The Panama Papers: What Do They Mean to Your BSA/AML Program?

What are the Panama Papers?

Turn on the TV or open a Twitter feed this week and you’ll see everybody talking about the Panama Papers. In case you missed it, the International Consortium of Investigative Journalists (ICIJ) published a vast leak of documents that caused international concern. The papers allegedly reveal a clandestine link between Vladimir Putin’s associates and dozens of other high-profile public figures. They are allegedly connected to Panama law firm Mossack Fonseca, earning their so-called name the Panama Papers.

According to ICIJ, the law firm helped a network of global giants establish secret shell companies and offshore accounts, allegedly taking advantage of the system and shielding their wealth. In other words, many are speculating implications of tax evasion and money laundering. Putin and many of the involved parties deny any wrongdoing. 

What Do the Panama Papers Mean for Bankers?

Gerard Ryle, the director of ICIJ, told CNN, “These documents, if nothing else, raise an awful lot of questions.” For the banking industry, specifically, it calls to mind the concept of beneficial ownership. Supposedly, Mossack Fonseca knew the identities of the real owners of only 204 out of the 14,086 companies it incorporated in the tax haven of Seychelles. The disparity in those numbers illustrates a lack of transparency regarding beneficial ownership and the need to “know your customer.”

In order to help prevent illegal activities related to offshore companies, it is argued that more transparency is needed in the area of beneficial ownership. Many believe the proposed regulation, which we have been hearing about for years, will be a step in the right direction.

What Can We Do At Our Institutions? 

Without a doubt, BSA/AML professionals – even in small, low risk institutions here in the U.S. – play a significant part in detecting money laundering activities and tax evasion. It is our duty under the Bank Secrecy Act; FinCEN and law enforcement count on us to catch the criminals. So how do we approach that?

Start by showing regulators that you are taking tax evasion seriously. Since money laundering can be linked to tax evasion, be sure you are filing appropriate SARs and including as much detail as possible in the narratives. It is important to note, however, that not all activity to shell companies or tax havens necessarily indicates crime. As always, the most important thing to consider is whether the types and volumes of activity make sense for your customer.

Additionally, some AML software systems, including BAM+, contain scenarios that look for excessive activity to tax havens. BAM+ uses keywords associated with tax havens and pulls reports of actual volumes and types of activity. By monitoring these, you can help identify possible tax evasion.

Some experts are wondering whether the Panama Papers will speed up the proposed regulation on beneficial ownership. Maleka Ali, CAMS-Audit, the Director of Consulting at Banker’s Toolbox says that, “Identifying beneficial ownership has long been a thorn in the side of law enforcement. Luckily, at Banker’s Toolbox, we have been analyzing the beneficial ownership challenge for several years to make sure we stay on top of the issue and provide viable and manageable solutions.”

It will be interesting to see how the story unfolds. For now, at Banker’s Toolbox, we’ll continue to evolve our BSA/AML solutions that help you fight financial crimes.