Either there hasn’t been much going in the money laundering news or I’ve not paid enough attention. On the other hand, governmental investigations are run behind the scenes. Perhaps the regulators are working out of sight.
Here are a few articles I’ve noticed in the last few months.
In their research they have only found 2,400 Americans who ran money through companies set up by Mossack Fonseca, none of them high-profile, and apparently none of them from the political world.
Article tells the tale visible from correspondence for a few people who had already built a private fortune and then decided to park money overseas.
The basic asset protection shell structure includes two entities: a for-profit into which money is moved from the US, and a Panamanian based foundation which receives a contribution from the first shell, thus protecting the money from litigation, taxation, or disclosure.
new revelation of an old technique to launder money,
US government actions to reduce laundering that look to me like they are just eyewash, and
small investors in a local real estate project appear to be investors working through the Panamanian system.
5/5 – Star-Telegram – Panama law firm used charities’ names as cloaks for clients – One of the schemes used in hiding money through offshore companies is setting up a foundation under Panamanian law. A private foundation can be set up which requires three directors, two of which must be publicly disclosed. Intended beneficiaries must be identified but could be changed before any funds disbursed.
The way this works is the two named individuals work for the law firm while the third undisclosed person is the person hiding money. The undisclosed person calls the shots with the two staff people from the law firm following instructions. The beneficiaries can be changed at any time.
Panama will be shutting down the bearer share concept for documenting ownership of a company. ICIJ plans to release a huge database on shell companies. Also some reasons I would have an offshore company or maybe five if I was a billionaire or high official in a corrupt country.
Article wonders why the rulers in an absolute monarchy would want to park money in anonymous offshore accounts. Article suggests there isn’t any need to do so since absolute rulers not only own the country but decide by themselves what is legal and illegal.
The reason can be found by looking around after the Arab Spring. It seems like in just a flash the governments of Tunisia, Libya, and Egypt collapsed. Even the current prime minister of Pakistan was ousted (he has since regained power) and had to flee for his life.
The longer answer for hiding money in offshore accounts is it that when things can change overnight, you need to have someplace to run and some money to work with. An escape plan.
And then there are the super rich people who made their money legitimately.
The best stories to be told as a result of the massive data leak cannot yet be written.
The really smart people use multiple layers of shell companies to hide assets. When laundering money, one should move assets through a series of companies, with each subsequent jump being anonymous.
A long time ago I attended a continuing education class helping CPAs understand fraud. Why are such classes required? So that, hopefully, maybe, CPAs will be able to recognize fraud when it stares them in the face during the course of an audit.
During the class, the instructor went off script and explained to us how to launder money.
Here are a few articles I found of interest in the last few days on offshore banking as revealed by the Panama Papers leak.
4/7 (from 4/9 print edition) – The Economist – A torrential leak– Not much news to me or to you if you’ve been reading my posts this week. This would be a great introduction if you have just tuned in.
A couple of tidbits. The law firm involved worked with around 14,000 law firms, incorporation companies, and banks, according to an estimate by ICIJ. Somewhere around 500 banks were involved in setting up companies. HSBC reportedly set up around 2,000 shell companies.
4/6 – Politico – Panama Papers pose ethics issues for U.S. prosecutors– Apparently there is a massive roadblock for the DoJ using all the materials in the data dump. Prosecutors are not allowed to even look at material that they think might be covered by attorney-client privilege. That makes it an issue to look at anything that came out of a law firm. Many documents are under attorney-client protection and almost all documents might be so covered.
The primary focus in media coverage is on tax evasion. There are other ways to look at the offshore industry. There are more and deeper legal issues involved. The tax evasion concerns under discussion are just the starting point on the list of issues that ought to generate irritation.
Following articles provide a variety of alternative views of what is going on in the Panama Papers leaks. That the articles I mention contradict each other illustrates my point that there are more issues involved than just tax evasion.
Question for you to ponder: Why have people been hiding their money for over 2,000 years?
In 1934 when Switzerland made it a crime for a banker to reveal a customer’s name, they were a bit behind the curve. Liechtenstein, Luxembourg, and Bermuda were tax havens a couple of decades earlier. As a depressing note, the Swiss offered confidentiality for a fee all the way back in 1789.
Yes, it is actually possible to organize your offshore company with the ownership documented with bearer stocks. Join me as I dive into the fine details of a WSJ article.
4/6 – Wall Street Journal – Panama Papers: Hiding Cash Has Become Crummy Business – Even Switzerland has joined the crackdown on hiding money. Prosecutors there leaked information on the Malaysian scandal. That’s a whole other story that I won’t go into. The point is Swiss prosecutors are going after money launderers and embezzlers. Swiss prosecutors. You know, from Switzerland. Land-of-the-numbered-account Switzerland.
More detail from the article:
The offshore “business” has been shrinking for a long time. Article says the firm of Mossack Fonseca & Co saw a two-thirds decline in the number of companies they incorporated between 2005 and 2015, dropping from 13,287 to 4,341 in a decade.
Article says the Panama Papers say the law firm’s clients have incorporated 16,323 companies over the last three years but have closed up 28,777 in the same time. That’s a net shrinkage of over 12,000.
The company represented around 6,000 businesses in 2005 whose ownership was evidenced using bearer shares. Currently they represent 170. That’s a drop of 97% in a decade in the number of clients using bearer shares.
Bearer shares. Did you know that was even a thing? Before I get to that, let me describe bearer bonds.
Previously mentioned the massive leak of data about offshore banking that hit headlines this past Sunday. This is now called either the Panama Papers or Panama leak, take your pick. Here are a few of the initial articles on the follow-up that I found interesting.
There are more and deeper issues than just tax evasion. By the way, the term we should be discussing is tax evasion, not tax avoidance. Avoidance means complying with the tax law in order to lawfully reduce your tax bill. Evasion means breaking the law.
Some of the little boys may just have wanted to hide a few extra quarters from mommy because they wanted some privacy. Others may have been stealing lunch money from their schoolmates and don’t want mommy to know. Some may have been stealing from mommy’s purse. Yet others may have been wanting to save up a couple of dollars to buy an actual surprise birthday present for mommy and daddy. Some have gotten tired of their siblings sneaking into their piggy bank.
A massive amount of whistle blower information was announced over the weekend. The files are from a large law firm in Panama that helped companies and individuals set up offshore companies. This is called the Panama Papers.
There are many legitimate reasons to use offshore companies. There are many illegitimate reasons too.
I’ve just started looking at the story. Here are a few introductory tidbits.
Looks like there is another flood of reporting ready to appear in print on bank secrecy and hiding wealth.
This project will be called the Pandora Papers.
If you recall, a major series of reports back in the 2016 timeframe described money laundering efforts flowing through one particular law firm in Panama. You can read my comments on the coverage.
The International Consortium of Investigative Journalists (ICIJ) brought together around 600 journalists from about 150 media outlets to analyze a data leak with 2.94 TB of info. That’s terabytes, as in thousands of gigabytes.
Where there is tax evasion, I say throw ‘em in the clink.
On the other hand, as much as the reporter and editor may believe every penny of profit belongs to the government, it is not illegal to comply with the provisions of the tax law.
Other than announcing an investigation has begun, the article gives no more detail.
In particular, there is no indication of how DoJ plans to avoid tainting the investigation by viewing documents it knows are covered by attorney-client privilege. Based on my businessman’s limited knowledge of the law, I think the implications of knowingly viewing documents protected by attorney-client privilege would permanently taint any prosecution brought after reading those documents. That means any case that can be linked to tainted documents would get dismissed.