A slow-moving wave caused by the buzz generated over The International Consortium of Investigative Journalists’ (ICIJ) publication of 11.9 million leaked documents on October 3, dubbed the Pandora Papers, may soon wash over regulatory environments. Notable amongst this treasure trove of information was the revelation of South Dakota’s role as a tax haven and the efficacy of U.S. sanctions imposed on Russian oligarchs.
The Pandora Papers were preceded by two similarly impactful data leaks,The Paradise Papers of 2017 and The Panama Papers of 2016. Both unveiled the widespread use of offshore companies by heads of state, the rich and famous, and criminal enterprises for various purposes, both harmless (privacy and tax mitigation) and nefarious (hiding assets from authorities and creditors, tax avoidance and money laundering). This trifecta of data leaks underscores the vital role played by investigative due diligence firms in helping decision makers understand who they are doing business with, including their sources of wealth.
The complexity and global nature of the offshore financial system necessitates partnering with a provider of investigative due diligence who is properly equipped to conduct efficient yet thorough cross jurisdictional investigations while adhering to location specific privacy regulations. Sought after skills include multi-lingual analysts holding internationally recognized investigative certifications including Certified Anti-Money Laundering Specialist (CAMS) and Certified Fraud Examiner (CFE), coupled with academic backgrounds in international affairs, law, and economics.
Skilled researchers can legally obtain intentionally concealed information including business affiliations and sources of wealth by leveraging their specialized skill sets in tandem with transparency focused record sources including the ICIJ Offshore Leaks Database and OpenCorporates’ company data. The ICIJ Database plays a foundational role in public records due diligence. While findings may not be adverse in themselves, they can reveal connections to offshore entities. These affiliations can then be raised by clients in conversations with business partners from an awareness standpoint.
Notable among the Pandora Papers data are two U.S.-centric findings. The revelation of South Dakota as a global tax haven left casual news consumers scratching their heads since mention of the offshore financial system conjures images of Caribbean beaches, Swiss slopes, and Delaware office parks. The Bahamas by the Black Hills is the product of low taxes, state laws which are extremely favorable to trusts, and the U.S.’ reluctance to adhere to the Common Reporting Standard (CRS) which commits signatories to sharing information regarding foreign-held assets.
Interestingly, in spite of domestic offshore centers including the grizzled veteran Delaware and fresh-faced newcomer South Dakota, the wealthiest Americans, including Warren Buffett, Jeff Bezos, Bill Gates, and Elon Musk, are not named in the Pandora Papers. Two explanations for this have been offered by financial experts. The first is that the U.S.’ comparatively low tax rates compared to other countries diminishes the motivation of the country’s financial elite to utilize tax havens. The second and more plausible explanation is that America’s super rich are utilizing offshore jurisdictions and companies not included in the Pandora Papers.
One positive finding amidst the global outrage-inducing details of the Pandora Papers is the success of U.S. sanctions aimed at Russian oligarchs. Especially interesting is that aside from hampering the activities of their intended Russian targets, the sanctions “trigger[ed] losses that spread across their interconnected financial networks.” For both consumers and practitioners of investigative due diligence, this finding underscores the foundational role of sanctions and politically exposed persons (PEP) screening.
In addition to giving credence to U.S sanctions, the legislative boost effect of the Pandora Papers’ publication includes renewed attention to Congress’ passage of the Corporate Transparency Act (the CTA) in January. This legislation requires U.S. businesses to file “beneficial ownership” information with the Financial Crimes Enforcement Network (FinCEN).” Prior to the CTA’s passing, U.S. anti-money laundering laws were dormant for nearly two decades.
Looking abroad, the widespread attention garnered by the Pandora Papers is expected to spark additional reforms with the intention of increasing transparency to support the global fight against corruption and money laundering. This includes increased momentum behind calls by organizations such as Transparency International for a global standard on corporate transparency, notably for each country to maintain a public central register of company owners. Such changes will be a boon for both providers and consumers of investigative due diligence by increasing transparency which in turn reduces the time spent per engagement.
The information revealed by the Pandora Papers emphasizes the necessity of truly knowing who one is doing business with beyond carefully cultivated public images and intentionally obscured corporate records. Obtaining actionable information is made possible through high quality investigative due diligence conducted by reputable investigative firms. This equips their clients with the necessary questions to ask potential business partners to alleviate current and future relationship concerns. Connect with Vcheck Global to infuse your company’s critical decision making with an informational competitive edge.
Seth Harlan is Senior Associate, Market & Regulatory Affairs at Vcheck Intelligence.