Panama Papers – Corruption and Leadership

Power corrupts and absolute power corrupts absolutely.~  Lord Acton

Over a year ago a colossal 2.6 Terabytes of data was obtained by the German newspaper Suddeutsche Zeitung from an anonymous source. The data contained 11.5 million encrypted internal files from a Panamanian based law firm called Mossack Fonseca. This firm provides its clients with the ability to incorporate offshore shell companies across the globe, which in itself is not illegal. The majority of these offshore companies have, allegedly the appearance of legitimate businesses; however, they are merely empty vessels. These shell companies are used as vehicles to manage the funds in them whilst concealing the identities of the beneficiary owners. This business ‘technique’ is known to facilitate (any or all) of the three Cs: corporate tax avoidance and evasion, corruption by governments, and criminal activity.

This leak is the WikiLeaks of the ultra-high net worth elite and no doubt will be subject to much press coverage, not to mention its potential to generate onward enquiry about the nature and use of offshore corporate structures and the individuals behind them.

The Data

This is the largest leak of data files in history and overshadows other notable incidents including WikiLeaks Cablegate (1.7 GB), Swiss Leaks (3.3 GB), Luxemburg Leaks (4 GB) and Offshore Leaks (260 GB). The 11.5 million files dated from the 1970s to the present time, and current date exposes information including:

Files:

  • 4,804,616 emails
  • 3,047,306 database formats
  • 2,154,264 PDFs
  • 1,117,026 images
  • 320,166 text documents
  • 2,242 other files

Numbers of Clients:

  • 214,488 Entities (businesses) over 113,000 were incorporated in the British Virgin Islands
  • 14,153 Clients (intermediaries)

Banks:

  • 511 banks, their subsidiaries and branches registered nearly 15,600 shell companies
  • HSBC and its affiliates alone created more than 2,300 offshore companies

The Analysis

Shortly after receiving the Mossack Fonseca data Süddeutsche Zeitung concluded that they required support from the International Consortium of Investigative Journalists (ICIJ) and approached them to assist in the analysis of the documents. The investigation team comprised of around 400 journalists from over 100 media outlets in more than 80 countries. This activity is being hailed as the largest ever international collaboration of journalism organisations.

The data obtained was organised into a folder structure for each shell corporation. These folders contained contracts, invoices, banking details, scanned documents, images, and e-mails. The documents were all scanned via optical character recognition (OCR) to transform various forms of media into searchable text using a search engine similar to Google which proved vital for the researchers to be able to extract key findings.

The researchers will undoubtedly have utilised encryption and other techniques to avoid the investigation itself being leaked and also to protect its source. This may have included encrypted emails and Tor technologies. It is also likely that the ICIJ and the vast network of journalists will have used air gapped computers to work on the investigation.

It has also been speculated that open source Linux software was used due to concerns around user tracking technologies deployed by Apple and Microsoft.

The Law Firm

Mossack Fonseca is a law firm based in Panama with more than 40 offices worldwide. Founded in 1977 by Jurgen Mossack and Ramón Fonseca specialising in commercial law, trust services, investor advisory and international structures. The revelations are not the first for the firm and it has been alleged that they have helped oligarchs and dictators launder money and assisted global clients in tax evasion.

The firms’ clients can purchase a shell company from as little as $1000 USD. Additional services can be purchased including artificial directors, chairmen, shareholders and anonymity for the real owners. These types of clients seem to be typical Mossack Fonseca; they have incorporated, managed and disposed of thousands of such shell companies globally

The firm have vehemently defended themselves in a statement to the press. Excerpts include:

“We are responsible members of the global financial and business community” “We regret any misuse of our services and actively take steps to prevent it” “We trust that you are fully aware that using information/documentation unlawfully obtained is a crime, and we will not hesitate to pursue all available criminal and civil remedies”.

The Exposed

Those allegedly involved directly or indirectly include major banks, law firms and asset management companies that manage the estates of the global elite and many others. These include professional athletes, celebrities, heads of states, politicians, sanctioned individuals, mafia organisations, FIFA officials, people traffickers and international drug dealers. Some high profile individuals include:

  • Ian Cameron – Father of David Cameron
  • Leonel Messi – International football star
  • Mauricio Macri – President of Argentina
  • Sheikh Khalifa bin Zayed bin Sultan Al Nahyan –President of UAE
  • Sheikh Hamad bin Khalifa Al Thani – Former Emir of Qatar
  • Sigmundur Gunnlaugsson –Prime Minister of Iceland
  • Arkady and Boris Rotenberg (lifelong friends of Vladimir Putin) – Billionaire oligarchs
  • Hosni Mubarak ­– former president of Egypt
  • Muammar Gaddafi – Libya’s former leader
  • Michel Platini – Former EUFA president and footballer
  • Bashar al-Assad – President of Syria
  • Amitabh Bachchan – Bollywood actor
  • Ayad Allawi – Former Prime Minister of Iraq
  • King Salman Bin Abdulaziz Bin Abdulrahman Al Saud – King of Saudi Arabia
  • Petro Poroshenko – President of Ukraine
  • Kojo Annan – Son of former UN Secretary General Kofi Annan
  • Sharif family members – Pakistani Prime Minister

Also included:

  • The names of over 33 individuals and companies currently blacklisted by the US Government for links to terrorist organisations and Mexican drug cartels.
  • Details on the active involvement of over 500 global including HSBC, UBS and Société Générale in creating over 15,000 hard-to-trace companies in offshore tax havens. 
  • Details on the offshore holdings of 140 politicians and public officials from around the globe.

Other ‘Power Players’ are listed on the ICIJ website.

The Source

Little is known about the source. At this stage it would appear the leak has not been made for financial gain, but to uncover simply the reality behind the use of offshore corporate vehicles, their far reaching scope and the broad spectrum of clients to which they relate

There are some indications that the leak originated from the firms supposedly secure data centre, but this has not yet been confirmed.

The Fallout

“You’re seeing the beginning of what will be a torrent of revelations over the next few days and weeks”  ~ G.Ryle (ICIJ)

The topics of privacy, cyber security, data protection and data leakage prevention are yet again central to these leaks. Law firms and businesses of all sizes need to focus on securing client data, protecting personally identifiable information whilst acting ethically, and demonstrating strong morals within the confines of the law.

Poll results from a recent Harvard Business Review article stated that 195 leaders in 15 countries over 30 global organizations 67% selected having “high ethical and moral standards” as the most important competency. The Panama Papers show that that expectations and reality are not synonymous.

Tax authorities around the globe will undoubtedly investigate these allegations and review regulations in tax havens. There is also likely to be increased pressure on the banking world to strengthen due diligence activities including Know Your Customer (KYC) and Anti Money Laundering (AML).

It is clear that many of those involved will be highly embarrassed by these accusations and it would be expected that litigation will ensue.

The ICIJ plans to release a full list of companies and people linked to them in early May 2016, so we will undoubtedly be seeing more exposés into the lives of the rich and famous. This is something that I would be keen to analyse in closer detail once more information becomes available. 

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