Malta is agog with financial jargon the likes of which we’ve seldom heard: ‘shell companies’, ‘trusts’, ‘shelf companies’. The complexity is only compounded with the geography: countries half a world away keep cropping up, particularly Panama.
In 2003 we were certainly on the right side of history when we joined the European Union, and one Maltese economic sector which then certainly brightened its prospects – and ours – was our financial services sector.
With 12,000 people working in this sector, the jargon is more likely to be understood and the enormity – or the huge gravity – of the reported facts is sinking in.
But ordinary Joes like me can also understand the jargon – and the related geography – through familiar international organisations, often quoted in our news.
The World Bank and the United Nations have together set up StAR – the Stolen Asset Recovery Initiative – whose main goal is to prevent the laundering of the proceeds of corruption.
In 2011, StAR published a 600-page report entitled The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What To Do About It. It is an investigation of 817 cases of what the World Bank and the United Nations term ‘grand corruption’ which took place in the most notoriously corrupt countries between 1980 and 2010.
The World Bank’s and the United Nations’ report concludes that “billions in corrupt assets, complex money trails, strings of shell companies and other spurious legal structures form the complex web of subterfuge in corruption cases, behind which hides the beneficial owner – the puppet master – and beneficiary of it all”.
They find that “nearly all cases of grand corruption have one thing in common: they rely on corporate vehicles such as shell companies, trusts and shelf companies to conceal ownership and control of tainted assets”.
Transparency International describes ‘shell company’ in its glossary as “usually formed in a secrecy jurisdiction; its main or sole purpose to insulate the real owner from disclosure. Shell companies are also referred to as ‘front companies’ or ‘mailbox/letterbox’ companies”.
The Economist, in an article entitled ‘They Sell Sea Shells’ in May 2012 says that “shell companies have become the easiest way for a malefactor to hide his identity”. It also quotes Robert Palmer of Global Witness, an anti-corruption international campaigning group, who says that “shell companies are a basic launderer’s tool”. The Economist says that “global giants such as BAE Systems have been caught using shells to pay bribes”.
The World Bank and the United Nations in their report about grand corruption cases over three decades found that Panama was the third most frequently used jurisdiction to set up fake companies in order to launder ill-gotten funds. They term Panama a “leader in the field of shell companies”.
Absolute secrecy is the name of the game in Panama. They say: “Corporate law has not been revised to ensure that operators of justice and other authorities can access useful information on the beneficial ownership of legal entities established in Panama.”
Panama has become one of the filthiest money laundering sinks in the world
One factor in Transparency International’s yearly corruption index is the financial secrecy index published by the Tax Justice Network. Transparency International quotes Tax Justice Network’s take on Panama: “Long the recipient of drugs money from Latin America, plus ample other sources of dirty money from elsewhere, it has adopted a hardline position as a jurisdiction that refuses to cooperate with international transparency initiatives.”
Transparency International is running an ‘Unmask The Corrupt Campaign’. Panama’s President who finished his term in 2014, Ricardo Martinelli, is third in Transparency International’s list of the nine most corrupt persons in the world.
Jeffrey Robinson is an American author of 29 books described by the British Bankers’ Association as ‘the world’s leading financial crime author’. In his book The Sink he quotes a US Customs official as saying: “Panama is filled with dishonest lawyers, dishonest bankers, dishonest company formation agents and dishonest companies registered there by those dishonest lawyers so that they can deposit dirty money into their dishonest banks. Panama has become one of the filthiest money laundering sinks in the world.”
Panama has been blacklisted by the European Union – of which Malta is a member state – for its lack of cooperation in information exchange with judicial authorities.
Tax Justice Network quotes an International Monetary Fund report which says that, of 40 recommended steps countries should take to combat money laundering and terrorism financing, Panama has fully implemented only one.
In September 2014, The New York Times reported that cronies of Russian President Vladimir Putin had funnelled money offshore through shell structures in Panama. “When it comes to money laundering, we offer full service: rinse, wash, and Panama dry,” Miguel Antonio Bernal, a prominent local lawyer and political analyst, toldthe newspaper.
The use of complex financial structures in money laundering through Panama – and the jargon – is bewildering. Not to be confused with shell companies, Panama also offers shelf companies.
The World Bank and the United Nations in their report The Puppet Masters also investigate the use of shelf companies to conceal ownership of bank accounts.
They report how Raul Salinas, brother of former Mexican President Carlos Salinas – considered by Forbes magazine as the third most corrupt Mexican – laundered $100 million dollars by employing three shelf companies in Panama that had been incorporated 15 years previously, thus giving them a commercial history and a camouflage.
Obviously, esoteric companies in secrecy jurisdictions are not used to deposit one’s salary or to avoid a 25 per cent tax rate. Neither are they used for a lump sum; there are better vehicles for that. They are generally used to pass through them ongoing and regular substantial sums of money whose origin is as esoteric as they are.
The company that has helped open up the wonders of Panamanian financial services to Maltese who are interested is Mossack Fonseca. The potential for its services seems to have increased so greatly after March 2013 that it registered here in Malta at the time.
Mossack Fonseca also makes it to the World Bank’s and the United Nations’ report on 817 cases of grand corruption. The report says that a few large companies, among which Mossack Fonseca, “may offer company incorporation and management services in up to 30 different jurisdictions and are responsible for incorporating thousands of corporate vehicles each year”.
Mossack Fonseca is caught up in the Brazilian public prosecutor’s investigation of the huge Petrobras corruption scandal there. The prosecutor says millions in kickbacks have been laundered through shell companies opened by Mossack Fonseca.
Three years ago, almost exactly to the day, on March 6, 2013, Joseph Muscat, in front of a big crowd in Fgura, in his then rousing campaign rhetoric, declared: “In three days’ time, we have the opportunity to write history. Our duty is to be the protagonists so that when our children ask us where we were in 2013, we can answer that we were on the right side of history.”
Now, on this third anniversary, we know: the right side of history lies half a world away, in Panama.
eddiea@onvol.net