20 Apr The Panama Papers
In the wake of the headline-grabbing leak of the Panama Papers, Reporting Entities are experiencing renewed scrutiny of their efforts to thwart money laundering and illegal tax evasion, as regulators try to get to the bottom of why accounts for corrupt politicians were set up without much or any transparency.
Government action is likely across the globe on the “gate keepers” that help create secret accounts and shell companies.
Whilst the focus has initially been on the activities of lawyers, accountants, and company formation agents, there is increasing attention on the role Reporting Entities such as banks and other financial institutions that played in the game of corporate obscurity and hide the beneficial owner, involving not just Mossack Fonseca, but also many other corporate service providers around the globe.
The news reports on the cache of 11.5 million documents from the Panamanian law firm Mossack Fonseca has prompted investigations by authorities of several governments and may lead to more aggressive regulation.
There are likely more revelations to come. The news reports focus on secretive offshore accounts held by high-profile government leaders that prompted questions over the source of funds.
The International Consortium of Investigative Journalists, which has analysed the documents, released a full list of companies and individuals affiliated with them in May 2016.
Whilst the focus now is on Mossack Fonseca, the source of the documents, there are other firms all over the world in the business of setting up offshore accounts with the same structures.
The types of structures Mossack Fonseca sets up aren’t necessarily illegal or unethical, as long as they have the appropriate transparency and are used for legitimate purposes. However, weeding out the illegitimate structures from the ethical ones can be tricky.
Where does all this leave Reporting Entities?
Regulatory and law enforcement agencies have a history of activity or taking action after revelations like this.
Even Reporting Entities that believe everything they have done is legal need to re-evaluate their customers to ensure they understand the risks they pose. Businesses that take a proactive stance should be in a much better positon than those that take a wait-and-see attitude.
The first step to be undertaken by Reporting Entities is to do an inventory of accounts and quantify exposure and risk.
Reporting Entities should know which offshore companies they’re doing business with. They should review the relevant accounts to ensure information on beneficial owners is on file, and apply enhanced due diligence if necessary and take action regarding non-compliance.
The next step is to ensure that systems and controls are in place to identify the on-going risk of doing business with offshore entities and legal structures similar to those identified by the Panama Papers.
With sometimes disparate databases and segmented client information, coupled with limited internal capacity to collate information and data to obtain the insights necessary, this can prove a real challenge for Reporting Entities, but this is a challenge that is clearly high on the regulatory agenda.
In other words, Reporting Entities should redouble efforts to do what they should have been doing all along, aiming to ensure full transparency and documentation of their account holders.