It’s not illegal for most people to own anonymous companies. Walt Disney used them to buy land near Orlando for Disney World. He didn’t want prices to go crazy with news Mickey Mouse was coming to town.
But using shell companies to steal national assets, hide money and property from creditors and spouses, avoid paying taxes, and launder money is a crime. And it can be a conflict of interest and breach of their oath of office for national leaders and politicians to use anonymous offshore companies to keep business deals secret.
Sunday night, the Washington-based International Consortium of Investigative Journalists started publishing the Panama Papers — more than 10 million records from the Mossack Fonseca law firm, naming more than 200,000 anonymous offshore companies the firm formed for clients around the globe.
The alleged leaker, reports said, didn’t ask for compensation, only security measures to protect his or her identity.
Who benefits from publication of the Panama Papers? Let’s take a look.
Opposition politicians When Ukraine President Petro Poroshenko took office in 2014, he promised to sell his huge candy business to avoid any conflicts of interest. The Panama Papers appear to show that Poroshenko instead set up an anonymous BVI company to hold the business. The move could have saved him millions of dollars in Ukraine taxes. Prosecutors are investigating the arrangement and opposition politicians are calling for Poroshenko’s removal from office.
In Iceland, the prime minister had to resign. Sigmundur Davíð Gunnlaugsson was facing a no confidence vote in parliament from opposition parties. The Panama Papers appear to show that he and his wife held millions of dollars in debts in collapsed Icelandic banks through an anonymous offshore company. As prime minister, Gunnlaugsson also had a hand in helping the banks settle their debts. No imagination is needed to see the conflict of interest.
People Power Protesters Outside parliament in Iceland’s capital, Reykjavik, up to 10,000 protesters demanded Gunnlaugsson’s removal. It worked. Will protests break out in China, Russia, Argentina, and other countries whose leaders are implicated by the Panama Papers?
Creditors who believe they were cheated When individuals and companies — and even countries — have too much debt, they declare bankruptcy or try to renegotiate with creditors. Part of the process is disclosing all of their assets. Did some clients of Mossack Fonseca use anonymous offshore companies to hide assets from courts and creditors?
A Greek politician, Stavros Papastavrou, who also served as an aide to the country’s former prime minister Antonis Samaras, is named in the Panama Papers. Papastavrou became Greece’s chief negotiator with the European Union, the International Monetary Fund, and the European Central Bank for the Greek bailout. The Panama Papers show he sat on the boards of two Panama foundations and served as deputy chairman of another. He said he wasn’t compensated for his roles in the foundations and didn’t hold any ownership interest in them.
Tax collectors Authorities in Australia are investigating 800 citizens named in the Panama Papers who may have used anonymous offshore companies to evade Aussie taxes.
In Canada, Revenue Minister Diane Lebouthillier told the Canada Revenue Agency to scour the Panama Papers and use the information there to chase tax cheats.
Other countries that have started tax investigations based on the Panama Papers include France, New Zealand, Austria, Sweden, and the Netherlands.
Former business partners and divorced spouses The Panama Papers are massive — 2.6 terabytes of documents covering nearly 40 years of records, with information about more than 210,000 companies in 21 offshore jurisdictions. Will some of the people named in the documents have been involved in contentious business splits or marital divorces (or both)? Probably. Might some of them have used an anonymous offshore company to hide assets from a former business partner or spouse? It happens.
Anti-Bribery Prosecutors Overseas graft of the type outlawed by the Foreign Corrupt Practices Act, the UK Bribery Act, and similar laws always happens in secret. It’s tough for police and prosecutors to find and gather evidence of wrongdoing. The paper and money trails wind through multiple jurisdictions, some of which have nearly impenetrable secrecy laws and practices. The Panama Papers are sure to contain leads that will help those fighting graft overseas and in their own countries.
Will some former FCPA defendants be caught up in new troubles?
Last year, Australia-based BHP Billiton paid the U.S. SEC $25 million to settle charges it violated the FCPA when it sponsored foreign government officials as guests at the 2008 Summer Olympics in Beijing. The Panama Papers reportedly showed links from BHP Billiton to at least 19 companies registered in BVI. Mossack Fonseca flagged two of the companies as “high risk” because of big money transfers. Did the SEC know about those companies and transfers when it reached the FCPA settlement with BHP Billiton?
Transparency advocates In mid 2015, 107 groups urged the World Bank to end corporate anonymity in public procurement. Among the groups were Transparency International-USA, Transparency International, Global Witness, the Open Contracting Partnership, Oxfam, and Save the Children.
The Panama Papers show that the groups were right — not all anonymous offshore companies are used for innocent reasons.
Shruti Shah of TI-USA said Monday “it shouldn’t be so easy for money launderers, drug traffickers and other criminals from around the world including corrupt public officials, to be able to access the global financial system with such ease using anonymous companies and hide their true identities. This veil has to be lifted.”
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.