A money laundering scandal involving an Estonian branch of Danske Bank, the Danish financial institution, led to the resignation of CEO Thomas Borgen on September 19, but the fallout from what could end up being the largest money laundering scandal in European history is far from over.Read More
Following a Supreme Court decision on May 14 that will allow states to determine the legality of sports gambling within their jurisdictions, more questions than answers emerged about the ruling’s implications across the country. As individual states determine whether or how they will accommodate sports gambling, fraud risks related to the industry should be at or near the top of the list of considerations for all involved.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.
Litigator focusing on high-stakes, cross-border financial crime disputes
Bennett Jones LLP
Most large-scale fraud, corruption, taxation and other economic crimes have a common characteristic: complex webs of corporations and trusts used to perpetuate schemes and to launder funds. While the “corporate veil” establishes the separate legal identity of corporations for legitimate reasons, it can also aid in the concealment of money and the identities behind it.
By permitting corporate ownership to remain secret, governments facilitate money laundering. Secret corporate ownership occurs when a corporation hides the identities of their true beneficial owners. The Panama Papers serve as the most recent example of the need for transparency of this beneficial ownership. However, it is not a new concern.
In addition to places like Panama, Canada is also an attractive jurisdiction for those looking to keep corporate ownership secret because of its lack of ownership disclosure requirements. But the issue in approaching a solution is not a lack of awareness – Canada is well known to be a hub for these white-collar crimes, facing criticism from nations who have created successful transparency schemes such as the U.K. and the British Virgin Islands (BVI). Bringing the country into compliance with international norms and increasing beneficial ownership transparency has been a recent budget agenda item of the Canadian government, but several factors are continuously highlighted as standing in the way of formal commitment. For example, only 10% of Canadian companies are federally registered, making it difficult to create a national strategy to close loopholes without the cooperation of the provinces.
Despite barriers to prompt resolution of this issue, elements of a successful government approach to monitoring corporate ownership are clear:
- Strong leadership from the Financial Action Task Force, the G-20 and the U.K.;
- Coordination with the provinces and foreign governments;
- A public registry of beneficial corporate owners;
- Mechanisms to ensure a balance between privacy and social interests; and
- Successful models to strive toward, such as those in the U.K. and BVI.
Canada is currently a safe harbor for laundered money, but it doesn’t have it to be. This infographic and the steps it lays out give Canadians the steps needed to make progress in the transparency of corporate ownership.
Are you interested in learning more about the latest fraud-related topics and trends that impact Canada? Attend the upcoming 2017 ACFE Fraud Conference Canada in Toronto, October 29-November 1. Register at FraudConference.com/Canada by September 29 and save CAD 100!