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Panama, Paradise and the Pandora Papers

Revelations in the Pandora Papers are the latest uncovered by the International Consortium of Investigative Journalists (ICIJ), relating to financial transparency and accountability that will not come as a surprise to those familiar with the details revealed in the Panama Papers and the Paradise Papers. The papers shed light on the continued use of shell companies and offshore jurisdictions as financial vehicles to hide, place or move financial assets. Evidence has revealed that the elite and those in positions of power can often undermine the systems put in place to bring the necessary transparency and accountability to the movement of money.

The damage of financial secrecy

Concealing the beneficial owners of corporate structures, trusts, and those who control them, is a common strategy utilised to evade tax and hide illicit profits, as well as the use of shell companies and offshore jurisdictions. The Financial Action Task Force (FATF) has long warned of the dangers associated with networks of anonymous shell companies and legal arrangements. The Pandora Papers leak illustrates that the regulations  implemented in response to the Panama Papers (2016) such as the 5th AML directive1 weren’t as effective as expected. The Papers also highlight the financial abuse which ultimately affects the common taxpayer, considering the wealth that should have been supplementing the economy if financial assets were assigned to the correct legal jurisdiction.

As the complexity and level of taxation has increased, the incentive to find ways to avoid and evade taxes has grown. The sheltering of wealth offshore is not a new concept. The 14 offshore service providers whose documents were leaked in the Pandora Papers investigation, can be evidenced to date back as far 1961. Offshore jurisdictions such as the Cayman Islands and the British Virgin Islands seek to gain a significant economic boost by facilitating the holding of financial assets within their jurisdiction.  Government and regulator-led efforts internationally to deter and detect tax avoidance and tax evasion are plentiful. However, success of these initiatives is dependent on several factors and can be limited due to the complexity of arrangements and opaque corporate structures with beneficial owners and assets that are held in multiple jurisdictions.

Tipping the balance

The identification of ultimate beneficial owners is an Anti-Money Laundering (AML) regulatory requirement. The FATF introduced global standards to prevent the concealment of company information in 2003. It requires financial institutions to identify and verify beneficial ownership information on companies formed or operating in their jurisdictions. However, jurisdictions implement elements of this differently. On this basis, FATF’s Mutual Evaluation (Consolidated assessment ratings, October 2021)highlighted a lack of effectiveness, with only a third of the jurisdictions involved having appropriate laws and regulations in place related to the acquisition of beneficial ownership and corporate structure information.

FATF held a public consultation earlier this year whereby potential amendments to the current global standard (Recommendation 24) and its effectiveness were discussed. Following consultation, FATF is now considering the details regarding the multi- pronged approach to the collection of Beneficial Ownership information, how effectively it should be verified and how accessible it should be. There is some evidence in the leaked Pandora files that reform efforts did gain some traction, as indicated by the Washington Post who suggested that confidential emails containing conversations regarding the difficulty and efforts required to remain anonymous were leaked as part of the investigation. Most notably pronounced in the press, the financial advisors/ lawyers of King Abdullah II of Jordan3.

While privacy is also a consideration in relation to offshore accounts, compliance and privacy are not mutually exclusive; there must be a way in which the two can be simultaneously managed. Offshore jurisdictions should be  demonstrating that the applicable due diligence has been conducted and the true beneficial owners have been identified. At EFI we believe that full and accurate representation of the customer and the identification of beneficial ownership is of vital importance, and is critical to the effectiveness of Know Your Customer (KYC).

Strengthening KYC

The details exposed in the Pandora Papers demonstrates the need for the governments to identify and take action to close the loopholes that allow the rich and powerful to exploit our financial systems, and why the work of financial crime professionals is so critical. In AML, KYC, and enhanced due diligence, the understanding of complex corporate structures is critically important, not only from a compliance standpoint, but in order to sustain and promote healthy economic growth in a wider sense.

The overarching message here is the ever-growing need for tougher global standards, promoting multi-jurisdictional transparency regarding beneficial ownership information, with a more effective utilisation of that information to identify and hold those accountable that hide their wealth within opaque corporate structures  and facilitation hubs. By taking a united stance against the illicit flow and retention of these financial assets, we can take major steps to prevent and contain the threat of financial crime, tax evasion and corruption amongst those in power to promote compliance and economic growth.

1 Patchy Progress in Setting Up Public Beneficial Ownership Registers in the EU | Global Witness (accessed online; 20/03/2020).

2 Consolidated assessment ratings (accessed online; published  07/10/21 Documents – Financial Action Task Force (FATF) (

3 Key findings from the Pandora Papers investigation – The Washington Post (accessed online; published 06/10/21).


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