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Pandora Papers

According to Greek mythology Pandora was sent to the earth by Zeus in possession of a closed jar that, unbeknown to her, contained a host of miseries and evil. Overcome with curiosity, she opened the jar, releasing badness across the earth.

This name for the latest revelation from the International Consortium of Investigative Journalists (ICIJ) was carefully chosen, reflecting the destructive nature of the facilities provided by 14 corporate service providers (CSPs) that have an impact across the globe. This follows similar disclosures by the ICIJ in 2016 (the Panama Papers) and 2017 (the Paradise Papers). The same theme was picked up in a leak of data from the US FIU, styled as the FINCEN Files.

What do the Pandora Papers reveal?

2.9 tera bytes of data within 11.9 million documents contain sensitive financial and legal information from 14 corporate service providers (CSPs). Over the last 12 months, 600 journalists have investigated the material, uncovering details of how wealthy corporations and individuals have used offshore arrangements to exploit tax loopholes and protect $ trillions from tax exposure. The same arrangements are also attractive to organised crime and corrupt politicians as they launder the proceeds of their crimes. The papers have shone a light on many fascinating cases including:

  • The 11-year-old son of Azerbaijan President Ilham Aliyev bought property in London’s Mayfair for £33.5 million through Hiniz Trade & Investment, a British Virgin Islands-based company that he owned
  • Jordan’s King Abdullah bought luxury homes in the UK and US amounting to $106 million using offshore companies. Accountants acting for King Abdullah, who awards an annual prize for transparency, actively concealed the King’s interest in the property
  • The family of Kenya’s President Uhuru Kenyatta have concealed assets worth more than $30 million using offshore companies. This coincides with the President campaigning for an end to corruption and importance of transparency and good governance

 

How are offshore companies used to conceal wealth and launder dirty money?

Setting up or benefitting from offshore entities is easier and more accessible than it ever has been. The practice is not itself illegal and, in some cases, people will have legitimate reasons such as to create security for themselves or their family. But the apparent secrecy offered by jurisdictions known as offshore tax havens has at times proven attractive to tax evaders and professional criminals, some of whom are exposed in the files.

The leaked documents provide a window into this world and further our understanding of how and why these companies might be used. The structures provide a shelter for the ultimate beneficial owners and undoubtedly make it harder for citizens to hold power to account. They can also be used to launder dirty money. Complex webs of opaque business structures, usually with the intention of secrecy, can offer opportunities to channel money, which may be the proceeds of crime and corruption, through offshore companies that are part of the structures. The files contain emails, memos, incorporation records, share certificates, compliance reports and complex diagrams, showing vast, complex, corporate structures, which has enabled investigators to finally identify the true owners of opaque shell companies for the first time.


What’s happening in response to the problem of concealed beneficial ownership?

Recent years have seen an intensification of efforts to close the loopholes created by offshore corporate and financial arrangements.

  • In 2013 the G8 summit committed to a common set of principles that would increase tax and beneficial ownership transparency
  • In 2014 the Financial Action Task Force published a report showing how companies and other legal arrangements have been misused. This concluded that the misuse of corporate vehicles could be significantly reduced if information regarding both the legal owner and the beneficial owner, the source of the corporate vehicle’s assets, and its activities were readily available to the authorities (Reference: FATF Guidance on Transparency Beneficial Ownership )
  • In 2018 the EU 5th Anti Money Laundering Directive required EU member states to establish beneficial ownership registers
  • In June 2021 G7 Finance Ministers committed to strengthen national registers of beneficial ownership

These developments reflect increased commitment to tackle the problem, but many argue that they don’t go far enough. Transparency International have longed campaigned on this issue and in August 2021 published five recommendations to fix the problem.


What can you do?

The legal and practical issues concerning transparency and beneficial ownership continue to evolve. They are complex and connect to wider AML and anti-corruption requirements. It is vital that individuals working in regulated business understand them to ensure they are compliant with the law, and take all appropriate steps to prevent misuse. ICA designs and delivers training in these key areas in the context of the Advanced Certificate in CDD, Advanced Certificate in AML and Diploma in AML courses.

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