After the Panama Papers investigation came out more than five years ago, certain business interests tried to position Mossack Fonseca — the leaky law firm at the heart of the project — as a rogue organization, a bad apple in an orchard of upstanding professionals who facilitate global commerce and help corporations pay fair (and minimum) taxes.
But recent revelations show that’s simply not the case. The Pandora Papers series of investigations — led by the International Consortium of Investigative Journalists and involving 150 media outlets, including The Post and the Organized Crime and Corruption Reporting Project — shows the true heart of the offshore finance industry. The proof was in the leak of 12 million files from 14 companies that provide offshore services. The Pandora Papers offer stunning evidence of what we’ve seen over and over again in our decades of investigating global crime and corruption: These professional enablers are mostly bad apples — and they’re rotten to the core.
A thriving, global “criminal services industry” of formation agents, bankers, lawyers, accountants and others has been key to moving trillions of dollars’ worth of proceeds from corruption and crime from the developing world to hedge funds, luxury properties and untold assets in the West. It is impossible to move these large amounts of money without the criminal services industry.
And while there has been great progress around the world at forcing the collection and disclosure of ultimate beneficial ownership, the offshore industry has not been curtailed. And the newest problem jurisdiction is the United States itself. Now, South Dakota trusts have joined other business-friendly states such as New York, Nevada and Wyoming to make it hard to figure out who is behind companies. In recent years, more than a dozen U.S. states have passed permissive laws that help draw users from out of state to resident service providers.
In Eastern Europe, where the OCCRP is headquartered, we see the damage firsthand, as politicians, officials and business executives use this system to siphon staggering amounts of money abroad. We’ve seen natural resources plundered, pensions looted, state companies stripped and budgets gutted by corruption, only to have it all end up in Manhattan, London or Dubai real estate. One of the most egregious cases in the Pandora Papers came from Azerbaijan, where we found almost $700 million of luxury properties in London owned by the first family. That amount easily tops the hundreds of millions we have already painfully uncovered from Azerbaijan in other major leaks.
At the same time, organized crime has globalized and also taken advantage of these services to become more effective than — and sometimes as rich as — state actors. The result is that the price of borrowing money is expensive, with home or business loans costing many times more than in the West. While the West ships hundreds of millions in aid to these countries, tens of billions get shipped back in stolen proceeds. That’s money that could be alleviating poverty, balancing budgets, providing health care and education, and building infrastructure.
Meanwhile, the West gets opaque money and opaque money is opaque power. These systems are a means that can be used to fund hate groups and extremist political parties, build out organized-crime structures, bribe public officials, and generally undermine democracy and good government. These systems pose a fundamental national security risk.
The International Monetary Fund says American companies hold an estimated $2.6 trillion in profits offshore, costing the United States billions in tax revenue. U.S. corporations hold more than $11 trillion in debt, according to the Federal Reserve, but no one knows how much is hidden in opaque offshore jurisdictions and what the risk is of future Enron-type scenarios.
It comes down to enforcing transparency. Offshores must register their ultimate beneficial ownership if they are doing business in the United States. Know-your-customer laws must be extended to the service provider industry, hedge funds, real estate and other asset classes, and the laws must be enforced.
Something must be done and done quickly. We must acknowledge that offshore havens and their facilitators pose more of a risk than a solution and they must be regulated. We are all paying the price for this harmful and hidden arrangement.
Drew Sullivan is a co-founder and the publisher of the Organized Crime and Corruption Reporting Project (OCCRP), a nonprofit investigative reporting platform for independent media outlets around the world.