The so-called Paradise Papers are another huge data leak which reveal and expose the off-shore financial secrets of thousands of public figures ranging from royalty, politicians and other wealthy and powerful individuals. The majority of Anti-Money Laundering professionals will no doubt agree that the leak is nothing new and that nothing illegal has taken place – although the morality of using off-shore tax havens is a disputed point.
What the Paradise Papers does highlight though is that the international fight to gain more transparency around corporate beneficial ownership still has a long way to go.
International governments and legislators have introduced regulations which contain measures to improve transparency, including the introduction of beneficial ownership registers; however, these measures are still in their infancy and even though the off-shore jurisdictions have introduced similar requirements, the continued use of opaque and complex ownership structures is still allowing criminals and even sanctioned individuals to evade detection, enabling them to launder money and evade sanctions.
The Paradise Papers should make many financial institutions reconsider their risk appetite when dealing with companies that are registered off-shore. Many firms may need to shore-up their due diligence requirements when it comes to complex ownership structures – rather than trying to continue to dig when these opaque structures are identified – to safeguard against the facilitation of financial crime.
The Papers also highlight the risks that continue to surround Politically Exposed Persons (PEPs). The fact that Donald Trump’s Commerce Secretary is allegedly linked to sanctioned Russian individuals by having investments in a company shipping oil and gas for a Russian energy firm, Sibur, would be cause for concern for many regulated institutions as two of the owners of Sibur are Specially Designated Nationals under international sanctions.
The information leaked in the Paradise Papers will probably be more embarrassing rather than legally damaging for the individuals mentioned in the files, but it does highlight the continuing fact that criminals are still using off-shore jurisdictions and their attractive tax laws to facilitate money laundering and to evade sanctions. It is also another chink in the armour in the fight for corporate transparency.
Financial Institutions will need to continually monitor their risk appetite and controls when dealing with companies that are registered off-shore. The risks and transparency around complex ownership should remain a concern and firms should only consider dealing with such entities if they are satisfied that these companies have been set up and used for legitimate purposes only.
Firms who are concerned about their exposure to risks involving anti-money laundering should consider a thorough AML Health Check to help them assess their position and remediate any gaps and shortfalls. If this is of interest to you, please contact firstname.lastname@example.org for more information.