Hossam El Shaffei, CFE, has been interested in fighting fraud since first seeing normalized bribery occur in his native Middle East. Currently a partner specializing in risk advisory services at RSM Consulting, he has more than 35 years of global and regional work experience in multinational organizations such as the United Nations and United States Agency for International Development. El Shaffei also established ACFE chapters in Egypt and Jordan and recently became an Authorised Trainer for the CFE Exam Review Course in Jordan, Egypt and Lebanon.Read More
Clare Rewcastle Brown just couldn’t ignore the corruption. “I could see it was a massive and underreported scandal of vast proportions,” Brown says in the cover article of the most recent Fraud Magazine, written by Sarah Hofmann, CFE. “I asked why no one was covering it, and for some time I hoped someone else would. Then I realized all the local people who knew about it felt disempowered.”Read More
The Securities and Exchange Commission (SEC) charged Theranos, a Silicon Valley company founded on supposedly revolutionary, portable blood testing technology, its founder and CEO Elizabeth Holmes, and its former President Ramesh Balwani with fraud this week related to false statements and representations made while raising more than $700 million from investors.Read More
On Wednesday March 7, Red Granite Pictures, a Los Angeles-based movie production, agreed to pay $60 million to settle a lawsuit brought by the U.S. Department of Justice (DOJ). The suit alleged that the production studio took money associated with the 1MDB scandal — a multibillion dollar corruption and money laundering case that centers around Malaysia.Read More
Mason Wilder, CFE
ACFE Research Specialist
Massive data leak leads to newspaper reports uncovering shady offshore financial dealings. Sound familiar? It should.
Once again, the International Consortium of Investigative Journalists (ICIJ) managed to get its hands on a treasure trove of financial and legal documents that outline the mechanisms used to help some individuals and corporations move money to reduce their tax burdens and obscure asset ownership. This time, the leak and accompanying stories have been coined the “Paradise Papers,” in a follow-up to 2016’s “Panama Papers.”
The two leaks share many similarities, but how are they different?
First off, and perhaps most importantly, this year’s Paradise Papers feature a main player (Appleby – a Bermuda-based legal services firm) that was seemingly more selective about its client list than the star of last year’s Panama Papers. Mossack Fonseca, a Panama-based law firm, showed no qualms dealing with individuals and entities potentially tied to illegal activities, including several heads of state and/or their families and associates. The leaks led to the Mossack Fonseca’s dissolution, the arrests of the founders, the resignation of Iceland’s PM, the removal of Pakistan’s Prime Minister, and investigations targeting more than 6,000 individuals and corporations throughout the world.
The Paradise Papers have not yet linked the subjects of the data leak to criminal culpability – and aren’t necessarily expected to – but they do feature a much more eye-catching list of names associated with almost 25,000 shell companies in more than 30 offshore jurisdictions. British royals Queen Victoria and Prince Charles, rock star Bono, Formula 1 superstar Lewis Hamilton, U.S. Secretary of Commerce Wilbur Ross, Twitter, Facebook, Apple, American pop stars Madonna and Justin Timberlake, and Russian oligarchs. These are only some of the high-profile figures and companies connected to offshore financial dealings through the Paradise Papers. It’s worth mentioning again that none of these people have faced allegations of criminal wrongdoing thus far, just questions about whether their financial dealings are “bad optics.”
Secondly, while the Paradise Papers certainly qualify as a bombshell data leak, the Panama Papers have them beat in terms of size, setting the record for largest known data leak at 2.6 terabytes (TB). There’s a good chance that much of the data from the Panama Papers still hasn’t even been seen by human eyes yet. The Paradise Papers, on the other hand, reportedly feature only 1.4 TB of data, or 13.4 million documents ranging from 1950-2016. Additionally, the Panama Papers’ documents came in formats much easier to process compared to the Paradise Papers. It may be a while before all the implications of the Paradise Papers can get sorted out and relayed to the public.
What can fraud examiners learn from this latest leak in the meantime?
It isn’t exactly a revelation that potential targets of fraud examinations or investigations can go to great and convoluted lengths to obscure asset ownership and complete pictures of their finances. By studying the stories borne out of the Paradise Papers, fraud examiners can gain a better understanding of how the thin line between tax avoidance and tax evasion, or the line between unethical and illegal, can be blurred or skirted. Fraud examiners can also learn red flags to look for and places to look for them in due diligence or compliance investigations, asset searches and more. They can also gain insight into tactics for moving and hiding assets internationally. Most importantly, much of the data from the Paradise Papers has been added to the searchable database of the ICIJ, almost all of which is publicly available on their website for use in any number of investigative or research tasks. Happy hunting!
To learn more about what fraud examiners should know about the Panama Papers leak, read "Shell Shocked" from Fraud Magazine.