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Too big to jail: Pandora Papers show urgent action is required

Despite so many government promises, we’ve ended up with inadequate laws and toothless regulation. The Pandora papers show why urgent action is needed

The Pandora papers data leak has once again highlighted the predatory practices of the world’s political and financial elites – enriching themselves by looting the public purse or exploiting laws which they themselves helped to establish.

About $3.6tn (£2.6tn) of the proceeds from bribery, embezzlement, money laundering, tax evasion and cronyism are laundered each year, undermining the social fabric of nations across the globe.

It is not the first time that tax avoidance, bribery, corruption, money-laundering and a lack of transparency have been exposed. The Panama papers, the Paradise papers, the HSBC leaks, the Jersey leaks, the FinCEN files, the Bahamas leaks and others have provided abundant evidence of dodgy financial dealings. The UK finance industry – aided by armies of accountants, lawyers and finance experts – is central to this trade, yet little has changed since those first revelations emerged.

The inertia is institutionalised because the political system is available for hire to people with fat wallets. Financial contributions to political parties create an atmosphere where scrutiny, and unwelcome laws, are discouraged. As Mohamed Amersi, who funded Boris Johnson’s campaign to become prime minister and whose financial dealings were revealed this week, puts it: “You get access, you get invitations, you get privileged relationships, if you are part of the setup.”

Further, parliament’s register of members’ financial interests shows that too many MPs and lords are on the payroll of corporations, including some engaged in illicit financial flows. The inevitable outcome is poor laws and a lack of regulation. In 2018, the government launched the national economic crime centre to tackle high-level fraud and money laundering. The centre has yet to prosecute a single case – even though there is plenty of evidence of wrongdoing. In some cases, banks may even have forged customer signatures on court documents used to repossess homes and recover debts.

The 2017 Criminal Finances Act introduced the offence of failure to prevent the facilitation of tax evasion. No corporate body has been prosecuted. Little has been done to shackle the tax abuses industry dominated by big accounting firms even though, on some occasions, judges have declared their avoidance schemes to be unlawful. Despite the potential loss of huge amounts of tax revenues, no major firm has been investigated, fined or prosecuted. On the contrary, they continue to advise government departments, and sometimes receive lucrative government contracts.

The 2010 Bribery Act introduced the offence of “failure to prevent bribery”, to enable regulators to sue corporations for corrupt practices. The Crown Prosecution Service has secured just one conviction. The under-resourced Serious Fraud Office has secured just one conviction after the company itself pleaded guilty. Separately, Standard Chartered Bank, Rolls-Royce and four other companies were effectively let off with a deferred prosecution agreement.

The UK political system excels at cover-ups and protects wrongdoers. In 2012, a US Senate committee documented HSBC’s involvement in money laundering. The bank admitted “criminal conduct” and was fined a record $1.9bn and signed a deferred prosecution agreement. Yet though HSBC was supervised by the Bank of England and the Financial Services Authority now Financial Conduct Authority, nothing significant was done.

Later, a letter emerged from the then chancellor George Osborne, along with correspondence from the governor of the Bank of England and the Financial Services Authority Financial Conduct Authority, urging the US authorities to go easy on HSBC as it was too big to jail. There was no ministerial statement in the UK parliament to explain the cover-up.

The Bank of Commerce and Credit International (BCCI) was closed by the Bank of England in 1991. It was the biggest banking fraud of the 20th century, yet the then Conservative government did not order an independent investigation. Through US investigations it became apparent that there was a secret document codenamed the Sandstorm Report. The government has refused to provide a copy of this document even under freedom of information laws. After five and half years of litigation, judges ordered the UK government to release a copy and it shows that the government has been protecting individuals, including dead ones, connected with al-Qaida, Saudi intelligence, royal families in the Middle East, smuggling, murder, financial crimes and other nefarious practices. Another case in point is the HSBC cover-up.

The UK remains a favourite destination for dirty money because the political and regulatory system is ineffective. An independent public inquiry into the finance industry is long overdue, but even if one were granted it would be hard to be optimistic: it seems our law enforcement agencies have been captured by corporations. The revelation that the City of London police fraud investigation unit is now funded by Lloyds Bank – an organisation severely criticised by the all-party parliamentary group on fair business banking for its role in the unresolved frauds at HBOS – does not inspire any confidence. Will it take another financial crash to generate enough political pressure to change the system? I hope not!

What the Pandora Papers Reveal About Offshore Wealth

The trove of leaked financial documents known as the Pandora Papers is the latest in a decade-long series of revelations illustrating how the world’s ultra-rich and powerful shield their fortunes from prying eyes, high taxes and law enforcement. Using avenues not available to most people, they park money in trusts, shell companies and holding companies established in jurisdictions that typically offer low taxes and a high level of anonymity.

1. What do the Pandora Papers show?

The leak of 11.9 million confidential documents names heads of state, billionaires and celebrities who use offshore companies to acquire mansions, private jets and stakes in companies, with little or no transparency. The International Consortium of Investigative Journalists, the U.S. non-profit that partnered with media organizations on the investigation, said it “lays bare the global entanglement of political power and secretive offshore finance.” Moving money through foreign accounts is legal in most countries, and many of the people named in the data release aren’t accused of any wrongdoing, but the Pandora Papers gives a rare insight into the wealth planning of the world’s rich and powerful.

2. What’s meant by ‘offshore’?

Any asset held outside one’s home jurisdiction is classified as offshore. The offshore system illuminated by the Pandora Papers (and the Panama Papers leaked five years earlier) largely refers to low-tax regimes, in territories such as the British Virgin Islands, Panama and the Cayman Islands. It can also include the U.S. states of Delaware, Nevada and South Dakota, where so-called financial trusts allow wealthy individuals to be anonymous in their financial dealings. The offshore finance industry based in tax havens has a long history, tracing back as early as 1816 in Switzerland, and has been refined into a major driver of global commerce by offering security, privacy and control.

3. How much money is kept offshore?

No one knows for sure. Estimates by economists range from $5 trillion to $32 trillion, with the higher end representing more than a third of the entire global domestic product. Russia, Persian Gulf nations and Latin America countries lead the way in the amount of their citizens’ money stashed overseas. The equivalent of 60% of Russian GDP is held offshore, compared with about 15% in Continental Europe and only a few percent in Scandinavian countries, according to research published in 2017 from economists Annette Alstadsæter, Niels Johannesen and Gabriel Zucman.

4. How does money get sent offshore?

An ecosystem of legal and financial experts help the rich move their assets. The ICIJ says information for the Pandora Papers investigation came from 14 separate legal and financial-services firms. One law firm  — Panama-based Aleman, Cordero, Galindo & Lee, or “Alcogal” — is tied to almost half of the politicians whose names appear in the leaked records and nearly 2 million of the 11.9 million documents, according to the ICIJ. In total, the consortium tallied 14,000 entities including shell companies, trusts and holding companies in Belize, the British Virgin Islands, Panama and other tax havens created with Alcogal’s support for some 15,000 clients over 25 years. (Alcogal said in a letter to the ICIJ that it performs enhanced due diligence and operates in full compliance with all requirements for every jurisdiction in which it operates.)

5. How does a shell company work?

Deliberately opaque shell companies exist only on paper and have no active business operations. Effective at obscuring ownership, they’re easy to set up at a low cost, and are key to what experts call the “layering phase” of money laundering, when funds are shovelled around multiple times to make them harder to track. Shell companies are traditionally found in tax havens such as Panama, but Delaware and Nevada in the U.S. also permit corporations to be set up anonymously.

6. Is this legal?

Wealthy individuals have legitimate reasons for using offshore financial centres. U.S. hedge funds and other money managers pool assets into Cayman Islands master funds to reduce financial and administrative costs. Offshore havens also can offer protection against unstable political regimes in investors’ home countries. On the flip side, their lack of transparency has made these places a destination for kleptocrats, drug traffickers and money launderers to stash ill-gotten gains. The Pandora Papers, for instance, provide details on a shell company that an Italian mobster used to buy land in Spain, according to the ICIJ.

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