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6 months after Panama - all change?

September 23rd, 2016 - Posted by Sam Hemmant in Anti-Bribery And Corruption, Anti-Money Laundering

3rd October 2016 marks six months since the release of 11.5 million documents from the Panama-based law firm Mossack Fonseca in what The Guardian called the "biggest leak in history".  On September 28th LexisNexis is hosting a free Webinar to help companies understand how to manage beneficial ownership risk when dealing with complex corporate ownership structures.

The Panama Paper leak demonstrated how complex corporate structures – often set up in 'offshore' jurisdictions such as Panama – can be used to hide the true ownership of assets and bank accounts. These structures make it difficult for investigators to track money flows and expose companies to regulatory, financial and reputational risk for doing business with criminal enterprises engaged in economic crime. But six months on, has the Panama Paper leak led to any concrete changes?

Resignations and enforcement action

The Panama Papers have led to investigations of high-profile individuals and companies, many of which are ongoing. In the weeks following the revelations, Iceland's Prime Minister and Spain's acting Minister of Industry, Energy and Tourism stepped down. Perhaps more than ever before, countries have shown willingness to work together to take enforcement action against alleged wrongdoing exposed by the leak. In June, the European Parliament set up an inquiry committee into the Panama Papers, bringing together 65 representatives from its member states to investigate "alleged contraventions and maladministration" of EU laws on money laundering, tax avoidance and tax evasion. As countries increasingly share information, it should become harder for companies and individuals to escape punishment for financial crime.

Beneficial ownership on the agenda

The high public interest in the Panama Papers has helped to put the issue of hidden beneficial ownership high on the international agenda. When announcing amendments to the Fourth Anti-Money Laundering Directive in July 2016, the European Commission said the Panama Papers had exposed gaps in the tax framework. Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: 'The recent leaks exposed loopholes that still allow tax evaders to hide funds offshore. These loopholes must be closed and our measures to stamp out tax abuse must be intensified.' Although the precise measures to do this have not yet been set out, it is significant that the Commission has been spurred into action by the Panama leaks.

The Panama Papers were also mentioned at the London Anti-Corruption Summit in May. Although the summit had been planned before the revelations came to light, it undoubtedly received more global media attention because of the leaks. The most significant measures announced at the conference were about beneficial ownership, which was the focus of the Panama revelations.

The communique released after the summit pledged support for the role of the media – "including investigative journalists" - in "complementing and reinforcing corruption reporting systems". This could be interpreted as support for the International Consortium of Investigative Journalists' decision to release the Panama Papers.

More bark than bite?

Critics say the increased focus on beneficial ownership has still not led to the major reforms required to stop companies from concealing their ownership of a company, such as a global register of beneficial ownership or changes to offshore tax systems. 'The Panama Papers were always going to be plenty of bark but much less bite,' says Professor Dan Hough, Director of the University of Sussex's Centre for the Study of Corruption. 'The question was whether the bite was still enough to make people change behaviour in the long-term. As things stand, the jury is still very much out on that, but one thing is certainly clear: we haven't seen the types of wholesale changes to the international financial system that critics have called for.'

There is also doubt about whether the Panama government will make it harder for companies to use its financial system to conceal ill-gotten gains. The government reacted to the leak by setting up a committee of world-leading economists to investigate the country's financial and tax system. But last month, two economists resigned from the committee because Panama would not commit to making its report public. Nobel prizewinner Joseph Stiglitz is one of the economists to resign, saying: 'We can only infer that the government is facing pressure from those who are making profits from the current non-transparent financial system in Panama'.

This reflects a more general concern about how companies and governments respond to wrongdoing: it can be easy to say the right thing after a scandal, but water down the response when the media spotlight has moved on. Only time will tell if the Panama Papers truly make it easier for regulators to take enforcement action against tax crimes.

Register for a free LexisNexis webinar on beneficial ownership

It therefore remains vital for companies to do the proper research into the ultimate beneficial ownership of companies with which they do business. To this end, LexisNexis is hosting a free Webinar on September 28. It will be presented by Karen E. Gray, Senior Entity Due Diligence and Monitoring Specialist at LexisNexis BIS, at 4pm BST/11am EST. Attendees will learn:

  • How corporate hierarchy data helps unravel complex ownership structures that are indicative of beneficial ownership
  • Why country data enables you to better understand a country's commitment—or lack of it - to beneficial ownership transparency
  • What data on the origin and listing of a company—public or private—reveals about beneficial ownership risk potential

To register, or for more information, follow this link.

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