By this point in the development of the events, everyone caught wind of the most recent groundbreaking data leak since the Panama Papers in 2016. The Pandora Papers are comprised of 11.9 million leaked documents (2.9 terabytes of data) published by the International Consortium of Investigative Journalists (ICIJ) on 3 October 2021, exposing the secret accounts (offshore structures and trusts in tax havens such as Panama, Dubai, Monaco, Switzerland, and the Cayman Islands) of 35 world leaders, including current and former presidents, prime ministers, and heads of state, along with more than 100 billionaires, celebrities, and numerous business leaders.
The Consortium shared access to the leaked data with select media partners including the Guardian, BBC Panorama, Le Monde, and the Washington Post. According to The Guardian, more than 600 journalists have sifted through the files as part of a massive global investigation. The same publication dubs this the largest, in terms of data volume, in a series of major leaks of financial data that have convulsed the offshore world since 2013.
What The Paypers set out to do is to catalyse, in one single place, the most relevant media coverage concerning the aftermath of the Pandora Papers leak and offer our readers a birds-eye view of global financial world in the wake of this event. This material is meant to offer a basis for understanding how and if a financial data leak of this calibre has the potential to shift the way banks, big financial conglomerates, regulatory bodies, and governments make strategic decisions in the interest of promoting financial transparency and more judicial scrutiny of the offshore system as a whole.
Switzerland’s role in the game
Switzerland cited as one the largest offshore wealth centre in the world, handling a quarter of the globe’s cross-border assets (close to USD 8.5 trillion).
Expatica.com explains how, in 2020, the Swiss Money Laundering Reporting Office (MROS) received 5,334 reports of suspicious financial activity, with the majority (4,773) being issued by banks. The material from Expatica.com cited several NGOs’ concern over Swiss lawyers and trustees enabling their clients to hide funds via shell companies registered in tax havens ‘which enables or at least facilitates tax evasion, crime, and corruption on a large scale’.
The analysis covers indications from Swiss supervisory authority Public Eye (formerly the Berne Declaration) as being among numerous entities demanding a change in Swiss law to oblige lawyers, notaries, and consultants to report suspicious financial activity to the authorities. The list also includes the Financial Action Task Force, Transparency International, and several left-leaning politicians. In March 2021, their appeals were rejected by parliament, which decided the current laws were strong enough, says Expatica.com
Swissinfo.ch supports the fact that in recent years, Swiss banks have been forced to increase the granularity on their reports of suspicious transactions. However, efforts to impose such requirements on financial advisors have been rejected.
The International Consortium of Investigative Journalists indicates that the Pandora Papers undercut the claim that existing Swiss laws are sufficient to combat money laundering.
As leaked in the documents, from 2005 to 2016, at least 26 Swiss firms that appear in the documents provided services to clients whose offshore companies were later investigated by authorities looking for evidence of money laundering and other financial crimes. In most of the cases, the firms played the role of introducer, connecting clients to offshore service providers.
UK and US. Conversation on transparency and AML deepens
Opendemocracy.net recalled a review made in September 2021 by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) highlighting the potential failings by the professional bodies meant to supervise the UK’s lawyers, accountants, and related professions. OPBAS is part of the Financial Conduct Authority and was set up to strengthen the UK’s anti-money laundering powers.
In this sense, OPBAS noted that 81% of professional bodies in the sector did not have an ‘effective risk-based approach to supervising their members’, and that 50% of them ‘failed to ensure’ timely action on correcting gaps in their members’ anti-money laundering practices.
The Financial Action Task Force (FATF), the inter-governmental body created to set international standards that aim to prevent illegal financial activities, is among the most relevant policy-making entities with capacity to further analyse the documents and suggest actionable regulatory measures in the case of the Pandora Papers. Transparency International suggests that the international body can do so by requiring all countries to put in place the measures that would make financial crime investigations both more efficient and effective. It can also sanction countries that fail to comply.
In the case of the Pandora Papers, Transparency International UK has urged the British Government to close a loophole that allows companies in the UK’s offshore financial centres such as the British Virgin Islands and the Cayman Islands to hold property in the country without requiring these companies to reveal the names of their true owners.
A material published by Firstpost.com explains how the British government should also crack down on lawyers and tax advisors that help those with illicit wealth move and hide their cash in the UK and to properly resource the National Crime Agency to go after those suspected of having made their money through crime and corruption.
Thecyberwire.com points out in one of its newsletters that, in the US, the Pandora Papers leak came in the wake of a wave of recent ransomware privateering and the arrival of Cybersecurity Awareness Month.
Foreign Policy points at one particularity discerning itself from the leaked documents: the fact that few US names were mentioned. One simple explanation, as the media platform suggests, was cited from the Washington Post, in that millionaires and billionaires have enough tools available within the US tax code to shield most of their wealth already.
FP journalists however suggest that banking regulations put into force following the release of the Pandora Papers forced American financial institutions to perform ‘customer due diligence’ to verify who actually owns the company they are doing business with.
European Commission reactions, plan of action, and plea for revised AML regulations
El País dives into the matter of the EU’s role in combatting money laundering in the wake of the Pandora Papers debacle and what is the part that European countries play in the offshore system. According to an estimate by the European Commission, citizens in the EU use different tax evasion vehicles to divert the equivalent of 9.7% of the region’s GDP (EUR 46 billion of lost tax revenue each year). The OECD calculates that at least EUR 10 trillion is held offshore on a global scale.
In 2017, the European Commission drafted a blacklist of ‘non-cooperative jurisdictions’ that has since been revised periodically (some of the regions on the list are American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, the US Virgin Islands, and Vanuatu). However, many critics indicate that many of the tax havens permeating from the Pandora Papers documents are not featured on the EU blacklist.
The Guardian, one of the major media outlets being at the forefront of the publication of the Pandora Papers, published several recent analyses indicating that members of the European Parliament have criticised the EU blacklist for leaving out major tax havens.
Prior to the vast data leak, EU officials had begun discussions on whether to overhaul the criteria that determines which countries feature on the blacklist. Meanwhile, the European Commission has promised new legal proposals to crack down on shell companies before the end of 2021.
Euronews published an updated statement that, even though Seychelles, Anguilla, and Dominica were discussed as being the primary three names to be further included in the blacklist, on 5 October 2021, Seychelles has now been removed from the EU's tax havens list, alongside two Caribbean islands, Anguilla and Dominica. EU ministers made the move after the Organisation for Economic Co-operation and Development (OECD) ruled the three archipelagos were entitled to an additional review to assess their compliance with international standards on tax transparency and exchange of information.
The European Parliament, on the other hand, changed its agenda for this week’s plenary session to include a debate on the Pandora Papers on Wednesday (6 October) afternoon.
Deutsche Welle adds to the voices criticising the EU blacklist, pointing out that promises by some EU lawmakers to combat tax evasion ‘ring hollow because bloc members such as Malta and Cyprus often serve as havens. One of the biggest centres for holdings, trusts, and shell companies is probably the United States, the EU's closest ally, according to the Pandora Papers’.
ABC brought together a list of industry experts, economics professors and financial analysts calling for a harsh rethinking of anti-money laundering laws in order to serve the increased need for transparency, awareness of the scale of tax abuse that can be generated from the offshore system, stricter foreign policies, and a boost for the OECD’s Common Reporting Standard.
The latter includes among other points, the creation of public registers of the individuals who own companies, trusts, and foundations, and country-by-country reporting by multinational companies.
Global echoes: Asia and Australia
The Business Times publishes news concerning The Monetary Authority of Singapore’s (MAS) official investigation of the Asiaciti Trust, a conglomerate that has set up and managed trusts and shell companies in secrecy jurisdictions for hundreds of South American, United States, Asian, and European clients.
The investigation starts just days after MAS announced it would create a digital platform enabling banks to share information on customers and transactions, part of efforts to prevent money laundering and financing of criminal activity.
Indian Express covers the Indian Government’s announcement of a multi-agency probe involving the Central Board of Direct Taxes, Enforcement Directorate, Reserve Bank of India, and Financial Intelligence Unit to investigate the cases of the Pandora Papers. Of the 300-plus Indian names, the offshore holdings of as many as 60 prominent individuals and companies were corroborated and investigated, which will reportedly be revealed in the coming days.
Thediplomat.com was one of the publications publicising the statement made by the Australian Taxation Office, which declared it would analyse the information in the Pandora Papers to determine whether there were any relevant links, while stressing that it doesn’t rely on data leaks, as it deals with `offshore tax evasion year-round`.
Cryptocurrencies and their role in the Pandora Papers
Many relevant authorities, including the European Parliament have been studying the legal context and implications for financial crime of cryptocurrencies and blockchain. The controversial nature of crypto has made governments more than reluctant to adopt these payment methods, in spite of the fact that, built in the same infrastructure, the highly regulated and talked-about central bank digital currencies are almost a thing of the present on a global scale.
However, by bringing forth the most recent data on the matter, Forbes debunked this myth in January 2021, one of the arguments pointing at the fact that the criminal share of all cryptocurrency activity fell to just 0.34% (USD 10.0 billion in transaction volume) in 2020 (from 2.1% in 2019).
BTC Manager supported this claim, suggesting that the Pandora Papers leaks ‘come as a big win for crypto supporters’. According to the material, the Pandora Papers reveal another advantage of crypto payments over fiat, peer verification. This feature is crucial to the sustenance of any BC project. Peers verify transactions before okaying them. High verification thresholds plus penalties incurred for wrongful proofs help thwart fraud.
Coindesk recently quoted Crypto Bitlord in one of their podcasts stating ‘Pandora Papers are old news but watch the narrative being spun. New laws will come out of this, more international cooperation and in the end, higher tax for everyone’.
Coin Rivet spoke to George Benton – co-founder of the UK’s first university blockchain society and operations lead at Encode Club – to gain an insight into what the implications of the Pandora Papers may mean for the crypto space and decentralised finance industry. One of the statements made by Benton was that ‘it will be very interesting to see what is created over the next few years as a result of the current situation, especially now that DeFi provides us with the tools to make real change to the way that the financial system operates’.
Conclusions
While the discussions surrounding cryptocurrencies in this convoluted matter are still and probably will remain polarised, a couple of conclusions that we set out from this analysis are closely related to regulation and augmented fiscal scrutiny.
It appears self-evident that the European Union must come together and strengthen its policy against money laundering and the intrinsic facilitators in this sense (from a more exhaustive view of the blacklisted territories offering tax exemptions outside of the EU, to more comprehensive all-encompassing AML laws, or more focused KYC checks on offshore entities).
Parallel to the public dialogue on corruption, on the big companies or high profile individuals threading the legal needle with offshore activity, there is the talk to be had on what tools governments already have at their disposal right now to combat tax evasion and financial crime: from the still undetermined full potential of CBDCs on a global economic scale, to existing standards, policy proposals from industry bodies all over the world for strengthening regulation and increasing transparency.
About Alexandra Constantinovici
Alexandra is Senior News Editor at The Paypers. A passionate writer, Alexandra has an extensive background in journalism – as a graduate of Journalism and Communication studies –, as well as editing, publishing, and marketing. She coordinates the news coverage at The Paypers and, together with the team of editors, she strives to bring forward the latest trends for our readers, while investigating and sharing with our community the upcoming innovative industry shifts.
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