Thursday, December 1, 2016

Panama Papers - Global Effects Thus Far & Continuing Impact


On April 4, 2016 we posted Huge Leak From the Panamanian Law Firm Mossack Fonseca! where we discuss that the offshore planning world was set on fire with the news that 11 million documents were leaked from the Panamanian law firm Mossack Fonseca.
 
They show how Mossack Fonseca has helped clients launder money, dodge sanctions and evade tax. The company says it has operated beyond reproach for 40 years and has never been charged with criminal wrong-doing.

Gerard Ryle, director of the ICIJ, said at the time, that the documents covered the day-to-day business at Mossack Fonseca over the past 40 years.

While no reference was initially made regarding U.S. clients; we correctly speculated that U.S. persons will probably show up, given that Mossack Fonseca apparently maintained a branch in Las Vegas, Nevada, under the name of M.F. Company Services and Mossack Fonseca Company Services was currently attempting to fight a subpoena brought in the U.S. District Court for the District of Nevada seeking information on at least 123 companies that it created.
 
Fast-forward 8 months later and the investigation has produced an almost daily drumbeat of regulatory moves, follow-up stories and calls by politicians and activists for more action to combat offshore financial secrecy and ICIJ recently posted Panama Papers Have Had Historic Global Effects — and the Impacts Keep Coming where they cover the following repercussions:                 
 
  • At least 150 inquiries, audits or investigations into Panama Papers revelations have been announced in 79 countries around the world
  • An estimated $135 billion was wiped off the value of nearly 400 companies after the Panama Papers
  • Governments are investigating more than 6,500 taxpayers and companies, and have recouped at least $110 million so far in unpaid taxes or asset seizures
  • Nine Mossack Fonseca offices have shuttered around the world, and the law firm has been fined close to half a million dollars 
 
Our Blog "The Tax Times" lists the following as fallout from the Mossack Fonseca a/k/a "Panama Papers" leak:
 
 
 
 
11/23/16
 
 
 
 
10/7/16
 
 
 
 
9/29/16
 
 
 
 
 
 
9/23/16
 
 
 
 
8/30/16
 
 
 
 
8/9/16
 
 
 
 
 
7/25/16
 
 
 
 
6/25/16
 
 
 
 
6/25/16
 
 
 
 
6/15/16
 
 
 
 
6/3/16
 
 
 
 
6/3/16
 
 
 
 
5/24/16
 
 
 
 
5/18/16
 
 
 
 
5/11/16
 
 
 
 
5/10/16
 
 
 
 
5/5/16
 
 
 
 
4/26/16
 
 
 
 
4/25/16
 
 
 
 
4/18/16
 
 
 
 
 
4/11/16
 
 
 
 
4/7/16
 
 
 
 
4/4/16
 
 
 
 
4/15/16
 
Do You Have Undeclared Income 
From A Foreign Company
Formed By Mossack Fonseca ?
 

 
 
 Want to Know if the OVDP Program is Right for You?


 
Contact the Tax Lawyers at 
Marini& Associates, P.A.  
 
for a FREE Tax Consultation
Toll Free at 888-8TaxAid (888) 882-9243
 
 







 

7 comments:

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  2. According to Law360, New York (December 16, 2016, 5:09 PM EST) The offshore banking industry attracted global attention on April 3, 2016, when the International Consortium of Investigative Journalists published the “Panama Papers,” a collection of 11.5 million leaked documents detailing decades of information about over 200,000 bank accounts and shell companies created or administrated by the Panama-based law firm and corporate services provider Mossack Fonseca & Co.

    Although shell companies are not necessarily illegal, and in fact have valid purposes, they can be used by owners and beneficiaries to shift assets offshore, hide their activities, and evade taxes. The Panama Papers leak immediately prompted governments around the world to launch criminal investigations and propose new restrictions on the use of anonymous entities.

    In the United States, initial government reactions reflected a tension between several states’ shell company-friendly policies and the federal government’s growing unease with anonymous entity ownership. State and federal agencies launched investigations into domestic shell companies registered by Mossack Fonseca affiliates, international banks with branches — and potential Mossack Fonseca client accounts — in the U.S., and Mossack Fonseca employees themselves.

    Unveiling initiatives that had been under development before the papers emerged, the White House announced new policies that enlist banks to help federal agencies collect, share and use beneficial ownership information to prosecute offshore banking crimes.

    Eight months after the release of the Panama Papers, things have grown relatively quiet in the United States: the investigations have not yet resulted in enforcement actions, and the fate of proposed policies under the administration of President-elect Donald J. Trump remains unclear.

    Still, businesses operating in the United States, especially in the financial services industry, can learn several things from the leak. This article discusses government responses to the Panama Papers and offers several best practices for companies to minimize their risk of exposure to unlawful shell company activity or its consequences.

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  3. International Reactions

    The Panama Papers initially hit hardest outside the United States, listing the names of dozens of international leaders and their contacts: Argentine president Mauricio Macri (currently under investigation for failing to disclose his involvement in a Mossack Fonseca-affiliated Bahamian company), former Icelandic prime minister Sigmundur David Gunnlaugsson (who resigned on April 5 after the papers revealed millions of dollars in overseas accounts), and relatives and close associates of former British prime minister David Cameron, Russian president Vladimir Putin and Chinese president Xi Jinping.

    Between April and November 2016, law enforcement and tax authorities from Argentina, Australia, Canada, Denmark, France, India, Indonesia, Mexico and Pakistan, among other countries, launched investigations into individuals and entities named in the Panama Papers. In Australia, where over one thousand individuals were identified in the papers, a joint task force executed 100 compliance actions, three search warrants and 15 unannounced visits in the span of a week. Switzerland and the U.K. also began investigating connections between Mossack Fonseca and banks operating within their borders.

    Countries also announced policy changes: Afghanistan, France, Nigeria, Kenya and the U.K. all agreed to create publicly available registries of beneficial ownership information; and in July, the European Union proposed robust new anti-money laundering (AML) rules, including regulations on virtual currency exchanges, requirements that member countries identify and share bank account ownership information, and the creation of a common “blacklist” of non-cooperative jurisdictions.

    Shell Companies In The United States

    In the United States, reactions to the Panama Papers were shaped by the country’s status as an international banking destination in its own right.

    Of the shell company shareholders or beneficiaries with known nationalities mentioned in the papers, only 2.5 percent are American. This may be, at least in part, because overseas shell companies are of limited use to U.S. citizens. Not only has the federal government cracked down on offshore tax evasion over the past decade, but many of the services offered by Mossack Fonseca are already available — legally — in the United States.

    Several states, including Delaware, Nevada, and Wyoming, allow owners to register shell companies without reporting beneficial ownership information, and the Panama Papers list 1048 companies registered by Mossack Fonseca affiliates M.F. Corporate Services (Nevada) Limited and M.F. Corporate Services Wyoming, LLC.

    Domestic shell companies were already an issue of concern for U.S. officials before the Panama Papers leak. In a February 26, 2016 letter to Treasury Secretary Jacob Lew, Senator Ron Wyden, ranking Democratic member of the Senate Finance Committee, stated that he was “particularly concerned” by reports of “anonymous U.S. shell companies used as vehicles for terrorist financing and other crimes,” including tax evasion and government fraud, and requested information about White House proposals to collect and use information about the “beneficial ownership” of shell companies to track and prevent their misuse.

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  4. U.S. Investigations Of Accounts Named In The Panama Papers

    After the Panama Papers leak, several government entities and officeholders responded by seeking information about the domestic shell companies named in the Papers.

    On April 7, 2016, Senators Elizabeth Warren and Sherrod Brown urged the Treasury Department to “investigate whether any U.S. or U.S.-linked company or person involved with Mossack Fonseca may have facilitated money laundering, terrorist financing, or other illegal activity, including with any U.S.-designated persons.”

    Although the Treasury Department did not provide a public response, the IRS met six days later with tax authorities from other countries to discuss global intelligence sharing and issued a statement urging people hiding assets offshore to report their accounts under the IRS’s Offshore Voluntary Disclosure Program.

    On May 10, Senator Wyden sought information from the Nevada and Wyoming Secretaries of State — including beneficial ownership information — about the 1048 domestic shell companies named in the Panama Papers. Senator Wyden also sought information about a joint “Corporate Ownership Fraud Task Force” launched by the Nevada Secretary of State and the IRS in 2011. Nevada Secretary of State Barbara K. Cegavske responded that she had no information about the task force or the beneficial ownership of the shell companies in question.

    Wyoming Secretary of State Ed Murray, however, had already begun an investigation of his own, auditing the 24 named Wyoming entities on April 5. After concluding that “M.F. Corporate Services Wyoming LLC failed to maintain the required statutory information for performing the duties of a registered agent under Wyoming law,” Secretary Murray demanded this information from M.F. Corporate Services and opened an investigation into the entities that — like Sen. Wyden’s inquiry — is apparently still ongoing.

    Still, the Wyoming investigation highlighted tension between individual states and figures like Senator Wyden. Even as Secretary Murray acknowledged the potential for “illicit activity” in the anonymous entities, he objected to “calls for transparency and the revealing of beneficial ownership information” as a move that would “increase red tape and limit business formation and innovation in Wyoming.”

    Most recently, on October 19, Sen. Wyden sent a letter to Secretary Lew and IRS Commissioner John Koskinen seeking (a) federal Employer Identification Numbers (EINs) for the domestic shell companies named in the Panama Papers, (b) documents filed by these companies with the federal Financial Crimes Enforcement Network, and (c) information about any activity conducted by the IRS-Nevada joint task force since its formation.[6] As with the earlier inquiry from Senators Warren and Brown, the Treasury Department and IRS have not provided a public response.

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  5. U.S. Investigations Of Accounts Named In The Panama Papers

    After the Panama Papers leak, several government entities and officeholders responded by seeking information about the domestic shell companies named in the Papers.

    On April 7, 2016, Senators Elizabeth Warren and Sherrod Brown urged the Treasury Department to “investigate whether any U.S. or U.S.-linked company or person involved with Mossack Fonseca may have facilitated money laundering, terrorist financing, or other illegal activity, including with any U.S.-designated persons.”

    Although the Treasury Department did not provide a public response, the IRS met six days later with tax authorities from other countries to discuss global intelligence sharing and issued a statement urging people hiding assets offshore to report their accounts under the IRS’s Offshore Voluntary Disclosure Program.

    On May 10, Senator Wyden sought information from the Nevada and Wyoming Secretaries of State — including beneficial ownership information — about the 1048 domestic shell companies named in the Panama Papers. Senator Wyden also sought information about a joint “Corporate Ownership Fraud Task Force” launched by the Nevada Secretary of State and the IRS in 2011. Nevada Secretary of State Barbara K. Cegavske responded that she had no information about the task force or the beneficial ownership of the shell companies in question.

    Wyoming Secretary of State Ed Murray, however, had already begun an investigation of his own, auditing the 24 named Wyoming entities on April 5. After concluding that “M.F. Corporate Services Wyoming LLC failed to maintain the required statutory information for performing the duties of a registered agent under Wyoming law,” Secretary Murray demanded this information from M.F. Corporate Services and opened an investigation into the entities that — like Sen. Wyden’s inquiry — is apparently still ongoing.

    Still, the Wyoming investigation highlighted tension between individual states and figures like Senator Wyden. Even as Secretary Murray acknowledged the potential for “illicit activity” in the anonymous entities, he objected to “calls for transparency and the revealing of beneficial ownership information” as a move that would “increase red tape and limit business formation and innovation in Wyoming.”

    Most recently, on October 19, Sen. Wyden sent a letter to Secretary Lew and IRS Commissioner John Koskinen seeking (a) federal Employer Identification Numbers (EINs) for the domestic shell companies named in the Panama Papers, (b) documents filed by these companies with the federal Financial Crimes Enforcement Network, and (c) information about any activity conducted by the IRS-Nevada joint task force since its formation. As with the earlier inquiry from Senators Warren and Brown, the Treasury Department and IRS have not provided a public response.

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  6. U.S. Investigations Of Mossack Fonseca

    The Department of Justice took a slightly different focus, launching an investigation from its headquarters in Washington, D.C., and from the U.S. Attorney’s Office for the Southern District of New York into “whether individuals within Mossack Fonseca worked with clients to knowingly facilitate criminal activity.” This investigation, too, is still ongoing.

    U.S. Investigations Of International Banking Activity

    Although only 4.5 percent of the intermediary banks or law firms listed in the Panama Papers are based in the United States, many international banks operate in the U.S. and are therefore subject to U.S. laws, including the Bank Secrecy Act (BSA) and AML laws. By opening accounts for anonymously-held entities, these banks run the risk of unknowingly facilitating unlawful activities.

    Between April 20 and May 11, 2016, the New York State Department of Financial Services (NYDFS) issued letters to seventeen foreign and domestic banks requesting records of transactions and communications between their New York branches and Mossack Fonseca or its clients.

    On Aug. 21, 2016, the NYDFS reached a $180 million settlement with Mega International Commercial Bank of Taiwan for violating New York’s BSA/AML requirements. Although the investigation began months before the Panama Papers leak, a press release mentioned that a “substantial number of customer entities” at Mega Bank branches outside of New York had been formed with the assistance of Mossack Fonseca, suggesting that other banks serving clients of Mossack Fonseca may face similar scrutiny from the NYDFS.

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  7. U.S. Policy Proposals

    The banking industry’s role in mitigating shell company abuse also figured into the Obama Administration’s May 5, 2016, announcement of new Treasury and DOJ policies aimed at collecting and sharing beneficial ownership information for entities doing business in the U.S.

    Although often framed as a reaction to the Panama Papers, most of these policies were in the works well before April 2016. Among other measures, the Treasury Department announced a final rule increasing Know-Your-Customer (KYC) obligations for financial institutions, including the requirement that banks identify the beneficial owner of each entity opening a new account.

    The Treasury Department also proposed amendments to the BSA that would require U.S. entities to share beneficial ownership information directly with Treasury and regulations that would require foreign-owned entities to obtain an EIN (requiring them to provide beneficial ownership information to the IRS in the process). Finally, the White House requested that Congress approve pending tax treaties and grant reciprocal information sharing with at least seven countries under the Foreign Account Tax Compliance Act.

    Also on May 5, the DOJ introduced several proposed statutory amendments aimed at making it easier to prosecute money laundering in foreign jurisdictions, obtain admissible foreign bank or business records, and use classified materials in civil cases.

    Looking Forward

    Other than the final rule increasing KYC obligations for financial institutions, the fate of these proposals will largely depend on decisions made by the incoming Trump administration. Aside from general statements about tax reform, President-elect Trump and his nominees for Treasury Secretary and Attorney General, Steven Mnuchin and Senator Jeff Sessions, have not indicated how they will treat the existing White House proposals or the issue of shell company regulation more generally.

    Still, businesses — especially financial services firms — can employ several “best practices” to minimize their exposure to potential civil or criminal liability.

    • First, companies should compare lists of the parties with which they do business—customers, clients, third-party business contacts, payees—with the Panama Papers and determine whether any of these parties have connections with Mossack Fonseca. Such parties may already be the subject of government investigations in the U.S. and abroad, and may present heightened legal or reputational risks.
    • Second, whether or not the proposed White House policies take or remain in effect, financial institutions should reevaluate their compliance systems to ensure they can identify accounts potentially engaged in illegal offshore activities. This may involve: ◦ requiring new clients to provide documentation regarding beneficial ownership;
    ◦ conducting enhanced due diligence on accounts connected to offshore banking or shell company registration locales;
    ◦ questioning the plausibility of beneficial ownership information and resolving conflicts between information supplied by the client and publicly available information; and
    ◦ recording all steps taken that go beyond a traditional, cursory due diligence examination, allowing companies to point to a robust AML program even if a client does slip through the cracks.


    • Finally, financial institutions in particular may need reassess their own risk profile and the risk profile of their clients in light of both (a) the ongoing worldwide law enforcement efforts and policy developments discussed in this article and (b) the data breach that led to the publication of the Panama Papers in the first place.

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