The notorious “Panama Papers” investigation continues to unearth deeply buried secrets about Panama-headquartered law firm Mossack Fonseca.

As Compliance Week reported in April, more than 370 journalists in 80 countries took part in a year-long effort to parse through a massive trove of leaked files (the “Panama Papers”) from Mossack Fonseca, a firm that for more than four decades was at the center of facilitating shell companies, offshore tax shelters, and secret trusts for wealthy and politically connected individuals around the world.

On July 25, the International Consortium of Investigative Journalists (ICIJ) reported its findings on a new round of investigations, revealing that Mossack Fonseca’s internal records “include more than 1,400 companies whose names refer to mining, minerals, oil, petrol or gas.” According to those internal records, Mossack Fonseca established offshore companies to own, hold, or do business with petroleum, natural gas, and mining operations in 44 of Africa’s 54 countries—many of them controlled by politicians, their family members, and business associates, ICIJ reported.

The ICIJ investigation further revealed that Mossack Fonseca created 12 out of the 17 companies currently under investigation by Italian prosecutors. That investigation concerns alleged bribes that a middleman, Farid Bedjaoui (the nephew of a former Algerian foreign minister), paid to Algerian government officials and executives of Italian energy giant Saipem to secure a $10 billion oil and gas deal in Algeria.

According to the ICIJ article, Italian investigators described one of those firms—Minkle Consultants—as a “‘crossroads of illicit financial flows’ that channeled millions of dollars from subcontractors to an array of recipients whose identities are still being untangled.” Prosecutors allege Bedjaoui used one company set up through the law firm to funnel as much as $15 million to associates and family members of Algeria’s then-energy minister, the ICIJ article reported.

In response, Minkle Consultants posted the following statement on its website: “There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly. Many people and entities have the same or similar names.”

Mossack Fonseca response

When word of the investigation first broke in April, Mossack Fonseca argued that media reports have portrayed an “inaccurate view” of the services it provides. “We regret any misuse of companies that we incorporate or the services we provide and take steps wherever possible to uncover and stop such use,” the law firm stated.

In its statement, Mossack Fonseca responded to the specific media allegations one-by-one:

Tax evasion and avoidance: Our Company does not advise clients on the structuring of corporate vehicles and the use they may make of them. We, likewise, do not offer solutions whose purpose is to hide unlawful acts such as tax evasion. Our clients request our services after being duly advised by qualified professionals in their places of business. Moreover, it should be made clear that tax avoidance and evasion are not the same thing. For example, a client can use the structures provided by us for tax optimization of his/her estate, such as taking advantage of provisions in treaties for avoiding international double taxation. Such behavior is perfectly legal.

Due diligence on clients: To begin with, approximately 90% of our clientele is comprised of professional clients, such as international financial institutions as well as trust companies and prominent law and accounting firms, who act as intermediaries and are regulated in the jurisdiction of their business. These clients are obliged to perform due diligence on their clients in accordance with the KYC and AML regulations to which they are subject.

Politically Exposed Persons (PEPs): We have duly established policies and procedures to identify and handle cases where individuals either qualify as PEPs or are related to them. As per our Risk Based Approach, PEPs are considered to be high risk individuals. Hence, enhanced due diligence procedures apply in these cases. Also, periodic follow-up is conducted to assure that no negative results are found.  Lastly, according to international KYC policies, PEPs do not have to be rejected just for being so; it is just a matter of proper risk analysis and administration to perform enhanced due diligence on them.

Sanctions lists and convicted criminals: The Service Provision Agreements signed with our clients impose on them the obligation to notify us as soon as they have knowledge of a client of theirs having been either convicted or listed by a sanctioning body. Likewise, we have our own procedures in place to identify such individuals, to the extent it is reasonably possible. Indeed, the documents cited in the media reports show specific instances demonstrating that once these types of situations are identified, we routinely discontinue the provision of our services. We have an obligation to follow an orderly administrative process when resigning from client engagements, which can vary depending on the regulations of the respective jurisdiction. Also, authorities sometime require the registered agent not to file any resignation in order to prevent obstructing their investigation.

Provision of Company Secretarial Services: Company Secretarial Services are legal services that allow a professional company provider to act on behalf of a company that is owned by third parties. Company Secretarial Services are not used to hide the identity of the real owners of the company as for instance, a director is not in its nature the owner of the company. These services often include directorships and facilitate document filings before the authorities and registry of a company’s jurisdiction. For example, a secretary might help a company register for taxes and file for licenses, manage patents and trademarks, tax returns and other documentation to be handled and filed.

Company Secretarial Services are provided by many firms to professional clients and investors all over the world. The same director or company secretary can act on behalf of many different companies in different jurisdictions. That is widely accepted and perfectly legal, especially in cases where the purpose of a company is to be a holding company or own immovable or movable property. The fact that many companies have the same directors and/or address does not mean that such companies are connected in anyway, as is commonly assumed. Usually a director or company/corporate secretary has no economic interest or commercial link to the company’s activity and he/she does not endorse, participate or assist in the commercial or passive roles of a company in any way. Following pre-established guidelines, the secretary appoints agents and attorneys that carry out the administration of the company.

Shareholders and beneficial owners: Closely related to the point above, as part of the services our trust company provides, we often constitute trusts for shares. As a result, allegations that we provide shareholders with structures supposedly designed to hide the identity of the real owners, are completely unsupported and false. These types of services are always supported by the existence of legally recognized vehicles utilized for such purposes by all service providers in this industry. Even though we do provide shareholdership services through the legal structures already explained, we do not provide beneficiary services to deceive banks. Banks currently carry out their due diligence procedures just as we do. It is difficult, not to say impossible, not to provide banks with the identity official beneficiaries and the origin of funds.

Backdated documents: The issuance of documents with a retroactive date is a well-founded and accepted practice when the decisions made with regard to the particular document are recorded in resolutions approved before or when the transaction in particular has taken place and the formalization is still pending. Such practice is common in our industry and its aim is not to cover up or hide unlawful acts.

Continue the conversation at Compliance Week Europe: 7-8 November at the Crowne Plaza Brussels. Join us as we look at changes in global anti-corruption regulations, slave labour risks in your supply chain, and how to detect fraud, to name just a few topics. Learn more