New Podcast Episode, Featuring Frederik Obermaier

A new episode of KickBack: The Global Anticorruption Podcast is now available. This week’s episode features an interview with Pulitzer Prize-winning investigative journalist Frederik Obermaier (of the German publication Süddeutsche Zeitung), best known for his work on the Panama Papers investigations, and more recently for the story on the secret videos that exposed leading figures in one of Austria’s major political parties engaging in corrupt negotiations with someone they thought was the relative of a Russian oligarch. In the interview, Frederik and I discuss both of these high-profile stories, as well as broader questions regarding the role of investigative journalism in the fight against corruption and some of the challenges facing the independent media today.

You can find this episode, along with links to previous podcast episodes, at the following locations:

KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

Guest Post: More on the Hazards of Public Beneficial Ownership Registries–What Stephenson and Others Miss

Today’s guest post, from Geoff Cook (the CEO of Jersey Finance), continues an ongoing debate an exchange we’ve been hosting here at GAB regarding the desirability of public (as opposed to confidential) registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. This exchange was prompted by a piece that Martin Kenney, a lawyer specializing in asset recovery in the British Virgin Islands, published on the FCPA Blog, which criticized the UK’s decision to mandate that the 14 British Overseas Territories create public UBO registries. Mr. Kenney’s post prompted reactions from Rick Messick and from me. Our critical reactions stimulated another round of elaboration on the critique of the UK’s decision, with a new post from Mr. Kenney and another from Mr. Cook. I subsequently replied, explaining why I did not find Mr. Kenney’s or Mr. Cook’s criticisms fully persuasive. Mr. Kenney responded to that post earlier this month, and in today’s post Mr. Cook contributes his critical reactions to my response: Continue reading

Guest Post: Encouraging Signs for a Possible U.S. Legislative Crackdown on Anonymous Companies

Gary Kalman, the Executive Director of the FACT Coalition, contributes today’s guest post:

A little over a year ago, the International Consortium of Investigative Journalists (ICIJ) released the Panama Papers, a treasure trove of information and a window into the world of financial secrecy. In some ways, much of what the Panama Papers revealed was already well known. Previous estimates put the amount of money hidden in offshore secrecy havens somewhere between $8 trillion and $32 trillion. In 2015, The New York Times published an impressive five-part series on the use of anonymous shell companies to purchase prime real estate in New York City. Prior to that, the U.S. Justice Department filed a lawsuit (which they just won on June 29th) to force the forfeiture of New York property secretly owned by the government of Iran in direct violation of economic sanctions. And so on. Yet it is hard to deny the captivating intrigue of the specific stories in the Panama Papers involving Russian kleptocrats, world leaders, athletes, movie stars, and others.

The big question is: more than a year later, did anything change? As I recently observed, there are indeed encouraging signs around the world, particularly in Great Britain, several EU member-states, and some developing countries such as Ghana. What about the United States? After all, with U.S. transparency laws ranging from weak to non-existent, there is little need to go to Panama to launder one’s dirty money. While Delaware gets the most notoriety, no state collects information on the true (“beneficial” owners of corporations. In fact, in its recent assessment of the U.S., the Financial Action Task Force, an international anti-money laundering body, noted that for all the progress the U.S. has made, the lack of beneficial ownership transparency remains a glaring weakness. And in the past, when some U.S. legislators – most notably former U.S. Senator Carl Levin (D-MI) – pushed legislation to require states to collect beneficial ownership information, the proposed bills never received so much as a hearing.

That may be about to change, and anticorruption advocates should take note. Continue reading

Guest Post: Beneficial Ownership Secrecy–Not All Offshore Financial Centers Are Part of the Problem, and Public Registries Are Not the Solution

Geoff Cook, Chief Executive Officer of Jersey Finance, contributes the following guest post:

The so-called “Panama Papers”—the documents leaked from the Mossack Fonseca law firm by an anonymous whistleblower—have highlighted how certain corporate service providers (CSPs) are able to set up, in offshore international financial centers (IFCs), shell companies for their clients, with bank accounts and other assets then owned by the shell company, so that the identity of the ultimate beneficial owner is hidden. That secrecy enables corruption, tax evasion, money laundering, and other nefarious activity.

While the Panama Papers revelations may have done some good in calling more attention to abuses of the legal and financial system – abuses that can and should be fought – much of the prevailing discussion in the wake of the Panama Papers revelations – much of it driven by moral outrage and salacious headlines about dubious deals – has produced two significant analytical errors, one concerning the diagnosis of the problem, and the other concerning the appropriate prescription. Continue reading

Will the Panama Papers Lead to Criminal Prosecutions?

 

“[T]housands of prosecutions could stem from the Panama Papers, if only law enforcement could access and evaluate the actual documents. [But] ICIJ and its partner publications have rightly stated that they will not provide them to law enforcement agencies.”

Manifesto of “John Doe,” the Panama Papers leaker, May 6, 2016

Is Mr. Doe correct?  Will thousands of tax cheats, corrupt politicians and other crooks get off scot free because prosecutors, anticorruption commissions, tax and customs authorities, and other law enforcement agencies can’t obtain the documents that constitute the Panama Papers?

This is surely a possibility.  In some countries the stories written on the Panama Papers do not identify who used the services of Panamanian law firm Mossack Fonseca to establish a corporation in the British Virgin Islands, Nevada, or other offshore jurisdiction.  The rules governing the opening of a criminal investigation in most countries are (with very good reason) quite stringent, and without knowing who actually opened an offshore corporation the authorities in some countries will be powerless to proceed.  Even in those countries where the owners of offshore corporations have been revealed, that may not be enough for a criminal investigation.  As Mossack Fonseca and its defenders have reminded the public (ad nauseam), owning a corporation in another country is not by itself illegal.

One tact authorities in these countries could take would be to focus on the law firms, banks, and other entities in their countries that introduced their nationals to Mossack Fonseca.  As explained in earlier posts (here, here and here), these “introducers” are the critical link in the chain of transactions that starts with a tax evader or corrupt politician’s need to hide money and ends with his or her ownership of an offshore corporation that cannot be traced to them. Moreover, not only are the introducers the critical link; they are the vulnerable link as well. Continue reading

The Panama Papers Whistleblower’s Radical Manifesto: Some Preliminary Thoughts on a Fascinating Document

The leak of the so-called “Panama Papers”—the roughly 11 million documents from the Panama-based international law firm Mossack Fonseca, provided to the International Consortium of Investigative Journalists (ICIJ) by an anonymous whistleblower—has generated an enormous amount of coverage and commentary (including on this blog: see here, here, here, and here). The identity of the person who leaked the documents is still unknown, but (as many readers are already no doubt aware), this individual posted a “manifesto” last month under the name “John Doe,” explaining his motives in leaking the documents and advocating the sorts of reforms he or she believes are necessary to combat the evils that the Panama Papers reveal and represent. I’m not sure how many of our readers have already read the manifesto, but if you haven’t, I highly recommend that you do. It’s a fascinating document, obviously written by somebody who is both passionate and very well-informed. I’m not sure whether I agree with everything in it—the spirit of the manifesto is radical, even revolutionary, while by nature I tend to be more cautious and incremental—but I think that everyone ought to read the manifesto and take it seriously.

In terms of specific policy reforms, much of what the manifesto proposes has been widely discussed elsewhere: a call public corporate registers (including calls for the UK to extend its domestic initiatives in this area to its overseas territories and dependencies, and for the US to impose transparency and disclosure requirements on individual states); demand for reform of America’s “broken campaign finance system”; and the criticism of the “revolving door” between regulatory agencies and the financial institutions they regulate. (On this last point, by the way, I think John Doe’s analysis is both overly simplistic and overly nasty. He singles out Jennifer Shasky Calvery, the former director of the US Treasury’s Financial Crimes Enforcement Network (FinCEN), calls her “spineless” and castigates her for going to work for HSBC, “one of the most notorious banks on the planet.” I think the general criticism of the revolving door is too simple for reasons I have laid out previously, and it’s unfair in this context in particular because Ms. Calvery in fact had a reputation for aggressive enforcement. Maybe John Doe knows something about Ms. Calvery’s tenure at FinCEN that I don’t, but I found that this petty name-calling, not backed up by any evidence beyond vague insinuations and guilt-by-association, to be both off-putting and out of character with the rest of the manifesto.)

But in addition to these fairly familiar themes, John Doe’s manifesto lays out two radical policy proposals that, so far as I can tell, have gotten very little attention in the discussions of the Panama Papers, or even in discussions of the manifesto specifically. Both are worth taking seriously, though both make me uncomfortable: Continue reading

Guest Post: After the Media Circus, What (If Anything) Have We Learned from the Panama Papers?

GAB is pleased to welcome back Professor Jason Sharman, Deputy Director of the Centre for Governance and Public Policy at Griffith University, Australia, who contributes the following guest post:

After the initial flurry of media attention to the Panama Papers, Matthew Stephenson rightly asks how much, if anything, we have really learned from this affair beyond the celebrity gossip.

A notable degree of modesty is in order here, as what we have seen so far is a tiny, almost certainly unrepresentative sample of the vast quantity of information leaked to International Consortium of Investigative Journalists (ICIJ). The initial wave of media coverage related to 140 individuals, including 12 heads of state or government. Since the ICIJ database became searchable on May 9th, we have a few more names, mostly small-time crooks, and it is possible to run individual name searches to your heart’s content. Nevertheless, given that Mossack Fonseca had created 214,000 shell companies, what we have seems to be less than 1% of their clientele, and presumably the most sensational and outrageous cases. If you looked at your average big international bank, took the records of 214,000 accounts, and subjected them to a detailed financial audit, you probably would find at least a few hundred people engaged in crime or some other seriously shady business (putting banks’ own criminal conspiracies like rigging the LIBOR and Forex markets and sanctions-busting to one side).

Matthew’s earlier post asked about the structure of the offshore shell company industry–in particular, whether it was dominated by a few major providers, or whether it was a highly fragmented market with many firms, each with small market share. The answer is both: There are a few big wholesalers of shell companies, four or five, plus a couple in the US. The wholesalers sell to thousands of intermediary retailers, who then sell to the end-users, i.e. the beneficial owners. I was surprised by how many retailers Mossack Fonseca dealt with (14,000), given that the other wholesalers of equivalent size engage with 2,000-3,000 intermediaries. The difficulty keeping track of this number of retailers, let alone their customers, might explain Mossack Fonseca’s otherwise-puzzling suicidal indiscretion in transacting with customers who brought a huge amount of risk for a fairly trivial sum of money, e.g. those on US government sanctions lists.

What does the structure of the industry mean for regulatory solutions? The retailers could take up the slack if the wholesalers were put out of business, although the process of forming shell companies would be less efficient and more expensive. More importantly, the more concentrated the industry, the easier it is to regulate, compared to the whack-a-mole situation of thousands of independent retailers. As Rick Messick rightly points out, for this regulation to work, however, it is necessary for the Eligible Introducer system between wholesalers and retailers to work in identifying beneficial owners. Despite a litany of earlier high-profile failures, a Guardian piece actually suggests that the British Virgin Islands authorities had recently got on top of this problem: in 2015, 90 requests from the local Financial Intelligence Unit to Mossack Fonseca turned up the names of 89 beneficial owners. However, because customer identity documents are now almost always scans rather than paper, there seems to be no good reason why they can’t be held in the jurisdiction of incorporation.

More broadly, with the Panama Papers and the earlier April 2013 offshore leak, we (or at least the ICIJ) now have information on just over 320,000 offshore shell companies, which probably represents something like 15-20% of all the offshore shell companies ever created. You can work out the total number in that BVI has about 40-45% of the worldwide market. It currently has 450,000 active companies, and 950,000 formed in total since the creation of its registry. If we could draw a random sample of these companies and the associated documentation, rather than cherry-picking the worst of the worst, then we could form a much more accurate and robust conclusion on what the typical uses of offshore shell companies actually are.

In just looking at the information we do have from the Panama Papers, two things are fairly apparent, yet don’t seem to have attracted much comment so far: Continue reading