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The Panama Papers: Exploring Global Compliance, Corruption and Bribery

April 2016 by Joram Borenstein and Micah Willbrand

The recent explosion in the compliance world called “The Panama Papers” exposed a complex web of corporate structuring abuses that resonated around the globe, involving everyone from national leaders to world renowned athletes who invested in the wrong place at the wrong time. Old wounds like the FIFA corruption scandal were also reopened. From these scandals and fraud investigations, to information security issues and data breaches, organizations of all shapes and sizes found themselves scrambling to respond to accusations of corruption or worrying over a potential breach in their own back yard. The first wave of resignations (the prime minister of Iceland for example) is just the beginning of these repercussions that we anticipate will continue.

Tyler Olson

In this blog series, Joram Borenstein and Micah Willbrand highlight their respective views on some of the top issues during this past week, explore the impact that the data gleaned from the Panamanian firm Mossack Fonseca will have in the next 12-24 months, and provide guidance on how this event could re-shape the global regulatory landscape.

Will The Panama Papers Change Global Regulation As We Know It?

Unless you’ve been living off the grid in recent days or maybe in this case on another planet, then by now you’ve surely heard about The Panama Papers scandal and the data breach which leaked thousands of sensitive documents to a cadre of journalists and organizations. In an effort to dig deeply into this historical event, it is worth looking at it from a few different angles, from the impact the events will have on global regulatory collaboration and transparency, to the impact it’s already having on global leadership at both national and corporate levels.

Here’s how The Panama Papers scandal breaks down in terms of the areas it impacts now and will surely impact over the year ahead:

Regulatory Collaboration Will Grow: The Panama Papers will force regulators across the globe to further coordinate their efforts around tax evasion, corruption, and other related financial crime topics. The 2010 US law called the Foreign Account Tax Compliance Act (FATCA) will in hindsight end up moving us in this direction even though some have criticized it as being unilateral and not collaborative. Now, as efforts increase to join forces, the FATCA infrastructure will inadvertently serve as a basis on which to proceed in this vein. I doubt many would have predicted this when FATCA was first coming into world prominence.

The US “Enabler” Role Will Be More Heavily Scrutinized: In the days since The Panama Papers scandal broke, numerous articles have been written citing Nevada (“the Delaware of the West”), Wyoming, South Dakota (the “Bermuda of the Prairie”), and Delaware. Those four states have evidently been enabling similar types of activities for many years. And while this has perhaps been known to industry insiders, lawyers, bankers, and some others for a long time, it apparently has taken the Panama Papers scandal to bring this to light more prominently and in ways that weren’t considered before. For instance, Wyoming Secretary of State Ed Murray recently admitted that 24 of the entities listed in the Panama Papers data dump were registered in that state as limited liability entities.

More Financial Services Leaders Will Step Down: As has already happened in Austria, more financial services firms will find themselves either directly or indirectly embroiled in the Panama Papers scandal. In addition to this, the surrounding ecosystem of accounting firms, law firms, and other groups that support the banks, hedge funds, broker-dealers, and others implicated in this scandal will feel the pain. So on this front, stay tuned and watch the headlines.

Beyond Ukraine, Iceland, Pakistan, and Others: These are just some of the countries with leaders directly or indirectly implicated in the scandal. It is highly likely that the global scope of this scandal will grow as The Papers are dissected and assessed more thoroughly. Moreover, the web of interactions, overlapping directorships, co-owned shell companies, and other such legal constructs will probably connect people that we don’t yet think are connected. Think “Six Degrees of Separation “on a really huge (and probably bizarre) global scale.

Soccer Corruption (Again): Just when we thought the headlines related to FIFA had abated, The Panama Papers once again shine a dark light on FIFA with yet another raid on UEFA offices due to “a contract disclosed in The Panama Papers that was signed by Gianni Infantino, now head of the global football body FIFA.” It will be a long time before soccer recovers its reputation if I had to guess. Even poor Lionel Messi, arguably the world’s top soccer player, was tangled in the mess.

The Mossack Fonseca scandal and the ongoing investigation by the likes of the International Consortium of Investigative Journalists and the German newspaper Süddeutsche Zeitung will continue to unfold in the days and weeks to come. Understanding how it impacts political careers, regulatory change, and professional sports are just some of the things that will inevitably keep us all occupied in the months ahead.

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