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The impacts of Panama Papers keep coming
POSTED | 18:14 PM | 31-12-2016

The impacts of Panama Papers keep coming

The investigation has produced an almost daily drumbeat of regulatory moves, follow-up stories and calls by politicians and activists for more action to combat offshore financial secrecy, write Will Fitzgibbon and Emilia Díaz-Struck.

On April 7, 2016, 14 large blue letters quietly disappeared from the outer walls of an office building in an exclusive neighborhood in northern San Salvador.

One by one, the letters came down from the blue and beige stucco walls, leaving behind faint traces of the name of the law firm that had been working there just days before:

M-O-S-S-A-C-K-F-O-N-S-E-C-A.

Employees of the El Salvador branch of Mossack Fonseca, the Panama-headquartered law firm whose leaked files have formed the basis of thousands of news reports exposing the secrets of the offshore financial industry, claimed it was a scheduled relocation.

Salvadoran authorities suspected something else was going on.

Just the day before, they had announced an investigation into citizens who had done business with the law firm. They worried that evidence might be destroyed. So the afternoon after the signage vanished, policemen — some hooded in black balaclavas, wearing soccer jerseys and with handguns holstered at their waists — swept through Mossack Fonseca’s workplace.

Salvadoran police and the country’s General Prosecutor seized 20 computers. Authorities live-tweeted the action as officers invaded the law office.

The raid of Mossack Fonseca’s El Salvador office was one of hundreds of official reactions to Panama Papers — a mix of investigations, fines, high-profile resignations, police raids, arrests, national legal reforms and international conclaves.

Government officials and activists expect the developments to continue for years to come as outrage fueled by Panama Papers revelations drives politicians and citizens alike to bring light to a shadowy financial system that, for decades, has resisted reform.

Since the Panama Papers broke in early April, hundreds of journalists from dozens of countries who collaborated on the investigation have published more than 4,700 news stories based on Mossack Fonseca, the globe-spanning law firm that has created hard-to-trace shell companies for corporations, politicians and fraudsters.

The responses to the Panama Papers revelations began immediately after the International Consortium of Investigative Journalists, German daily Süddeutsche Zeitung and more than 100 other media partners began releasing their first stories at 2:00 p.m. US Eastern Daylight Time on April 3, 2016. #PanamaPapers became the No.1 topic on Twitter. Thousands of protestors marched in streets in every continent except Antarctica. Throngs threw cultured yogurt in Iceland and rocks in Pakistan.

As a result, at least 150 inquiries, audits or investigations have been announced by police, customs, financial crime and mafia prosecutors, judges and courts, tax authorities, parliaments and corporate reviews in 79 countries around the world, according to global media reports and official statements. Thousands of taxpayers and companies are under investigation. Legislatures from Ireland to Mongolia to Panama have rushed through laws to strengthen weaknesses pinpointed by the media partnership’s reporting. Governments have already reported recouping tens of millions of dollars in taxes on previously undeclared funds.

Across four continents, police have raided warehouses, offices and homes. Government officials in three countries have resigned, including a prime minister and an energy and industry minister. Business executives and attorneys are behind bars awaiting criminal trials in the Middle East, Europe and Latin America. In El Salvador, where authorities raided Mossack Fonseca’s office, no criminal charges have been filed, but investigations continue.

The reaction hasn’t ended since the initial wave of responses in April. Panama Papers has produced an almost daily drumbeat of regulatory or legislative moves, follow-up news stories and calls by politicians and activists for more investigation and more action.

In May, the US Treasury and Justice departments proposed a series of new laws and rules that would make it easier for law enforcement authorities and financial regulators to track dirty money inside and outside the United States.

Treasury officials, for example, proposed creating a national corporate ownership registry that could be used by investigators to pull back the veil of secrecy in Delaware, Nevada and other states that allow shell companies created within their borders to hide their owners’ identities and activities. Justice officials’ proposals include measures that would make it easier for prosecutors to force foreign banks to turn over records of their account holders and to use classified information in “kleptocracy” investigations involving high-ranking foreign officials.

A fact sheet from the White House said Panama Papers “has brought the issues of illicit financial activity and tax evasion into the spotlight. The Panama Papers underscore the importance of the efforts the United States has taken domestically, and the efforts we have undertaken with our international partners, to address these shared challenges.”

In October, Ron Wyden, a Democratic senator from Oregon and ranking member of the US Senate Finance Committee, wrote to the Treasury Department and the Internal Revenue Service to demand information on what, if anything, the agencies had gathered from the Panama Papers database that had been made public by ICIJ and its media partners.

“News reports surrounding the release of the ‘Panama Papers’ highlighted the opaque dealings of anonymous shell companies around the world,” Wyden wrote, noting his concern about the use of offshore companies “as vehicles for tax evasion or possible money laundering.”

In November, Europol, Europe’s law enforcement agency, revealed that it had found 3,469 probable matches between the Panama Papers database and information in its own files about organized crime, tax fraud and other criminality. Out of those matches, 116 related to Europol’s project on Islamic terrorism, codenamed Hydra.

“The main point here is that we can link companies from the Panama Papers leak not only with economic crimes like money laundering,” said Europol’s head of financial intelligence, Simon Riondet, “but also with terrorism, Russian OCGs (Organized Crime Groups), drug trafficking, human trafficking, illegal immigration, (and) cybercrime.”

Two world leaders, in Argentina and Pakistan, remain ensnared in public scandals and ongoing probes related to the Panama Papers. In Argentina, a federal prosecutor is examining President Mauricio Macri’s directorship of a Bahamian company that he had failed to include in public financial disclosures when he was mayor of Buenos Aires. Pakistan’s Supreme Court is currently hearing a petition brought by the political opposition against Prime Minister Nawaz Sharif, whose children owned real estate in London through companies created by Mossack Fonseca, documents in the Panama Papers show. The opposition has accused the prime minister of failing to disclose the family’s offshore connections and of laundering money abroad to pay for the properties. Sharif and his family deny any wrongdoing.

“Panama Papers certainly rocked the transparency world,” said Porter McConnell, director of the Washington DC-based Financial Transparency Coalition. “The sheer size of the investigation, coupled with the number of high-profile individuals implicated, helped keep the issue of hidden company ownership on the agenda. No government wants to be the next Panama.”

Financial hits: ‘Enormous’ impact 

Over the past eight months, governments have reported using Panama Papers to help recoup or seize tens of millions of dollars in unpaid taxes or other assets, including more than $80 million in Colombia, $1 million in Slovenia and 375 pounds of silver bullion in Australia. Billions more are being traced for potential tax evasion.

Household-name corporations also have suffered due to the fallout from the media partnership’s reporting. The Panama Papers wiped out $135 billion of the value of nearly 400 publicly traded companies with direct exposure to the Panama Papers, academics found. “The impact is enormous,” said Hannes Wagner, associate professor of finance at Milan’s Bocconi University and one of the study’s authors.

According to Wagner, the financial hits to the companies in the wake of Panama Papers represent the largest loss in history following big data leaks or corporate scandals, greater than the combined market cap losses produced by the scandals that hit Enron and Volkswagen.

Companies with links to the Panama Papers suffered bigger losses after the project’s release than companies without links to the Panama Papers. While the study does not identify the companies, an ICIJ review of share price movements of randomly-selected corporations with ties to the Panama Papers reveal that the Swiss commodities giant Glencore and Britain’s HSBC Holdings Plc experienced drops in share price following the release of Panama Papers and the accompanying database. Glencore International AG appears as a client of Mossack Fonseca. HSBC affiliates were among the most active banks to request offshore companies for clients from the law firm.

According to the academics, the drop in value suggests that investors believe companies will have a harder time avoiding taxes in the future or may be hit by fines for tax evasion.

Following an internal audit prompted by the Panama Papers, Scandinavia’s biggest lending bank, Nordea, admitted that it had in many instances fallen “clearly below” its own standards for identifying risky customers and potential crimes such as money laundering. The bank blocked 68 suspicious accounts but claimed to find no evidence it actively helped tax evasion.

Some of the world’s largest financial institutions have formed Panama Papers response teams, according to a survey by consultancy firm KPMG. Several have set up full-time taskforces with ten employees or more, the survey found.

National responses: Legislation and investigations

From micro nations such as the Cook Islands, whose entire population is smaller than that of Ferguson, Missouri, to India, the world’s second most populous country, individual governments are responding aggressively to the Panama Papers.

The US Department of Justice and the US Attorney’s Office for the Southern District of New York launched criminal inquiries relating to the Panama Papers. The Wall Street Journal reported that US prosecutors were digging into whether Mossack Fonseca employees “knowingly helped its clients launder money or evade taxes.” The Journal reported that sources familiar with the investigation said prosecutors were considering criminal charges that could include conspiracies to launder money, dodge taxes, and cover up bribes to foreign officials.

Mossack Fonseca has denied any misconduct and says the firm “has never been accused or charged in connection with criminal wrongdoing.”

US Treasury Secretary Jacob Lew wrote to Congress in May to say that “we must ensure that the United States can live up to its end of the bargain” in the fight against global tax evasion. Among the new rules his agency announced was a requirement that it said would strengthen the obligations of banks, securities dealers and other firms to verify the identities of the real owners of financial accounts.

Taiwan’s legislative assembly used the Panama Papers to adopt new tax avoidance rules. In July the assembly introduced restrictions on benefits enjoyed by Taiwanese companies that keep profits offshore. New Zealand’s government launched an inquiry into the country’s foreign trust rules after revelations the country’s clean reputation was being used as cover for selling tax avoidance vehicles. In July, the government accepted the inquiry’s recommendations and announced new legislation.

In October, following revelations from the Panama Papers that some former and current government officials held offshore companies, Mongolia’s Parliament debated a bill to penalize politicians and public servants who do not declare offshore financial interests.

“The issue you launched has set the public agenda and is officially becoming a law. Congratulations!” Enkhbayar Battumur, Mongolia’s deputy justice minister, tweeted to MongolTV, one of the partners in the Panama Papers, after the Mongolian cabinet met to discuss the proposed law.

The same month, Panama’s Parliament passed laws to toughen bookkeeping requirements for offshore companies and to allow Panama to share tax information with other countries — a win for foreign governments that have pressed the Central American nation for years to disclose what their citizens are holding offshore. Lebanon, another offshore financial center, also passed legislation in October to ease the exchange of tax information with other countries in an effort to avoid international blacklisting in the post-Panama Papers world.

Also in October, Ireland’s finance minister cited the Panama Papers in proposing a new criminal law addressing tax evasion. In November, Germany’s finance minister introduced legislation — nicknamed “the Panama Law” — that would increase penalties for tax evasion and enforce disclosure of Germans’ business relationships with shell companies.

Tax probes: Thousands under scrutiny

Officials in many countries are also taking direct action against citizens suspected of having used offshore entities to reduce their tax bills.

Governments are investigating more than 6,500 taxpayers and companies, according to ICIJ and dozens of its media partners who assembled responses from government agencies and public statements.

In November alone, governments in Iceland, the United Kingdom, Canada, France, India and Pakistan announced probes of nearly 1,300 taxpayers for potential tax evasion.

In Iceland, more than 100 tax cases are under review and 46 cases of potential tax evasion have been referred to prosecutors, according to media reports.   Authorities have conducted more than a dozen raids. British authorities revealed that 22 people are under civil and criminal investigations for tax evasion and that the offshore dealings of 43 other wealthy Britons are under review. Companies and properties in the United Kingdom are also being scrutinized as part of an unspecified financial sanctions inquiry, the government announced. Canada’s Revenue Authority announced 85 Canadians linked to Panama Papers were under investigation for tax evasion.

France’s Ministry of Finance announced it was auditing 560 taxpayers. India’s special Panama Papers taskforce said it was probing the offshore affairs of 415 Indians, making it the country’s largest-ever tax inquiry, The Indian Express reported. In neighboring Pakistan, The News reported that 20 Pakistanis have been identified by the Federal Board of Revenue as not filing tax returns during the same period they appear linked to companies set up by Mossack Fonseca.

Resignations: Officials and executives

Top officials had varied reactions to the news they’d been tied to the Panama Papers through their own offshore holdings or holdings linked to their families and associates. Russian President Vladimir Putin’s spokesman dismissed revelations about the offshore financial maneuvers by people and companies tied to Putin as a distorted “information attack” against Russia.

Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson had the bad luck of having his first reaction caught on video by a TV crew. “I’m starting to feel a bit strange about these questions because it’s like you are accusing me of something,” he said, before walking out of the interview.

Video of his fumbling response to questions about an offshore company he and his wife had owned was replayed millions of times around the world.

Within 48 hours, angry protests and political pressure had forced Gunnlaugsson to step down as prime minister.

Other government and corporate officials soon followed his example.

Mihran Poghosyan, Armenia’s top bailiff, known as the chief compulsory enforcement officer, resigned after initially rejecting revelations that he held shares in three companies set up by Mossack Fonseca. A criminal investigation continues.

José Manuel Soria, Spain’s minister for industry, energy and tourism, held on for five days before he, too, left his post. Soria initially denied any offshore connection but later acknowledged his family’s role in a company in the United Kingdom. In resigning, Soria denied wrongdoing but cited “a succession of errors” in his response to the issue.

The head of a state-owned bank in Austria, Hypo Landesbank Voralberg, resigned after the bank was cited in reports about the Panama Papers. In the Netherlands, a member of the supervisory board of the country’s third-largest bank, ABN Amro, resigned after Dutch journalists reported his ties to an offshore company in the British Virgin Islands.

Juan Pedro Damiani, a Uruguayan lawyer and member of FIFA’s ethics committee, resigned from the panel in the wake of reports that he had business dealings with three men who have been indicted in the world soccer body’s corruption scandal. A Finnish company fired its sales manager in response to revelations he may have helped launder Russian money through a Panamanian shell company.

Authorities target Mossack Fonseca

On Oct 5, Ramón Fonseca, one of the founders of the law firm at the heart of the Panama Papers affair, visited Momi, a bakery in Panama City known for its empanadas and cupcakes. Fonseca, a lawyer, award-winning novelist and former advisor to Panamanian President Juan Carlos Varela, wanted to mark a special occasion.

“Bought a cake to celebrate six months since the hacking of my firm without even one case in the world brought against us,” Fonseca tweeted.

Despite his good cheer on that day, his 40-year-old law firm, Mossack Fonseca, has not emerged unscathed amid the scrutiny of its clients and its practices.

Panamanian officials have defended their country by deflecting attention back on Fonseca’s firm, telling journalists that the Panama Papers aren’t about Panama; they’re about Mossack Fonseca.

In October, speaking in Munich to reporters at Süddeutsche Zeitung, President Varela said Fonseca, his former advisor, “will have to take responsibility for his actions — and ultimately face the judge.”

Panama’s banking regulators and securities commission are conducting audits and Panama Attorney General Kenia Porcell is investigating whether Mossack Fonseca facilitated or promoted illegal activities. Her office raided Mossack Fonseca’s headquarters twice in April, on one occasion carrying away trash bags filled with shredded paper. In September, a Panamanian judge rejected Mossack Fonseca’s claim that the raids directed by the country’s special prosecutor for organized crime, Javier Caraballo, were unlawful.

Porcell’s office says authorities have made 16 on-site visits and more than 500 requests to financial institutions and law firms as part of its investigation.

Panama has sent 15 requests for information and legal assistance relating to the Panama Papers to 11 countries, including Mexico, Columbia and the Bahamas. Panamanian officials have met with prosecutors and diplomats from nine countries since April to assist with investigations, including a meeting with US officials in September.

As the pressure has grown, Mossack Fonseca’s offices around the world have also come under fire.

Nine Mossack Fonseca offices, in the British dependencies of Jersey, Isle of Man and Gibraltar, Peru, São Paolo in Brazil, the Netherlands, New Zealand, Lugano, Switzerland, and Nevada, have shuttered, according to media reports and corporate registries.

In Nevada, officials fined the law firm’s Las Vegas branch $10,000 for failing to maintain adequate paperwork. In Wyoming, state officials fined Mossack Fonseca’s branch in Cheyenne $9,600, charging that the office had shown an “obvious disregard for the law” and “completely failed to perform” its duty to keep records on the people behind any of the Wyoming companies that it represented.

Authorities in the British Virgin Islands hit Mossack Fonseca with a $31,500 fine in April and then another $440,000 penalty in November for 14 violations that faulted weak anti-money laundering and terrorist financing controls. It is the largest fine in the BVI’s history for a registered agent.

Arrests: From Venezuela to Israel 

One former Mossack Fonseca representative, Venezuelan attorney Jeannette Almeida, is being held inside a military prison in the capital, Caracas, awaiting trial on charges of violating banking laws.

Her family maintains that she is being scapegoated, telling Venezuelan news website La Patilla that she was just the lawyer who created offshore companies for clients, but not the owner of them. Almeida has been locked up, the family’s lawyer said in an interview, while “the real people connected with the case” have gone unpunished.

Venezuelan police also arrested the mother and brother of Adrián Velásquez, a former bodyguard of former president Hugo Chávez. Velásquez became the director of an offshore company created by Mossack Fonseca four days after the election of the current president, Nicolás Maduro.

Venezuela’s Public Ministry announced that authorities had arrested Velasquez’s relatives at an airport and had seized cars, motorcycles and empty jewelry boxes. Velásquez and his wife, a former head of the national treasury office and a nurse who tended to the cancer-stricken Chávez before he died in March 2013, live in the Dominican Republic. Velásquez’s mother and brother have since been released.

In Uruguay, authorities arrested 11 people in April in the wake of reports linking the brother of one of Mexico’s richest drug lords to two offshore companies set up by Mossack Fonseca. In Israel, two investment and foreign exchange executives were arrested on suspicion of not declaring hundreds of thousands of dollars held offshore. The arrests are the first from the tax authority’s investigations into the Panama Papers.

In November, British crime agencies arrested three employees of major banks in what U.K. media reported to be the country’s largest-ever insider-trading scandal. Authorities have not commented on the news, although the arrests came days after the government disclosed that the Panama Papers were being used to investigate a “major insider-trading operation.”

Cross-border actions: ‘Get on this’

Two days after the first Panama Papers reports made news, the Organisation for Economic Co-operation and Development, an inter-governmental body that leads the global tax debate, called an emergency meeting in Paris.

Mark Konza, Australia’s deputy commissioner of taxation, chaired the gathering of tax officials from 35 countries.

Konza says that the after the Panama Papers broke, his boss told him simply: “Mark, you need to get on this.”

“The next night I was on a plane to Paris for 24 hours, and I pretty much walked straight into the conference room,” Konza recalls. The room was packed with 80 people. One by one, representatives gave status reports on what they knew or didn’t know about Panama Papers.

“The main impression I got was that everyone was under pressure from political circles to do something and reassure the community that these matters would be dealt with,” Konza said.

Since then, many governments across the world have taken action.

The European Parliament agreed in June to set up a 65-member committee to investigate potential money laundering and tax cheating.

“The Panama revelations have shown that it is too easy to hide behind such complex structures,” European Commission Vice President Valdis Dombrovskis said in proposing a European blacklist of tax havens to be released in 2017.

Also in June, the United Kingdom delivered on its 2013 promise to create a public register of the owners of companies. At a global anti-corruption summit the month before in London in which the Panama Papers featured prominently, Nigeria, Ghana, Kenya and Afghanistan committed to do the same and join a growing list, according to a tally by the Financial Transparency Coalition.

The way forward: ‘Readiness to act’

As the after-affects from the Panama Papers continue, governments and advocates warn that progress isn’t assured – and that it will take a long battle to bring lasting change.

Some governments have taken reform off the table entirely. Seven of the 10 countries in which current or former heads of state were named in the Panama Papers have remained silent or refused to open inquiries, including Saudi Arabia, Qatar and Ukraine, where the parliament rejected a proposal to create a commission of inquiry.

“Some governments have made welcome new commitments to transparency, while others have shrugged it off,” the Financial Transparency Coalition’s McConnell said. “Until basic financial transparency measures become the norm worldwide, I worry that we’ll be in a perpetual cycle of making policy via leaks.”

Still, advocates hope that public pressure, stoked by Panama Papers, will force governments to fight for a global solution to the problems posed by offshore secrecy.

“For decades, everyone has known about tax havens and our elected officials have tolerated it,” said Alfred de Zayas, a United Nations human rights expert who recently released a report about the impacts of tax avoidance and financial secrecy on human rights. Now, in the wake of the Panama Papers, governments and international organizations are taking the issue more seriously, de Zayas believes.

“I am optimistic,” he said. “For the first time, I do sense there’s a certain readiness to act.”

Contributors to this story: Jimmy Alvarado, Kristof Clerix, Lkhagva Erdene, Michael Hudson, Sol Lauria, Joseph Poliszuk and Ewald Scharfenberg.

Article link: https://panamapapers.icij.org/20161201-global-impact.html?utm_source=Watchdog&utm_campaign=79db11b72c-160921_Bahamas_Launch_Email&utm_medium=email&utm_term=0_ffd1d0160d-79db11b72c-101471873&mc_cid=79db11b72c&mc_eid=f61b41f3ef

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