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What Does The Pandora Papers Leak Mean for AML/CFT Compliance?

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In October 2021 the International Consortium of Investigative Journalists (ICIJ) published the results of an explosive investigation known as the Pandora Papers

More than 600 journalists from across 117 countries including from the BBC, The Washington Post, and The Guardian, waded through the files for months, and we can now see the results of their investigation. Continue on to learn more about the Pandora Papers leak.

Pandora Papers: Newspapers

What are the Pandora Papers?

Consisting of almost 12 million documents, the Pandora Paper leak was the biggest data leak of all time and highlights how 35 world leaders and more than 100 billionaires, business executives, and celebrities have hidden several trillion dollars in more than 29,000 offshore companies spanning territories around the world.

The Pandora Papers surpasses the ICIJ’s 2016 Panama Papers release, which was made up of 11.5 million documents.

According to ICIJ estimates, the money held offshore ranges somewhere between $5.6 trillion to $32 trillion.

Pandora Papers Leak: What Has Been Revealed?

The ICIJ has established links between offshore assets and over 300 top executives and politicians who created almost 1,000 shell companies, many of which were registered in the British Virgin Islands.

Some of those implicated in the Pandora Papers leak include King Abdullah II of Jordan who created at least 30 offshore companies. Using these companies, he spent more than $106 million purchasing 14 luxury properties in the United Kingdom and the United States.

Former UK Prime Minister Tony Blair avoided paying £312,000 in stamp duty land tax, and the outgoing prime minister of the Czech Republic failed to declare an offshore investment company that he used to purchase two French villas for more than €14 million.

It was also revealed that the ruling family of Qatar avoided paying £15.8 million in tax (approximately $25 million) on a London ‘supermansion’ while prominent UK Conservative party donor, Mohamed Amersi, was involved in one of Europe’s biggest corruption scandals.

Why was the Pandora Paper Leak Significant?

While the Pandora Paper leak has exposed vast hidden fortunes tucked away by world leaders, politicians, and business executives, they have also shown how anti-money laundering (AML) regulations are being circumvented through shell companies.

For example, according to the ICIJ, at least 26 companies in Switzerland appear in the Pandora Papers, and these have provided services to clients who are connected to offshore companies who were or are currently being investigated for money laundering offenses. Legislators in Switzerland recently passed a major revision to AML laws, but they have been criticized for being too lax.

While setting up and operating an offshore company isn’t inherently illegal, the secrecy offered by offshore tax havens has provided opportunities for criminals. That’s because these offshore companies can be set up in a way that hides the ultimate beneficial owners, making it possible to channel and launder dirty money through them.

Members of the European Parliament (MEPs) have been vocal in expressing their disgust at the contents of the Pandora Papers and have accused governments of enabling money laundering and tax evasion by not properly reforming domestic tax laws. In response, the European Commission has agreed to present new legislative proposals to tackle tax evasion by the end of the year.

The Financial Action Task Force (FATF), the global AML/CFT standard setter, also issued a comment following its October 2021 Plenary Session: “Recent revelations in the Pandora Papers once again underscore the importance of ensuring transparency about the true beneficial ownership of companies to stop criminals from hiding their illicit activities and proceeds behind complex corporate structures.”

The FATF has also published proposals to amend the language for its ‘Recommendation 24’ to ensure greater transparency around the beneficial ownership of legal persons. For example, it is looking to change “Countries should take measures to prevent the misuse of legal persons for money laundering or terrorist financing” to “Countries should assess the risks of misuse of legal persons for money laundering or terrorist financing, and take measures to prevent their misuse.” Responses to the consultation are due by December 3rd 2021.

What the Pandora Paper Leak Revealed for Compliance Teams

While there are often legitimate reasons to establish offshore entities, the ICIJ’s investigation has illustrated that AML and know your customer (KYC) requirements are not always adhered to. This raises the prospect that these entities could be used to engage in tax evasion, money laundering, and other unlawful activities.

While the details of the Pandora Papers are shocking, compliance officers should focus on the bigger picture by considering the risks to their AML/KYC efforts that the Pandora Papers leak has highlighted.

Adverse media monitoring can help firms to conduct a comprehensive, risk-based approach. This is especially true now that so many leaked Pandora files are in the public domain. Client lists should also be scrutinized, with a particular focus on enhanced due diligence checks surrounding shell corporations, trusts, and corporate service providers. Firms might also find it valuable to explore their exposure to politically exposed persons (PEPs) and the risks that they pose given the revelations of the Pandora Paper leak.

And as the European Commission has committed to exploring new regulatory avenues, compliance teams should also expect to see new developments in anti-money laundering legislation, particularly in relation to working with offshore companies.

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Originally published 22 November 2021, updated 20 April 2023

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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