The Panama Papers first anniversary: Have we increased transparency and reduced corruption?


As we approach the first anniversary of the Panama Papers scandal that broke around the world on 3rd April 2016[1], it is useful to reflect on the impact this scandal has had in improving transparency and reducing corruption.  The scale of the leaked data was massive, including 11.5 million records with details on more than 214,000 offshore entities in more than 200 countries and territories[2] . The size of the leak continues to be the largest, dwarfing the recent Wikileaks revelations.  At the time of the leaks, we saw a significant public outcry casting politicians, celebrities and other power players under a shadow of suspicion, revealing the murky world of shell companies and offshore corporations supposedly designed to shelter the wealth of the rich and powerful.

We first wrote about this scandal on our blog, highlighting the idea that not everyone listed on the Panama Papers is a crook[3].  We attempted to explain that the idea of registering and owning an offshore holding company is not in itself illegal and not always used for corrupt purposes.  However, the Panama Papers raised the shadow of public suspicion as to why these offshore corporations exist and how are they used.

The first dramatic casualty of the revelations was the resignation of the Icelandic Prime Minister on April 6 2016, who had concealed millions of dollars of assets in an offshore company under his name registered by Mossack Fonseca, the Panamanian law firm in the direct center of the scandal[4].  This revelation confirmed the public’s suspicion that shell companies and offshore corporations were in fact used for unlawful purposes, hiding assets and evading taxes.  Governments around the world (with the notable exceptions of Russia and China) seized on these revelations as well, calling for public inquiries and investigations into individuals and firms named in the Panama Papers[5].

Ultimately, the Panama Papers highlighted the need for transparency and the need to ask probing questions such as: who is the Ultimate Beneficial Owner (UBO)?  What is the source of funds? Are funds from criminal sources?  What is the purpose of these shell companies and offshore corporations?  Are they being used to hide corrupt funds?  How can you find out?

As we had previously suggested, there are legitimate uses for offshore holding companies – including the need to create anonymity to avoid kidnapping and other terrorist threats, as well as for other legitimate operational business purposes.  The legitimate use of offshore holding companies creates additional complexities in identifying the criminal use of these companies casting a long shadow overall.

So has the Panama Papers leak moved the needle on increased transparency?  The answer lies in understanding major events since the leaks.  Undoubtedly, it has made an impact in Iceland, a country where transparency and openness between the government and public is prized and any form of corrupt activity (perceived or otherwise) is not tolerated.  Iceland ranks high on the Transparency International Corruption Perception Index (Number 14 out of 176 countries in the latest 2016 survey)[6].   While its ranking has not dropped significantly, Iceland continues to be ranked lowest of any of the Nordic countries.  Certainly, the Panama Papers scandal reinforced the need for trust to be rebuilt between the government and the public.

There have been other significant events since April 3 2016.   Corruption by politicians and officials of public bodies is always a concern:

  • The FIFA scandal broke in part due to the revelations in the Panama Papers tying FIFA officials to corrupt business relationships[7].
  • Swiss and US authorities continue investigations into various officials with multiple arrests to date. FIFA’s contract award processes have been revamped, with greater transparency since the scandal.
  • The former UK Prime Minister, David Cameron was questioned for his links to an offshore registered company.
  • The Spanish Minister of Industry, Jose Manuel Soria, had to resign due to his association with an offshore company and then denying his links[8].Apart from government ministers implicated in the scandal, information from the Panama Papers were used to arrest known drug traffickers laundering money in Uruguay[9].
  • Most recently, the founding partners of Mossack Fonseca, Juergen Mossack and Ramon Fonseca were arrested in Panama City for their alleged connections with Brazil’s own Lava Jato corruption scandal[10].
  • Bankers have been arrested as well, with 3 employees of major banks implicated as a result of investigations by the UK’s Financial Conduct Authority and National Crime Agency[11].
  • In El Salvador, police raided Mossack Fonseca’s offices in order to preserve evidence for future investigations[12]. Investigations continue in other parts of the world, no doubt leading to additional arrests and prosecutions.

All these actions expose the need for increased transparency to reduce corruption.  Perhaps the most significant direct outcome of the revelations was the Anti-Corruption Summit held in the UK in May 2016 with 43 countries participating in the discussions calling for greater transparency to stamp out corruption[13].  A tangible outcome from these talks was the call for the development of public company registers of beneficial owners (UBOs).  The UK and other countries are in the process of developing these registers where countries commit to exchange beneficial ownership data on an automated basis.  Upcoming regulatory changes in the EU related to the 5th Anti-Money Laundering Directive highlight the need for public registers and data sharing between EU members. Certainly there are challenges, however, it is important to note that the Panama Papers have sparked the need for increased transparency to reduce corruption.

The results are encouraging, with public officials susceptible to corruption now more aware of the risks of getting caught.  Governments are making commitments to develop public registers and sharing information, along with continued enforcement actions by country authorities.  The march to drive out corruption with increased transparency continues.  The Panama Papers revelations celebrate the first year anniversary, with a measure of success under its belt.  No doubt we will see more progress in the year to come.

 

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[1] https://www.theguardian.com/news/2016/apr/03/the-panama-papers-how-the-worlds-rich-and-famous-hide-their-money-offshore

[2] https://panamapapers.icij.org/blog/20160403-key-findings.html

[3] https://accuity.com/accuity-insights-blog/henry-balani-the-panama-papers-not-everyone-is-a-crook/

[4] http://www.bbc.com/news/world-europe-35966412

[5] https://panamapapers.icij.org/blog/20160405-global-response.html

[6] http://www.transparency.org/news/feature/corruption_perceptions_index_2016#table

[7] https://www.nytimes.com/2016/04/07/sports/soccer/panama-papers-raise-new-questions-for-fifa.html

[8] http://www.ibtimes.com/panama-papers-spains-industry-minister-jose-manuel-soria-resigns-over-links-offshore-2354344

[9] http://www.busqueda.com.uy/nota/la-policia-detuvo-en-uruguay-once-presuntos-vinculados-al-poderoso-cartel-de-la-droga-mexicano

[10] https://www.theguardian.com/world/2017/feb/10/panama-papers-mossack-fonseca-offices-raided-over-odebrecht-bribery-scandal

[11] http://www.telegraph.co.uk/business/2016/11/11/three-arrested-amid-panama-papers-insider-trade-inquiry/

[12] https://www.elfaro.net/es/201604/video/18377/FGR-allana-las-oficinas-de-Mossack-Fonseca-en-El-Salvador.htm

[13] http://www.economist.com/news/international/21698740-step-right-direction-what-david-camerons-anti-corruption-summit-did-and-didnt