The fight against offshore crime will be a long campaign

On the fifth anniver­sary of the Panama Papers’ launch, experts say there’s been progress in the fight against dirty mon­ey — but much more is needed.

In May 2016, weeks after hun­dreds of jour­nal­ists released the Panama Papers’ mas­sive exposé of the secret finan­cial deal­ings and hide­aways of politi­cians, fraud­sters and celebri­ties, a group of world lead­ers — embar­rassed, out­raged or know­ing a good media oppor­tu­ni­ty when they saw one — met in London to denounce the glob­al flood of dirty money.

British Prime Minister David Cameron, Nigerian President Muhammadu Buhari, Emirati deputy for­eign min­is­ter Anwar Gargash and oth­ers signed the Global Declaration Against Corruption — a high-mind­ed agree­ment to crack down on anony­mous shell com­pa­nies, stop lawyers and accoun­tants who help cor­rupt offi­cials and increase trans­paren­cy to deter tax evasion.

Five years after the International Consortium of Investigative Journalists and more than 100 media part­ners released the Panama Papers, the fight against off­shore finan­cial secre­cy and chi­canery goes on — with a mix of vic­to­ries and fail­ures and more bat­tles to come.

Cameron retired from pol­i­tics, but only after resist­ing calls for his res­ig­na­tion and scrap­ing through what The Guardian called “the worst week of his pro­fes­sion­al life” after the Panama Papers rev­e­la­tions forced him to admit that he ben­e­fit­ed from an off­shore trust cre­at­ed by his father. Buhari’s Nigeria still los­es bil­lions a year to cor­rup­tion and tax eva­sion. Last year, the United Arab Emirates received a sting­ing report card from glob­al experts who called it an attrac­tive des­ti­na­tion for criminals.

While the Panama Papers has sent crim­i­nals to jail and made oth­er would-be felons think twice about where to hide ill-got­ten gains, a hodge­podge of loop­hole-rid­dled leg­is­la­tion, prof­it-ori­ent­ed tax havens and savvy enablers still per­mit finan­cial crime to thrive.

As far as ampli­fy­ing the seri­ous­ness of the prob­lem, we are on the right track,” said Attiya Waris, a pro­fes­sor of fis­cal law and pol­i­cy at the University of Nairobi, Kenya. “The prob­lem for so long was that all this was hap­pen­ing in very dark spaces — peo­ple weren’t even aware of it.”

But, Waris warns, the glob­al finan­cial sys­tem remains unbal­anced. “There have been improve­ments in trans­paren­cy, but those have large­ly been for the ben­e­fit of rich­er coun­tries,” Waris said.

The off­shore sys­tem is so big and so entrenched that dis­man­tling it — or even reform­ing it — isn’t some­thing that can be done in a span of a few years.

You have to keep push­ing,” said Lakshmi Kumar, pol­i­cy direc­tor at Global Financial Integrity, a research and advo­ca­cy group. “Policymaking isn’t an overnight process.”

Before Panama Papers, she said, the debate over how to crack down on dirty mon­ey took place among gov­ern­ment offi­cials, bankers and oth­er cor­po­rate enablers of the off­shore sys­tem. Civil soci­ety groups “were just fringe play­ers. We weren’t even in the room.”

But the Panama Papers ener­gized anti-cor­rup­tion activists and pro­vid­ed them real-world exam­ples they’ve used to push their way in and make the case for tougher glob­al stan­dards and tougher nation­al laws, Kumar said.

Over the long haul, she said, con­tin­u­ing finan­cial scan­dals aren’t a sign of fail­ure in the fight. They’re instruc­tive data points show­ing the way toward real reform — “telling us what we are doing right and what we are doing wrong” in terms of poli­cies and how they’re enforced.

Reaching for transparency

Despite the bal­loon­ing num­ber of laws that abol­ish anony­mous com­pa­nies, mul­ti­ple analy­ses show that no coun­try achieves the lev­el of trans­paren­cy nec­es­sary to stop finan­cial crime in its tracks.

Berlin-based non­prof­it Transparency International found that while many coun­tries promised to launch own­er­ship reg­istries, con­crete action has “gen­er­al­ly lagged.” Of the few pub­lic reg­is­ters that exist, most are con­fined to Europe. In Africa, Tax Justice Network report­ed, only three coun­tries have praise­wor­thy own­er­ship reg­is­tra­tion. Other coun­tries cre­ate loop­holes for trusts or don’t require the infor­ma­tion to be made pub­lic, TJN found.

In the years since the Panama Papers, ICIJ inves­ti­ga­tions have high­light­ed sim­i­lar lim­i­ta­tions. Last year’s FinCEN Files inves­ti­ga­tion,  an ICIJ part­ner­ship with BuzzFeed News and more than 100 oth­er media part­ners, revealed how hun­dreds of com­pa­nies cre­at­ed in the U.K. helped obscure bil­lions of dol­lars in sus­pi­cious payments.

Despite a law that requires most U.K. com­pa­nies to dis­close own­ers who con­trol more than 25%, some com­pa­nies don’t pro­vide the infor­ma­tion or declare their own­ers to be shell com­pa­nies reg­is­tered in far-flung tax havens like the Seychelles.

Kumar said there’s much work to be done to make sure that cor­po­rate own­er­ship dis­clo­sures in the U.K. and else­where are accu­rate and use­ful. But as the world tries to undo the secre­cy that cloaked the sys­tem for decades, she said, “even bad infor­ma­tion is bet­ter than no infor­ma­tion. Because bad infor­ma­tion gives you an open­ing to ask ques­tions and hold some­one accountable.”

Tax evasion lobby’

In the wake of the Panama Papers, key tax havens saw their busi­ness mod­el crash. In late 2016, months after the Panama Papers inves­ti­ga­tion, the BVI report­ed a 30% drop in the num­ber of new com­pa­nies cre­at­ed com­pared to the same peri­od one year earlier.

Other nations, large and small, have emerged to fill the void. The United States, led by secre­cy havens such as Delaware and South Dakota, aggres­sive­ly court for­eign mon­ey. The United States refus­es to join the so-called Common Reporting Standard, a glob­al agree­ment under which more than 100 coun­tries and ter­ri­to­ries auto­mat­i­cal­ly pro­vide each oth­er with finan­cial infor­ma­tion relat­ing to non-citizens.

My sense is that the ‘tax eva­sion lob­by’ is stronger than one might think. — Gary Kalman, Transparency International

I think the move by Western and advanced economies to clean up will make it hard­er (although not impos­si­ble) to move mon­ey around, even to oth­er juris­dic­tions,” Gary Kalman, head of Transparency International in the U.S., told ICIJ.

That said, there are still many things we need to do to close gaps in our own laws,” Kalman added, point­ing to loop­holes for invest­ment advi­sors, cryp­tocur­ren­cies and the real estate mar­ket. “My sense is that the ‘tax eva­sion lob­by’ is stronger than one might think.”

The United Arab Emirates, 118 times small­er than the United States, is anoth­er tax haven. Last year, the glob­al anti-mon­ey laun­der­ing watch­dog, the Financial Action Task Force, crit­i­cized the UAE for its poor record curb­ing finan­cial crime. The Emirates’ short list of pros­e­cu­tions despite well-known risks was “par­tic­u­lar­ly con­cern­ing,” FATF said. The coun­try has since announced crack­downs on a hand­ful of banks and law firms.

ICIJ keeps fighting

Since the Panama Papers, ICIJ and its part­ners have worked togeth­er on six more inves­ti­ga­tions of dirty mon­ey and finan­cial secre­cy — Paradise PapersWest Africa LeaksBribery DivisionMauritius LeaksLuanda Leaks and FinCEN Files.

ICIJ’s 2020 Luanda Leaks project, which cat­a­logued the insid­er deals and rise of Angolan bil­lion­aire Isabel dos Santos and the com­plic­i­ty of her advis­ers and lawyers, revealed that a Dubai com­pa­ny con­trolled by a close friend received $38 mil­lion hours after dos Santos was fired from her job as the head of the state-owned oil company.

While some fraud­sters and politi­cians will choose new homes for their shell com­pa­nies, oth­ers are eye­ing prod­ucts and ser­vices whose val­ue for mon­ey laun­der­ing is hard­er for inves­ti­ga­tors to see.

Low-cost shell com­pa­nies still allow a bribe mak­er or a bribe tak­er to quick­ly move taint­ed cash mon­ey around the world. But more com­pli­cat­ed schemes have caught the atten­tion of law enforcement.

Last year, a leaked report by the FBI high­light­ed the near­ly $10 tril­lion pri­vate equi­ty indus­try as a mon­ey laun­der­ing tool. Criminals inte­grate dirty mon­ey into invest­ments offered by hedge funds and oth­er vehi­cles, the report said.

Money laun­der­ers are also appro­pri­at­ing the legit­i­mate veneer of inter­na­tion­al trade to move dirty mon­ey around the world, experts say.

As part of the FinCEN Files inves­ti­ga­tion, ICIJ report­ed that the United Arab Emirates and the United States failed to pros­e­cute the Kaloti Jewellery Group despite a U.S.-led task­force deter­min­ing that the trad­er and refin­er bought gold from sell­ers sus­pect­ed of laun­der­ing mon­ey for drug traf­fick­ers and oth­er criminals.

Recognizing that increas­ing­ly sophis­ti­cat­ed schemes are not the brain­child of crim­i­nals alone, coun­tries and glob­al orga­ni­za­tions have turned the spot­light on lawyers, accoun­tants, invest­ment man­agers and oth­er advis­ers. In February, the Organisation for Economic Cooperation and Development released its first studyof so-called “pro­fes­sion­al enablers” of crim­i­nal activity.

These enablers “under­mine not only the rule of law, but their own pro­fes­sion,” the OECD said, cit­ing ICIJ inves­ti­ga­tions for bring­ing pub­lic atten­tion to their role and call­ing on coun­tries to dis­rupt the enablers’ activities.

Following the Luanda Leaks inves­ti­ga­tion, Portugal’s secu­ri­ties reg­u­la­tor rec­om­mend­ed crim­i­nal pros­e­cu­tions against audit­ing com­pa­nies that worked for dos Santos. The reg­u­la­tor dis­cov­ered audi­tors who had not stopped pos­si­ble mon­ey laun­der­ing and did not flag sus­pi­cious trans­ac­tions to author­i­ties when faced with “suf­fi­cient rea­sons” to sus­pect that trans­ac­tions “could be relat­ed to funds from crim­i­nal activities.”

More than a year after that inves­ti­ga­tion, no charges have been announced.

Join us on April 15, 2021, for a free, online event mark­ing five years since the Panama Papers, fea­tur­ing doc­u­men­tary film­mak­er Alex Winter, and award-win­ning Panama Papers jour­nal­ists Emilia Díaz-Struck, Bastian Obermayer and Rita Vásquez.

Will Fitzgibbon, ICIJ

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