The leak of the huge cache of offshore data in the Panama Papers reveals decades-old shell companies — many of which fraudsters have used to launder money and hide crimes. How can fraud examiners use the data? Will the revelations cause governments to overcompensate with overbearing regulations? Or will the exposé ultimately be ignored because unethical systems are so entrenched?
The shelling continues. The Panama Papers have revealed scores of global politicians, business leaders and celebrities as beneficiaries of shell companies — some suspicious, others legitimate. On April 3, the International Consortium of Investigative Journalists (ICIJ), German newspaper Süddeutsche Zeitung and more than 100 other news organizations
released a leaked cache of 11.5 million records from the Mossack Fonseca law firm in Panama. Some 400 journalists secretly collaborated for more than a year to publish or broadcast the story on the same day.
And on May 9, the ICIJ
posted a searchable database of the nearly 214,000 offshore entities created in 21 jurisdictions — from Nevada to Hong Kong and the British Virgin Islands. The database also displays information about more than 100,000 additional offshore entities ICIJ had already disclosed in its 2013 Offshore Leaks Investigation. Just plug in a name, and find the dirt.
We've read all those headlines, but what do the Panama Papers mean for fraud examiners? Can we use these databases in our jobs? Will the release of this immense amount of information even incrementally nudge corporations toward greater transparency and encourage governments to greater regulation?
Work for fraud examiners
"For those fraud examiners who have skills in investigating international money laundering, bribes, tax evasion and similar acts, it will present many opportunities for investigative work," says Regent Emeritus Bruce Dubinsky, CFE, CFF, CPA, managing director at Duff and Phelps, LLC.
"For example, hedge funds that operate throughout the world should be examining the entities with which they're conducting business to ascertain if in fact they are mere shell companies," Dubinsky says. "The last thing you want if you're a hedge fund are the regulators — or worse yet — law enforcement showing up on your front step with subpoenas. That doesn't make for a good Monday morning."
Dubinsky says multinational companies also need to take a close look at the list of entities with whom they're doing business for the same reasons.
"You'll most certainly see an uptick in enforcement from the IRS and other taxing authorities worldwide. If you have a tax background as well, working with clients and assisting them with these investigations will be very important," Dubinsky says. "Most law enforcement policy makers will tell you that using an independent outside party to conduct the investigation or assist during an investigation brings much needed credibility to a situation that already may be sorely lacking such credibility."
Martin S. Kenney, CFE, managing partner of Martin Kenney & Co., an international fraud and asset recovery law firm based in the British Virgin Islands, says the Panama Papers will be helpful to fraud examiners as a source of leads and intelligence for investigations. He laments, however, that the ICIJ's release of names of the companies, directors and shareholders isn't helpful enough for fraud examiners.
"We need access to the emails, the invoices, the payment records, and most importantly of all, the ‘ultimate beneficial owner' (UBO) identification and know-your-customer (KYC) documents collected on each company formed by Mossack Fonseca," says Kenney, the 2014 recipient of the ACFE's Cressey Award.
But therein lies the crux of this massive information deficiency. Corporations (and shell company formation firms) should use their KYC protocols to identify the UBOs, but many don't do it for fear of what they might find. Or they just don't care.
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