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What is the Panama Scandal?

The Panama papers scandal has caused a substantial amount of controversy and outrage recently, but do we fully understand the case itself? Our Head of Cybercrime Gary Broadfield gives his expert views by outlining all the facts you need to know. 

The scale of the leak is absolutely huge. The volume of data, 2.6 terabytes or 11 million files surpasses all of the high profile recent data breaches. Although work has been conducted on the leak by investigative journalists for some time already, the information contained in these documents is also very detailed and complex. The full impact will not be apparent for some time.

It is important to be clear; although many may justifiably believe it is immoral, there is nothing illegal per se about using offshore structures to minimise an individual’s or a corporation’s tax liabilities. The services of firms like Mossack Fonseca can be and no doubt were used in an entirely legitimate way.

Indeed, much of the initial furore has centred around revelations that politicians in a number of jurisdictions have used the services of Mossack Fonseca to create offshore companies to hide assets and interests that do not derive from crime but which should have been declared as interests and registered in order to prevent conflicts of interests. 

It is certain that a number of politicians will come under scrutiny when their previously private financial affairs and those of their families are compared with their public actions, statements and positions. The Prime Minister of Iceland, Sigmundur David Gunnlaugsson resigned on Monday 4th April when it was shown that “Wintris” an offshore company in which he and his wife had an interest held millions of pounds worth of bonds in Icelandic banks at a time when the Icelandic government were negotiating settlements between those collapsed banks and claimants. Gunnlaugsson held an undeclared interest in protecting the banks’ positions in those negotiations; a clear position of conflict.

Aside from the political embarrassment caused, perhaps the true importance of the leak is that it sheds light, for the first time on the hidden world of serious, high level criminality and money laundering. “Follow the money” is the golden rule of any fraud or corruption investigation. The overwhelming majority of such crimes are committed for one reason alone, acquisitive greed. The sums that can be made through such criminality are huge and must be effectively hidden, or the conspicuous success of the criminal will become a risk to him.

According to the ICIJ the Mossack Fonseca documents indicate that the firm’s customers have included Ponzi schemers, drug kingpins, tax evaders and at least one jailed sex offender. A U.S. businessman convicted of traveling to Russia to have sex with underage orphans signed papers for an offshore company while he was serving his prison sentence in New Jersey.

The leaked data reveals a startling insight into the methods used by criminals to hide and launder the proceeds of their criminality over many years. It also appears to show how individuals have been used to avoid being fettered by international sanctions and freezing orders by using offshore vehicles to move and receive funds.

Previously money deposited in accounts held by offshore companies could be virtually untraceable. Investigators could follow trails so far but then hit an offshore “brick wall” whereby they could establish neither the destination of money transfers, nor the beneficial ownership of a bank account or of a company that held it. 

Now, the legal and beneficial ownership of those companies is laid bare, potentially opening new routes to authorities all around the globe for the recovery and forfeiture of assets held by known criminals.

It is overwhelmingly likely that in the coming months and years a number of regulatory and prosecutorial agencies such as HMRC, the FCA and the SFO will be looking closely at the disclosed material in order to confiscate assets, but also to see if the data contains evidence of new and previously unknown criminality that can be investigated and prosecuted.

Whilst the leak is important, it is a concern that the scale of activity revealed came to light through clandestine and probably criminal action by unknown parties. Greater international co-operation is required by governments to ensure that offshore tax havens and companies cannot operate with impunity and outside the reach of law enforcement agencies worldwide. A cynic might suggest that the leak might reveal grounds for suspecting that our political leaders only pay lip service to the idea of such transparency. 

Mossack Fonseca are not the first and certainly will not be the last law firm to be targeted by hackers in this way and these recent events underscore the requirement to keep data protection and IT security at the heart of any business plan.

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