Methods used by the rich, powerful and corrupt to hide wealth have been exposed after over 11 million documents were leaked from Panama law firm Mossack Fonseca.
The documents reveal more than 200,000 offshore entities set up to conceal clients' money. Although not technically illegal, the lack of transparency required for these shell companies make it easy for their beneficial owners to remain hidden – ideal for criminals seeking to launder money, as well as those looking to cheat the public out of tax.
Someone could, for example, loan public money to an offshore company, have it transferred through numerous others until its origins are untraceable, and eventually enjoy the benefits of the money without having to account for its origins. Meanwhile, the initial loan is defaulted on, and the public loses out.
That's the essence of the $2bn money laundering ring that's been linked to Vladimir Putin's inner circle in the wake of this scandal. But it's evidence closer to home that has people calling on the government to take action against widespread money laundering and tax evasion going on in the UK.
In fact, the NCA estimates that hundreds of billions of pounds in criminal proceeds is laundered through the UK each year. So, how do businesses in the UK currently combat money laundering?
Combating money laundering
Due diligence is at the heart of anti-money laundering. It requires businesses to find out everything they can about individuals involved, including company directors and beneficial owners, before transacting with anyone.
In high risk countries, such as Panama or the British Virgin Islands, identities should also be verified through certified copies of photographic identification. Once these identities are known, there are a number of risk factors that can indicate potential money laundering activity:
- Individuals with criminal convictions
- Individuals you never meet in person
- Individuals who are Politically Exposed Persons, or connected to PEPs
- Individuals in high risk areas according to the Transparency International Corruption Perceptions Index
- Individuals using intermediaries based in high risk jurisdictions
- Client companies with complex ownership structures
- Corporate clients whose capital is in the form of bearer shares
- Clients with a high level of cash income
Failure to carry out due diligence and establish exactly who stands to benefit from transactions is not only irresponsible; it can lead to money laundering charges, as well as being accused of turning a blind eye to criminal activity.
The Panama Papers scandal shows there is a lot of work to be done, but with pressure on governments to address tax havens now at an all-time high, perhaps it will turn out to be a small step in the right direction.
DeltaNet help businesses operating in regulated sectors train employees in anti-money laundering by offering our Combating Money Laundering and Terrorist Financing eLearning course. Course licence includes access through our Astute eLearning Platform, providing powerful tools for enhancing engagement and proving compliance.