicit finance have vowed to continue to modify their efforts in response to these destabilizing activiites. Last week, the Financial Action Task Force (FATF) – an intergovernmental body founded by the G7 to develop policies to fight money laundering and terror financing activity – issued a public statement in which they stressed just how urgent the need to take action against the misuse of shell companies has become. In a press release, issued on October 21st, representatives for the agency revealed that they have been leading work to update international requirements on the transparency of beneficial ownership. Furthermore, the group will reportedly be releasing proposed amendments to the esteemed FATF Recommendations for public consultation in this regard. These amendments will “require all countries to take additional measures to mitigate the risks – including prohibiting the issue of bearer shares globally and requiring countries to establish a beneficial ownership registry or use an alternative system that also enables efficient access to beneficial ownership information by competent authorities.”2 Despite the work to be done, the FATF did acknowledge some progress has been made in recent years as over 200 countries worldwide have committed to require their financial institutions to identify beneficial ownership in one way or another. However, the verbal commitments from many of these countries have largely been superficial as just one third of evaluated countries have laws and regulations related to ownership transparency that are up to the FATF’s lofty standards, while roughly 10% have taken effective measures to ensure transparency of company ownership. Time will tell how effective the group’s amendments will prove. The one silver lining to the striking Panama Papers unmasking however is that the anonymity that many of these bad actors once sought has officially gone by the wayside.
Citations
- Pandora Papers reporting team. “Pandora Papers: A Simple Guide to the Pandora Papers Leak.” BBC News, BBC, 5 Oct. 2021.
- “Public Statement on Pandora Papers.” Documents – Financial Action Task Force (FATF), 21 Oct. 2021.
