The immense public service performed by the consortia of journalists who exposed the inner-workings of the Panamanian law firm Mossack Fonseca is plain to all. The thousands of stories in multiple languages revealing how M/F works with law firms and banks around the globe to help individuals hide their wealth has provided law enforcement a cornucopia of leads — as the investigations launched in France, Switzerland, South Africa, Pakistan, the United Kingdom, El Salvador, Argentina, and India attest to. Far more important than nailing a few tax cheats or crooked politicians, though, are the revelations showing how easily firms like M/F can dodge laws that supposedly bar them from helping individuals keep their wealth a secret and what changes are needed to end this legal dodge ball.
But there is a risk that, because the revelations have been dubbed the “Panama Papers,” reformers will be thrown off the scent. Panama is a small part of the story at best. The real problem lies in jurisdictions like the British Virgin Islands where, as an April 4 Guardian story shows, an obscure provision in its antimoney laundering law allows M/F and other firms like it to establish a BVI corporation without having to verify who the true, or beneficial, owner of the corporation will be. This creates an opportunity to introduce a layer of secrecy between the owner and his or her money and law enforcement authorities. A name better calculated to lead reformers in the right direction would have been the “BVI Papers” since most of the corporations M/F establishes for clients are created under the law of BVI.
An even better name still might be the “EI Papers” as it is the “EI” provision of BVI law that allows M/F to duck verifying the identity of the beneficial owners of the corporations it creates. “EI” stands for “eligible introducer,” and the best way to see how the EI provision in BVI law makes hiding money so easy is through an example. Suppose, just for the sake of illustration, Russian President Vladimir Putin was about to come into a large amount of rubles that he would rather Russian citizens and his critics abroad not know about. How would the EI provision in BVI law help him keep his wealth secret? Continue reading