News

As national governments still struggle to muster a response to a massive leak of privileged documents, the international groups that direct the global fight against money laundering have remained relatively quiet, and may stay so.

On Sunday, the International Consortium of Investigative Journalists, Organized Crime, Corruption and Reporting Project and other news agencies published a fraction of the 11.5 million files they obtained from Mossack Fonseca, exposing the Panama City-based law firm’s secret ties with more than 150 current and former heads of state and sparking calls for investigations.

The apparently widespread exploitation of offshore corporations created by the firm to conceal the assets of global leaders, politicians and an array of wealthy individuals around the world stands in stark contrast to the Financial Action Task Force’s decision less than two months ago to remove Panama from a “gray list” of jurisdictions with strategic deficiencies against illicit finance.

FATF at the time praised Panama’s “significant progress” in improving compliance with the group’s recommendations for tackling financial crime, five months after concluding that the nation had “substantially addressed” a call to establish more effective customer due-diligence rules to increase transparency and implement a range of other requirements.

When considered in the context of the “Panama Papers,” FATF’s decision to remove the jurisdiction from the gray list exposes the limitations intergovernmental groups must work within when trying to effectuate a clampdown on illicit finance, according to Stefanie Ostfeld, a policy analyst with Global Witness in Washington, D.C.

“I expect that most of what we see in terms of a response, meaningful or not, will be at the national level, because it does shine the light on a lot of powerful people in a lot of countries, but keep in mind this is just one law firm, in one country,” said Ostfeld. “There are many, many countries that need to get their own houses in order when it comes to corporate transparency.”

Mossack Fonseca this week cited FATF’s finding while rejecting accusations that it had facilitated tax evasion, money laundering and corruption, and further claimed that it conducted due diligence on all clients and routinely exited or refrained from transacting with those who withheld information.

“We are responsible members of the global financial and business community” who provide company incorporation services that are “frequently used and provided in many worldwide jurisdictions, including the United States and the United Kingdom,” the firm said Monday.

Panamanian officials similarly cited recognition by the Organisation for Economic Cooperation and Development, or OECD, of the country’s efforts to obtain and share beneficial ownership data with other jurisdictions.

French Finance Minister Michel Sapin told lawmakers Monday that France would once again blacklist Panama and advocate for a similar response from the OECD, which previously removed the country from its own “gray list” of jurisdictions that consistently ignore requests for tax-related data from overseas tax administrators.

In February, the OECD criticized Panama for taking a “step backwards” from its earlier commitment to more frequently cooperate with cross-border tax investigations.

Sunday’s disclosure comes a little more than a year after the ICIJ and other media outlets reported that HSBC’s affiliate in Switzerland knowingly held more than $100 billion in undeclared accounts for roughly 106,000 clients, some of whom bank employees believed or knew were evading taxes, or associating with suspected terrorists and drug traffickers.

The consortium said at the time that it had based its report on 60,000 confidential documents delivered to them by whistleblower and former HSBC staffer Herve Falciani.

If past is prologue, the news consortium’s latest revelation will not lead to meaningful action from global organizations such as FATF, the OECD and G-20 nations, which generally tolerate and address financial secrecy havens with “soft law tools,” according to Donato Masciandaro, an economics professor at Bocconi University in Milan, Italy.

“Basically, the pillar of the approach of international organizations is the blacklisting mechanism. When there is urgency, advanced economies look at the problem and take some action, but when the news [reports abate], the situation remains the same, with soft regulations based on blacklists, which to me means doing nothing.” said Masciandaro.

Following the leaks, Ukrainian officials said they would investigate President Petro Poroshenko’s apparent failure to declare his control of three offshore companies with ties to Mossack Fonseca, and his sale of one of those companies to his wife for $1.

Russia’s chief prosecutor promised to investigate individuals linked to the Panamanian law firm after reports placed Sergei Roldugina, purportedly President Vladimir Putin’s closest friend, at the center of a scheme that siphoned funds from Russian state-owned banks to offshore accounts.

The U.K. Financial Conduct Authority ordered roughly 20 financial institutions in Britain to disclose their links to the law firm by April 15, the Financial Times reported.

The leak has also spurred calls for the U.S. Treasury Department to finalize its long-awaited customer due-diligence rule, which would require financial institutions to obtain, but not verify, identifying information from individuals controlling 25 percent or more of a company holding a corporate account.

U.S. House and Senate bills introduced in February would obligate state officials to identify the beneficial owners of companies formed within their jurisdictions and periodically update Treasury of any changes in ownership.

Banks may be expected to act first by cross-referencing the identities of particular companies and individuals named in the leaks with existing and potential customers, according to Chip Poncy, former director of Treasury’s Office of Strategic Policy for Terrorist Financing and Financial Crimes, and a former delegate to FATF.

The underlying problem exposed by the leaks won’t be solved without “effective implementation” of FATF’s standards “by jurisdictions around the world, and that remains to be seen,” Poncy said.

Senior tax officials from OECD member-states are meeting Wednesday to discuss the Panama Papers and agree on “collaborative action.”