The fight against offshore crime will be a long campaign
On the fifth anniversary of the Panama Papers’ launch, experts say there’s been progress in the fight against dirty money — but much more is needed.
In May 2016, weeks after hundreds of journalists released the Panama Papers’ massive exposé of the secret financial dealings and hideaways of politicians, fraudsters and celebrities, a group of world leaders — embarrassed, outraged or knowing a good media opportunity when they saw one — met in London to denounce the global flood of dirty money.
British Prime Minister David Cameron, Nigerian President Muhammadu Buhari, Emirati deputy foreign minister Anwar Gargash and others signed the Global Declaration Against Corruption — a high-minded agreement to crack down on anonymous shell companies, stop lawyers and accountants who help corrupt officials and increase transparency to deter tax evasion.
Five years after the International Consortium of Investigative Journalists and more than 100 media partners released the Panama Papers, the fight against offshore financial secrecy and chicanery goes on — with a mix of victories and failures and more battles to come.
Cameron retired from politics, but only after resisting calls for his resignation and scraping through what The Guardian called “the worst week of his professional life” after the Panama Papers revelations forced him to admit that he benefited from an offshore trust created by his father. Buhari’s Nigeria still loses billions a year to corruption and tax evasion. Last year, the United Arab Emirates received a stinging report card from global experts who called it an attractive destination for criminals.
While the Panama Papers has sent criminals to jail and made other would-be felons think twice about where to hide ill-gotten gains, a hodgepodge of loophole-riddled legislation, profit-oriented tax havens and savvy enablers still permit financial crime to thrive.
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“As far as amplifying the seriousness of the problem, we are on the right track,” said Attiya Waris, a professor of fiscal law and policy at the University of Nairobi, Kenya. “The problem for so long was that all this was happening in very dark spaces — people weren’t even aware of it.”
But, Waris warns, the global financial system remains unbalanced. “There have been improvements in transparency, but those have largely been for the benefit of richer countries,” Waris said.
The offshore system is so big and so entrenched that dismantling it — or even reforming it — isn’t something that can be done in a span of a few years.
“You have to keep pushing,” said Lakshmi Kumar, policy director at Global Financial Integrity, a research and advocacy group. “Policymaking isn’t an overnight process.”
Before Panama Papers, she said, the debate over how to crack down on dirty money took place among government officials, bankers and other corporate enablers of the offshore system. Civil society groups “were just fringe players. We weren’t even in the room.”
But the Panama Papers energized anti-corruption activists and provided them real-world examples they’ve used to push their way in and make the case for tougher global standards and tougher national laws, Kumar said.
Over the long haul, she said, continuing financial scandals aren’t a sign of failure in the fight. They’re instructive data points showing the way toward real reform — “telling us what we are doing right and what we are doing wrong” in terms of policies and how they’re enforced.
Reaching for transparency
Despite the ballooning number of laws that abolish anonymous companies, multiple analyses show that no country achieves the level of transparency necessary to stop financial crime in its tracks.
Berlin-based nonprofit Transparency International found that while many countries promised to launch ownership registries, concrete action has “generally lagged.” Of the few public registers that exist, most are confined to Europe. In Africa, Tax Justice Network reported, only three countries have praiseworthy ownership registration. Other countries create loopholes for trusts or don’t require the information to be made public, TJN found.
In the years since the Panama Papers, ICIJ investigations have highlighted similar limitations. Last year’s FinCEN Files investigation, an ICIJ partnership with BuzzFeed News and more than 100 other media partners, revealed how hundreds of companies created in the U.K. helped obscure billions of dollars in suspicious payments.
Despite a law that requires most U.K. companies to disclose owners who control more than 25%, some companies don’t provide the information or declare their owners to be shell companies registered in far-flung tax havens like the Seychelles.
Kumar said there’s much work to be done to make sure that corporate ownership disclosures in the U.K. and elsewhere are accurate and useful. But as the world tries to undo the secrecy that cloaked the system for decades, she said, “even bad information is better than no information. Because bad information gives you an opening to ask questions and hold someone accountable.”
‘Tax evasion lobby’
In the wake of the Panama Papers, key tax havens saw their business model crash. In late 2016, months after the Panama Papers investigation, the BVI reported a 30% drop in the number of new companies created compared to the same period one year earlier.
Other nations, large and small, have emerged to fill the void. The United States, led by secrecy havens such as Delaware and South Dakota, aggressively court foreign money. The United States refuses to join the so-called Common Reporting Standard, a global agreement under which more than 100 countries and territories automatically provide each other with financial information relating to non-citizens.
My sense is that the ‘tax evasion lobby’ is stronger than one might think. — Gary Kalman, Transparency International
“I think the move by Western and advanced economies to clean up will make it harder (although not impossible) to move money around, even to other jurisdictions,” Gary Kalman, head of Transparency International in the U.S., told ICIJ.
“That said, there are still many things we need to do to close gaps in our own laws,” Kalman added, pointing to loopholes for investment advisors, cryptocurrencies and the real estate market. “My sense is that the ‘tax evasion lobby’ is stronger than one might think.”
The United Arab Emirates, 118 times smaller than the United States, is another tax haven. Last year, the global anti-money laundering watchdog, the Financial Action Task Force, criticized the UAE for its poor record curbing financial crime. The Emirates’ short list of prosecutions despite well-known risks was “particularly concerning,” FATF said. The country has since announced crackdowns on a handful of banks and law firms.
ICIJ keeps fighting
Since the Panama Papers, ICIJ and its partners have worked together on six more investigations of dirty money and financial secrecy — Paradise Papers, West Africa Leaks, Bribery Division, Mauritius Leaks, Luanda Leaks and FinCEN Files.
ICIJ’s 2020 Luanda Leaks project, which catalogued the insider deals and rise of Angolan billionaire Isabel dos Santos and the complicity of her advisers and lawyers, revealed that a Dubai company controlled by a close friend received $38 million hours after dos Santos was fired from her job as the head of the state-owned oil company.
While some fraudsters and politicians will choose new homes for their shell companies, others are eyeing products and services whose value for money laundering is harder for investigators to see.
Low-cost shell companies still allow a bribe maker or a bribe taker to quickly move tainted cash money around the world. But more complicated schemes have caught the attention of law enforcement.
Last year, a leaked report by the FBI highlighted the nearly $10 trillion private equity industry as a money laundering tool. Criminals integrate dirty money into investments offered by hedge funds and other vehicles, the report said.
Money launderers are also appropriating the legitimate veneer of international trade to move dirty money around the world, experts say.
As part of the FinCEN Files investigation, ICIJ reported that the United Arab Emirates and the United States failed to prosecute the Kaloti Jewellery Group despite a U.S.-led taskforce determining that the trader and refiner bought gold from sellers suspected of laundering money for drug traffickers and other criminals.
Recognizing that increasingly sophisticated schemes are not the brainchild of criminals alone, countries and global organizations have turned the spotlight on lawyers, accountants, investment managers and other advisers. In February, the Organisation for Economic Cooperation and Development released its first study of so-called “professional enablers” of criminal activity.
These enablers “undermine not only the rule of law, but their own profession,” the OECD said, citing ICIJ investigations for bringing public attention to their role and calling on countries to disrupt the enablers’ activities.
Following the Luanda Leaks investigation, Portugal’s securities regulator recommended criminal prosecutions against auditing companies that worked for dos Santos. The regulator discovered auditors who had not stopped possible money laundering and did not flag suspicious transactions to authorities when faced with “sufficient reasons” to suspect that transactions “could be related to funds from criminal activities.”
More than a year after that investigation, no charges have been announced.
Join us on April 15, 2021, for a free, online event marking five years since the Panama Papers, featuring documentary filmmaker Alex Winter, and award-winning Panama Papers journalists Emilia Díaz-Struck, Bastian Obermayer and Rita Vásquez.