Panama Papers
Panama Papers: the aftermatch

After Panama Papers broke in April 2016 and rocked the transparency world, unprecedented historical global effects took place and those are expected to continue for years to come.

Since then, global media reports and official statements count around one hundred fifty inquiries, audits or investigations announced by police, customs, financial crime and mafia prosecutors, judges and courts, tax authorities, parliaments and corporate reviews in seventy nine countries. Many legislatures have changed laws and regulations overnight, governments have reported recouping taxes on previously undeclared funds, and officials in three countries have resigned (including a prime minister and an energy and industry minister).

With business executives and attorneys behind bars awaiting for criminal trials in the Middle East, Europe and Latin America, Panama Papers has brought the issues of anonymous shell companies, illicit financial activity and tax evasion into the spotlight. Unfortunately, this seems to be the tip of the iceberg, as Europol (Europe’s law enforcement agency) revealed that 3,469 probable matches were found between the Panama Papers database and information in its own files about tax fraud, organized crime, terrorism, Russian organized crime groups, drug trafficking, human trafficking, illegal immigration and cybercrime. Out of those matches, 116 related to Europol’s project on Islamic terrorism, codenamed Hydra.

Most governments and organizations in Latin America and Central America are responding aggressively to the Panama Papers, as in the following examples:

– The leaked documents reveal that the law firm of Juan Pedro Damiani, a member of FIFA’s ethics committee, had business with three men who have been indicted in the FIFA scandal — former FIFA vice president Eugenio Figueredo and Hugo and Mariano Jinkis, the father-son team accused of paying bribes to win broadcast rights to Latin American soccer events. In response to the reporting, FIFA’s ethics panel has launched a preliminary investigation into Damiani’s relationship to Figueredo.
– In Argentina, a federal prosecutor is examining President Mauricio Macri’s directorship of a Bahamian company that he had failed to include in public financial disclosures when he was mayor of Buenos Aires.
– Panama’s Parliament passed laws to toughen bookkeeping requirements for offshore companies and to allow Panama to share tax information with other countries. The Central American nation has sent fifteen requests for information and legal assistance to eleven countries, including Mexico, Columbia and the Bahamas. Panamanian officials have met with prosecutors and diplomats from nine countries to assist with investigations, including U.S. Nevertheless, the Panamanian Prosecutor’s Office informed lawyers gathered this week in The Hague, that the country’s justice system will not issue documents from Mossack Fonseca when only tax fraud is investigated, since this crime is not included in its legislation.
– In Venezuela, a former Mossack Fonseca representative, the attorney Jeannette Almeida, is being held inside a military prison and awaiting trial on charges of violating banking laws.
– In Uruguay, eleven people were arrested when reports linked the brother of one of Mexico’s richest drug lords to two offshore companies set up by Mossack Fonseca.
– In Brazil, investigations connected to the Panama Papers revealed that at least one hundred offshores were created for fifty seven people implicated in the Petrobras corruption scheme, proving the use of offshore bank accounts for bribery payment, money laundering and tax evasion.
Panama Papers: FIFA President Gianni Infantino 'dismayed' after he was named in TV rights scandal
Panama Papers: FIFA President Gianni Infantino ‘dismayed’ after he was named in TV rights scandal

One thing that is evident in the Panama Papers case is that the clients were searching for anonymity instead of tax planning. It is paramount to distinguish between legal tax avoidance and illegal tax evasion (such as evasion through offshoring private wealth and tax frauds). Legal tax avoidance through profit shifting, using nominal tax rate differentials, legitimate tax deductions and special tax regimes, continue to be crucial for limiting tax liabilities of business owners and wealthy individuals and boosting financial results. In coming years, governments will have to become more and more transparent, or they will find transparency forced upon them instead.

Many companies have recognised that compliance is becoming more and more complicated, from both a group and local jurisdiction perspective. The changes in the fiscal landscape internationally, combined with the international reach of some of those changes have placed greater emphasis on the need for businesses to tackle those challenges proactively and with transparency.

It is the overall understanding that the “Panama Papers,” offer a rare opportunity to regulators to bring greater transparency in the ownership of the firms they incorporate. Anonymous companies have been a known problem for many years, but this investigation is unprecedented in size and scope.

Although international commitments have been made in the G8 and the G20 groups in the past several years to improve beneficial ownership transpareny (such as the European Union, with its recent “fourth anti-money laundering directive”, requiring member states to collect and prepare central registries of beneficial ownership information for companies formed within their borders), now because of the easier access to information it is  expected from a number of countries to ramp up their investigation prosecution and to strengthen their banking regulations.

Mariana Vicente is a Brazilian tax lawyer with over 10 years of international experience in tax planning and compliance, legal advice and audit in multinational companies in Europe, Asia and the Americas. She has lived in Brazil, Panama, Mexico, United States and Italy, residing in Denmark since 2015.
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