In recent years, government investigations have centred on the activities of major banks to help move, hide and launder money by the wealthy. The leak of 11.5 million documents from Mossack Fonseca has grabbed headlines and revealed truths about long-held suspicions of money-laundering, tax evasion and illicit offshore companies.
The leaked documents reveal that there are, in fact, many lawyers and incorporation agents who are heavily involved in the process as well.
The majority of reports focus on the high-profile individuals’ involvement in money laundering and tax evasion, but what do we actually know and how does Mossack Fonseca really work?
What do we know now?
Tax-Havens
Offshore Financial Centres or so-called, Tax Havens, are what we expect them to be; small island countries with high banking secrecy and low taxations for financial transactions. Often associated with rich criminals and now there is the evidence to confirm our suspicions.
World Leaders
Perhaps the most reported aspect of the document leak was the involvement of many world leaders and individuals in their close circles. For example, the money laundering by Russians individuals who happen to be close allies of Putin; it looks as though Putin is not immediately involved, but that his friends are laundering money for him.
Similarly, the Icelandic Prime Minister has been forced to resign over accusations that he concealed millions of dollars in companies in the British Virgin Islands. One of the companies is said to have direct interest in the health of the Icelandic banks. Despite insisting he has paid his taxes fully, this has been little comfort to Icelandic people who are recovering from a banking crisis.
Criminal Assistance
Mossack Fonseca has also been linked in criminals. Allegations suggest the firm assisted laundering the money from the Brink’s Mat robbery in 1983, which saw three and a half tonnes of gold bullion disappear. It is supposed that Mossack Fonseca helped to prevent the British police from finding the money by establishing a company for Gordon Parry despite knowing he was laundering money from the robbery.
FIFA looks to be involved
The new President, Infantino has been linked to a case of bribery, unsurprisingly; he has expressed his dismay and uncertainty about why his integrity has been doubted. Infantino is said to have signed a contract with two individuals accused of bribery, the same individuals who owned a company who bought the TV rights for the UEFA championships, only to immediately sell them for three times the price. This company has since been linked in Juan Pedro Damiani, a FIFA ethics committee member who has already been placed under internal investigation.
Cameron’s Funds
David Cameron has also been linked to this scandal, following the information about an offshore fund set up his late father. He has since confirmed that he, his wife nor his children benefit from the trusts in a statement from Downing Street. He has explained that he owns no shares nor has any offshore investments, and any beneficial investments were sold before he became Prime Minister. The opposition continues to pressure Cameron for greater clarity about the extent of links between Britain and the web of tax avoidance and evasion.
London House Prices
It looks like the offshore investments are pushing up the price of houses for Londoners, and subsequently, the country. Many of the most expensive properties in London are owned by wealthy individuals who look to invest in London when other cities are in crisis. London mortgages increasing could be as a result of many foreign individuals hide their assets in offshore companies to hide how much property they own in London.
More countries implicated
Those interested in the 11.5 million documents is increasing; Germany, Norway, France and Spain are just a few of the countries investigating if their citizens have been involved evading tax illegally. The German authorities have already begun raiding homes and businesses to find evidence of illegal activities.
Tackling Tax Fraud
The government, ahead of this release, had scheduled a meeting of G7 leaders to discuss overseas territories and crown dependencies. The Financial Conduct Authority has also contracted a number of firms about establishing an anti-money laundering programme. As well as explaining the importance of maintaining the integrity of the UK financial markets and the need for mitigating the risk of committing financial crimes.
There’s more to come
As the documents are reviewed in full and the fallout is calculated, it is safe to say there is still more to come. The allegations of illicit activities and the scale of those involved will only continue to increase over the weeks to come.
How does it all work?
Shell Companies
A shell company appears to be a legitimate business, although it does nothing but manage the money in it whilst hiding the owner’s identity. The management will often be made up of lawyers and accountants who are responsible for signing documents and appearing as a named contact.
Shelf Companies
Similar to shell companies, a shelf company looks more legitimate and will have been established many years ago – “left on the shelf” – which means it already has a corporate history. Shelf companies are seldom used for anything other than funnelling illicit financial flows from corporate tax avoidance and evasion, government corruption and criminal activity.
Offshore Financial Centres
For a shell company to maintain its anonymity and allow the owner to move large amounts of money, it will need to be managed within an Offshore Financial Centre, or Tax Haven. Most often, these are based in small island companies that have very low or non-existent taxes on financial transactions and have high banking secrecy. It is important to note that the majority of the financial services in these countries are perfectly legal.
Bearer Shares and Bonds
Bearer Bonds provide additional anonymity and enable the easy movement of money without arising suspicious. They work according to the idea that a ‘bearer’ the person who has the money in their possession owns the money, even if it is not strictly theirs. This is especially helpful if you want to move vast amounts of money around and deny any ownership. For example, if the bond is kept in a lawyer’s office, there is no way to know who it actually belongs to.
Money Laundering
Money Laundering involves cleaning ‘dirty’ money; if, for example, you have lots of money but no way of hiding it, you might want to move it to an Offshore Financial Centre. There you will be able to convert your cash to a bearer bond, owned by a shell company that no-one knows about.
Who’s who?
Beneficial Owner – The individual who actually owns the company.
Nominee Director – An individual who is a stand-in on paper; acting to disguise the real owner’s identity.
Registered Agent – An individual who takes care of the paperwork required to establish a company. They might provide the clients with nominee directors and mailing addresses, but may not know who the owner is.
Intermediary – This individual is hired on behalf of the beneficial owner;, often a lawyer or private banker.
Layering – This is a tactic used to create distance between the beneficial owner and the assets they own (for example, a bank account or property). Most often this involves setting up an entity in one country that owns an entity in another country.