AML Experts Open Up About the “Pandora Papers”

October 18, 2021 · 3 min read
david mccurdie
David McCurdie

Head of Screening Automation, WorkFusion

31822

Author’s note from David McCurdie: Years ago, Susan White and I worked together at Bloomberg, trying and failing to bring automation to KYC and AML — but our fledgling effort flew too close to the sun and missed the mark. I then returned to my Nordic home to work at a big regional bank, eventually landing at WorkFusion, where we are successfully creating KYC solutions with Intelligent Automation technology that didn’t exist previously. Susan is now a leader at kompany.com, which offers convenient and unfettered access to global company registries.

Susan is always an outspoken and informed mind. We are both passionate about fighting financial crime and overcoming customer challenges. When the International Consortium of Investigative Journalists (ICIJ) broke the news about what they call “the Pandora Papers,” it just seemed right to reach out to my old friend and colleague to hear her take.

David McCurdie, WorkFusion: So, the Pandora Papers. We’ve seen this movie before, haven’t we? Why is this relevant and how, if at all, is this different from previous leaks (Panama or Paradise, etc.)?

Susan White, kompany: Secrecy, exploitation, abuse, wealth, power, offshore tax havens, hidden riches of world leaders and billionaires. The ICIJ shines the spotlight again and the sequel is just as riveting.

(My kompany colleague Jackie Whiting offers some more context in a recent blog for our readers.)

This report is a study in how secrecy brokers and power players use tax havens and offshore firms to avoid paying taxes (in many cases, legally*) or to assist autocrats (kleptocrats?) to hide wealth. This has obvious implications relating to money laundering. After all, if such public figures can shelter assets in secrecy, what is to stop those looking to hide illicit funds?

*An international who’s who — but why few Americans?

Celebrities, such as Elton John, Ringo Starr, and Shakira, and world leaders including Jordan’s King Abdullah II, Kenya’s President Uhuru Kenyatta, and former U.K. Prime Minister Tony Blair are just some of the world’s most influential people named in the Pandora Papers for their use of offshore companies. Such tactics, while in many cases legal, leave the tax burden to those less equipped to take advantage of the same loopholes and tax havens.

In legal testimony many years ago, Leona Helmsley’s housekeeper quoted her as saying, “We don’t pay taxes; only the little people pay taxes.” That sentiment seems to be alive and well among this set. The Washington Post noted that some of the wealthiest people (e.g., Jeff Bezos, Warren Buffet, Bill Gates, Elon Musk) in the United States were not exposed in this leak and speculated the reason being the tax codes and rates in the U.S. are so low for the wealthy that they don’t need offshore accounts to evade taxes.

DM: Have we learned anything from the Panama/Paradise Papers? What’s changed?

SW: The Panama and Paradise Papers demonstrated how offshore companies were used to deliberately evade taxes, avoid sanction-based restrictions, launder money, pay bribes, and hide conflicts of interest. Around the globe, legislation has and is being passed to provide more insight into beneficial owners in order to mitigate the effects of shell companies and prevent individuals and companies from hiding their motives. This includes, over the years, the European Union’s Anti-Money Laundering Directives, the PSC register in the U.K., the Corporate Transparency Act passed under the AML Act of 2020 in the U.S., and the addressing of “snow-washing” in Canada with amendments to the 2021 Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

I’d argue that we have not yet seen the effects of this legislation, and the Pandora Papers show that more work is needed. Among other things, creating beneficial ownership registers is important, but making them public is paramount.  

DM: You’re deeply involved in corporate registries. What’s the scene like now in the offshore jurisdictions? We have Controlling Persons now in the U.K., and the 4th and 5th [Anti] Money Laundering Directives in the EU have established centralized beneficial owner registers. How is the rest of the world doing?

SW: While the purpose of the EU’s AML Directives is laudable, in practice it’s a messy business. The Cayman Islands, which is considered the world’s largest tax haven, has committed to introducing a central register by 2023. For North America, both the U.S. and Canada have passed beneficial ownership legislation and it remains to be seen how effective these will be.

Here is a good graphical representation: The World’s Biggest Private Tax Havens.

DM: As you know, I’m currently based in London, and I’ve said previously that the UK Government must bring forward a public register of offshore companies owning property in the country. I also think the Crown Estate might wish to revise its due diligence procedures on whom it does business with. One might contend — given recent examples in Cyprus — that a register itself cannot be trusted. But if there is political will, greater transparency is possible.

DM: How much of this is the responsibility of banks, law firms, and corporate service providers to drive change? It’s fair to say we’ve seen some willful blindness in the private sector. Is it really all up to the state, or is there a moral obligation for private sector companies not to facilitate business with shadowy corporations with opaque ownership structures?

SW: Money, money, money, money. Who makes it? Who keeps it? Who helps the people who make it keep it? There is enough greed to spread around. Pink Floyd put it this way: “Money, it’s a crime. Share it fairly, but don’t take a slice of my pie.” Yes, I say there is a moral obligation here, not to mention a covenant between the world’s wealthy and the poor. Taxes are a means of giving back, and for those looking to avoid their fair share, there is social shunning (e.g., the Pandora Papers). Willful blindness is an understatement, in my opinion. I think the public and private sectors have a lot of blame to share.

Around the globe, there has been a gaping hole in acknowledging and addressing the role of trusted advisors and professionals in moving illicit funds within the boundaries of the law. Lawyers, art dealers, real estate professionals, accountants, and investment advisors have not been scrutinized enough. I think we will see these professions come under fire for the role that they are playing in enabling this system.

DM: Right, it is one thing to lay blame on exotic jurisdictions with less robust systems of governance, as we know that the other actors in the play are themselves international companies with allegedly proper systems and controls. So although these recent revelations represent little in the way of truly new information, this report further underlines the need for greater transparency and for companies facilitating this behavior.

DM: What does kompany do in this area and how can you help banks and obliged firms to understand who they’re doing business with?

SW: Customer due diligence is the most important first step in any effective anti-money laundering program. For a decade, kompany has been partnering with clients to give them real-time access to trusted government sources to verify their customers. As a global register network, we offer our clients access to commercial and beneficial ownership registers to validate and discover cross-jurisdictional relationships quickly and efficiently.

The regulatory landscape is expected to evolve further because of the Pandora Papers. As new beneficial ownership registers become available, we will continue to support the industry in providing a primary source, time-stamped data, and documentation for their AML and KYC needs.

DM: Yes, access to that kind of information is an essential defense against financial crime and abuse. For our part, WorkFusion offers automation solutions that are purpose-built to support KYC programs — our platform comes out of the box with connections to data providers and aggregators of information which are vital to banks and financial services firms to protect themselves.

DM: What’s next in your view? How do you see this playing out in the coming days, weeks, months?

SW: The revelations will start pouring in, the way they did with the FinCEN Files last year. I think the fallout will be swift. We’re already seeing some revelations and governments are looking to react quickly. In the U.S., one reaction seems to be the bipartisan Enablers Act bill, which seeks to make it more difficult for “lawyers, accountants, and others to help kleptocrats and other malign actors hide their money.”

Ultimately, rather than playing the blame game, it’s more important to focus on the solution — publicly available ownership transparency and holding professionals accountable will go a long way.


Susan White is Managing Director, Americas, at kompany, a RegTech platform for Global Business Verification & Business KYC (KYB). She is an expert on fighting financial crime, including anti–money laundering (AML) and combating financing of terrorism (CFT) programs.

David McCurdie, Head of Screening Automation, WorkFusion, has spent his career in financial institutions and in fighting financial malfeasance and now lends his expertise to developing compliance solutions for global BFSI enterprises.. (Feel free to email your questions or comments!)

[The views, thoughts, and opinions expressed here are the authors’ own, and not necessarily those of kompany, WorkFusion, or other organizations or individuals.]

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