The Pandora Papers - Has anything changed?
The Pandora Papers, a cache of 11.9 million documents leaked to the International Consortium of Investigative Journalists (ICIJ), has once again exposed the secretive world of offshore finance to public view. Five years on from the Panama Papers, it raises questions about the persistent failings of due diligence amongst many financial organisations.
Secret fortunes exposed
The leaked document cache exposes information about secret fortunes amassed by 35 world leaders, over 100 billionaires, and government ministers in over 90 countries.
It included revelations that:
· King Abdullah II of Jordan amassed a secret $100m property fortune through offshore structures, at a time when his country was in receipt of international aid;
· Azerbaijan’s ruling Aliyev family traded over £400m in UK property, including via transactions with the Crown Estates; and
· close associates of Pakistan’s reformist president Imran Khan who was elected on an anti-corruption platform, secretly moved millions of dollars into offshore structures.
The leaked cache also sheds light on assets held by close associates of Vladimir Putin, including his alleged lover Svetlana Krivonogikh, while a law firm founded by Cypriot president Nicos Anastasiadesis is accused of assisting Russian billionaires to obscure their identities when investing in the West.
Questions of due diligence
The Pandora Papers paint a picture of international finance where insufficient questions are being asked about who sits behind the transactions. For example: in August 2018, the Crown Estates purchased a £67m property in Mayfair apparently without knowing that the selling entity was beneficially owned by the Aliyev family – and potentially linked to dirty money. The Crown Estates have now launched an internal enquiry to establish why the organisation failed to ask searching questions about who was behind the opaque offshore structure they were dealing with.
Many of the elites named in the leak were found to have used techniques – involving highly complex offshore structures and disguised beneficial ownership to hide political exposure – associated with high risk of financial crime. The fact that many of these transactions could have been identified as high risk if the right due diligence questions had been asked only adds to the sense of widespread public anger at the revelations.
Has anything changed since Panama?
In 2016, the Panama Papers revealed many of the same offshore networks. Yet, despite over $1.2 billion in fines and back tax collections, changes in the law, and the rise of ESG investing, too many actors in the financial system are willing to overlook the hidden beneficiaries of offshore structures and the financial crime risks they pose.
In some cases, the Pandora Papers feel like déjà vu. For example, the latest revelations about the financial shenanigans of Pakistan’s political elite come just three years after the country’s former PM Nawaz Sharif was sentenced to 10 years’ imprisonment following his exposure in the Panama Papers.
However, the sheer volume of leaked financial data about the offshore world that has emerged since 2013 gives hope for change. Politicians and oligarchs can no longer assume that their financial affairs are beyond public scrutiny; the ICIJ have already made it clear that the full extent of their datasets will be made available to enforcement bodies to pursue corruption, tax evasion and financial crime.
The Pandora Papers also provide a trove of valuable information to all organisations interested in combatting financial crime. ICIJ databases will allow institutions to search potential partners against the list of names and entities identified in the Pandora Papers and other leaks. According to a KPMG survey, over 80% of financial institutions searched some or all of their customer base against the names in the Panama Papers, with over 25% reporting a suspicious transaction as a result.
In making public the blueprints, the Pandora Papers are raising awareness of the legal structures, patterns of behaviour and obvious risk factors that may indicate financial crime. There is little public sympathy for organisations who failed to ask searching questions about the people sitting behind a complex web of transactions: turning a blind eye is no longer an option.