As we approach the one-year anniversary of the release of the Panama Papers, I have assessed the impact of this scandal in the March 2017 number of inCOMPLIANCE, the official journal of the International Compliance Association (ICA).

1. THE PANAMA PAPERS
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“
Offshore tax haven”… what a
supremely evocative designation!
It conjures up scenes from
1950s-era films of pre-revolutionary
Cuba... delightfully rakish raconteurs
flaunting opaquely-generated wealth,
which they’ve stashed away in SPVs
bearing innocuous names... hot jazz
(“bah-bah loo!”) and chilled cocktails
laced with rum and Angostura bitters...
“Taxes? What taxes? All my taxes are
away on holiday – ha, ha, ha!”
Recent leaks – typified by the
Panama Papers of last year – have
largely dispelled this romanticised
view of offshore tax havens as being
“intriguingly dodgy yet exclusive”.
Instead, the popular attitude towards
the “offshore-osphere” is currently
better described as “righteously
indignant and offended”. In the words
of Juan Carlos Varela, President of
Panama: “It is clear that the affair shined
a light into the dark corners of global
finance and sparked a worldwide reform
agenda. Despite the unfortunate name,
the Panama Papers has been good for
Panama as well as for the world.”1
Precedents
The Panama Papers was by no means
an unprecedented event. Quite the
contrary; it was only the most recent
in a series of similar instances in which
pilfered – hacked or otherwise illicitly-
removed – proprietary information
with compromising and/or sensational
implications was divulged to the
general public and/or to interested
governmental (primarily tax)
authorities (see Figure 1).
In this respect, if the definition
articulated by Nassim Nicholas Taleb
in “The Black Swan” (2007)2
is to be
applied, the Panama Papers scandal
was by no means a “black swan” event.
Rather, this was an enormous grey or
perhaps even white swan. Previous
similar events include:
• “Cablegate” (2010) – In late
November 2010, WikiLeaks began
releasing classified cables that
had been sent to the US State
Department by 274 of its consulates,
embassies, and diplomatic missions
from around the world. Dating from
December 1966 to February 2010,
these cables contained diplomatic
analyses from world leaders, and
assessments by American diplomats
of their host countries and officials.3
• Offshore Leaks (2013) – This
disclosure could be described as a
full dress rehearsal for the Panama
Papers. In April 2013, an International
Consortium of Investigative
Journalists (ICIJ) report was released,
disclosing details of 130,000 offshore
accounts. It detailed the results of an
ICIJ investigation based on a cache of
2.5m secret records obtained by ICIJ
Director, Gerard Ryle. In producing
this document, the ICIJ collaborated
with journalists from around the
world to produce a series of reports
published in connection with the
ICIJ’s “The Global Muckraker.”4
• Luxembourg Leaks or “LuxLeaks”
(2014) – In November 2014, the ICIJ
brought to light a financial scandal
based on its investigations into
confidential information on tax rulings
in Luxembourg, which were organised
by PricewaterhouseCoopers from
2002 to 2010 to benefit the firm’s
clients. This investigation resulted
in the disclosure of tax rulings for
over three hundred multinational
companies based in Luxembourg.
The scandal attracted international
attention to tax avoidance schemes
in Luxembourg and elsewhere, and
contributed to the implementation of
measures to regulate tax avoidance
schemes beneficial to multinational
companies.5
• Swiss Leaks (2015) – In February
2015, the ICIJ website released “Swiss
Leaks: Murky Cash Sheltered by Bank
Secrecy”, detailing the results of
an investigation conducted by over
130 journalists in Paris, Washington,
Geneva, and in 46 other countries.
The report alleged that, between
November 2006 and March 2007,
€180.6bn passed through HSBC
accounts held in Geneva by over
100,000 clients and 20,000 offshore
companies. The data for this period
came from files surreptitiously
removed from HSBC Private Bank in
late 2008 by Hervé Falciani, a former
employee, which he subsequently
handed over to French authorities.
The ICIJ’s “Swiss Leaks” report
concluded that the bank profited
from its clients’ tax evasion practices.6
Two equally vital questions
A favourite didactic question of
lawyers and financial forensics
professionals in explaining their
methodologies is: cui bono? (i.e. to
whose benefit?). But when judging the
overall utility of offshore tax havens
to the global economy, a second
Coming to the
surface
One year on from their release, Vladimir Berezansky
considers the impact of the Panama Papers

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(sadly often ignored) question must
also be considered: cui detrimento?
(i.e. to whose detriment?). Neither
of these questions is rhetorical, and
they are equally vital to an adequate
assessment of the broader significance
of offshore tax havens.
One reason why offshore tax havens
are ignored and/or discreetly accessed
by so many “upstanding” citizens of
so many Western democracies is a
collective failure of logic regarding
their tangible and measurable
detriment to the global economy.
Indeed, invoking a concept as arguably
insubstantial as “detriment to the global
economy” – beyond the ranks of those
professionally sensitised – can be a
tough slog even today, much less a
decade or two ago when the problems
engendered by offshore tax havens first
began to fester and multiply. A major
inhibiting factor in assessing the relative
benefits and detriments of offshore
tax havens to the global economy
is the continuing absence of reliable
statistics regarding the total amount
of funds and/or in-kind assets that
correspond to this category. Putatively
sound estimates range between $21tn
and $32tn7
, but the implied margin of
error in such estimates renders them
essentially useless for any purpose
other than shock value.
To be clear, offshore tax havens
have entirely legitimate and beneficial
business purposes. But these
circumstances are often forgotten,
usually as a result of collective emotional
whiplash caused by careening from
the “intriguingly dodgy yet exclusive”
perceptions (as parodied above) to the
“righteously indignant and offended”
mindset that takes hold after yet another
scandal or exposé – especially on the
scale of the Panama Papers – erupts via
the world’s media outlets.
Low- or no-tax havens and
relative national advantage
To revert briefly to basic principles:
every sovereign nation has essentially
complete discretion over its domestic
revenue-generating infrastructure
(i.e. articulating the type and rates of
taxes, customs duties, administrative
fees, etc that shall apply within
its territorial borders and to its
citizens). One of the many legitimate
policy goals of a nation’s revenue-
generating infrastructure is enhanced
competitiveness designed to attract
foreign investment.
Not surprisingly, national
governments tend to shape their
revenue-generating infrastructures to
encourage foreign investment that is
most consistent with the contours of
their domestic economies. Territorially
large nations with big populations tend
to use their tax codes to encourage
so-called foreign direct investment
(FDI) in large-scale infrastructure
projects, often on a jointly-managed
basis in which issues such as project
cost allocations, technology transfers
(if relevant), and profit sharing
arrangements are carefully detailed.
A geographically smaller, more
remote and/or less populated country
usually needs to compete for foreign
investment (often as a major supplement
to its domestic revenue base) in “niche”
sectors of the global economy, i.e. by
emphasising its specific history, culture
and geography as a tourist destination
and by heavily promoting natural
resources and products that might be
either unique or of high value-added net
worth (such as rare gems, cutting edge
electronics, Swiss watches, etc).
From Watergate to 9/11
During the three decades beginning
approximately with the Watergate
Scandal and ending quite abruptly
with 9/11, Western governmental
investigators, law enforcement
authorities and regulators – primarily
those focused on enforcing tax,
banking and securities markets
regulations – became increasingly
aware of the trend towards
“anonymising” the seed funds and the
proceeds of criminal activity within the
legitimate funds flows of entirely legal
business and commercial activity.
During this period, the realisation that
profits generated from longstanding
and well-known international criminal
structures – those engaged primarily in
narcotrafficking, the “white slave” trade
(as it was then known) and other illicit
commercial activity such as smuggling
– were viewed largely as a nuisance
that required appropriately aggressive
intervention by law enforcement and
the prosecutorial power of all affected
nations. The policy construct that
drove Western and other national
governments to take measures
deemed necessary at this time could
be described as not dissimilar to a

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farmer’s approach to weed control or
a homeowner’s struggle with rodents
and insects.
Compliance to the rescue!
With 9/11 and related terrorist-instigated
tragedies such as the 07/07 bombings in
London, Western governments rapidly
recalibrated their national security
and law enforcement strategies. The
ease with which international terrorist
groups such as al-Qaeda were able to
“anonymise” their funds was suddenly
identified as a global security threat, and
sweeping measures were demanded
for addressing this threat immediately
and definitively. Hence, the innocuous-
sounding Watergate-era mantra
“Follow the money” morphed into the
increasingly invasive and sweeping (i.e.
extraterritorial) policy imperatives now
known as Anti-Money Laundering (AML),
Know Your Client (KYC) and, most
especially, Countering (or Combating)
the Financing of Terrorism (CFT).
On so many different levels 9/11 was
a watershed moment in world history.
This includes, of course, the virtual
conscription and militarisation of the
middle and back offices of licensed
and regulated financial institutions,
and the emergence of compliance as
a conceptually-distinct function and
area of expertise. Indeed, it would
not be a distortion to assert that
compliance, in macroeconomic terms,
was a demand-driven function for
which there was initially no supply.
Specifically, the unprecedented and
fundamentally innovative regulatory
obligations created by the post-9/11
esprit de guerre and imposed on major
global banks – eventually, on the entire
financial services sector – created (or
perhaps identified) a vacuum that
needed to be filled; and it was filled by
the compliance function.
Following the 9/11 call to arms,
another decade was needed to achieve
full articulation and deployment of
financial regulatory compliance as a
comprehensive array of robust internal
policies and procedures designed to
mitigate assessed degrees of exposure
to specifically identified regulatory
(and, over time, reputational and other)
risks. By the time of the 2008-2009
global financial crisis, most banks,
investment firms, insurance companies
and other licensed financial institutions
at least understood what “global best
practices” required of them in their
respective markets, even if meeting
such exacting standards was not a fully
achieved goal in specific instances.
Concentric circles of
influence
Led primarily by the US and UK
investigative and financial regulatory
authorities, North American, Western
European and mature Asian global
banks, securities exchanges and
capital markets undertook and
fulfilled a comprehensive programme
aimed at ensuring the continuity
and interconnectedness of domestic
financial regulatory regimes for
individual nations.
Back when fundamental principles
and metrics for robust compliance
enforcement mechanisms were being
promulgated by national legislative
initiatives, international efforts such
as the Wolfsberg Group, the Financial
Action Task Force (FATF / GAFI) and
the Basel Accords were fostering
cross-border consensus on relevant
financial regulatory standards to
facilitate maximum uniformity and
efficiency of multinational banking and
securities market activities.
It is important to understand that this
process began first between and among
financial services regulators and licensed
financial institutions in the US, the UK,
Western Europe and several mature
Asian markets. The first concentric circle
beyond this “inner core” consisted of
the mainly contiguous large emerging
market players in Latin America, Eastern
Europe / Eurasia, the Middle East and
Asia. Only after the gradual integration
of this second concentric circle was well
underway did the influence of global
best practices finally reach the more far-
flung jurisdictions, including many – but
not all – of the offshore tax havens.
Progress towards harmonising
most of the world’s major, second-tier
and outlying banking and financial
services markets was anything but
linear or uniformly successful. To the
present day, for example, FATF / GAFI
continues to identify (“name and
shame”) so-called “high risk and non-
cooperative jurisdictions”8
and builds
consensus towards full implementation
of global best practices within a
tolerable bandwidth of local diversity.
Not surprisingly, offshore tax havens
have been among the most reluctant –
even recalcitrant, at times
– jurisdictions to import and implement
robust financial regulatory compliance.
Over time, the “pincers” of bottom-
THE PANAMA PAPERS
Figure 1: Volume of data compared to previous leaks
©Süddeutsche Zeitung, SZ.de, April 2016, reproduced with permission

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up momentum – most especially, the
aggressive extraterritoriality of certain
national players (primarily the US and
the UK) – in combination with top-down
pressures exerted by a growing array of
international and continental / regional
organisations – including, quite recently,
the Multilateral Convention on Mutual
Administrative Assistance in Tax Matters9
and its implementing mechanism, the
Common Reporting Standard (CRS) –
have borne tangible results throughout
much of the offshore world of tax havens.
The foregoing notwithstanding, one
cannot afford the luxuries of naïveté
or rudimentary linear thinking. The
processes of multilateral (institutional)
and cross-border (bilateral national)
brow-beating of a steadily diminishing
number of recalcitrant offshore
jurisdictions into compliance with a
gradually increasing minimum threshold
for qualifying as having adopted
global best practices are meeting
with increasingly stiff resistance. This
should surprise no one. As discussed
previously, there are no truly reliable
– much less proven – estimates of
the amount of offshore wealth that
exists. Certainly this “dark matter” of
our global financial universe includes
enough funds to coerce key persons
and institutions to forbear from cutting
off the Hydra’s last head.
Eruption and aftermath
The timing of the Panama Papers
scandal was quite fortuitous and
possibly instrumental in focussing
global public attention on the
heretofore little-noticed world
of offshore tax havens. Given
the interplay of disparate forces
eventually coalescing on the
“offshore-osphere” as an object
of collective concern, the overall
impact of the Panama Papers might
have been blunted had this scandal
erupted any earlier. As considered
previously, there was nothing
conceptually novel or distinctive
about the Panama Papers (except for
the volume of data divulged).
Approaching the one-year mark of
this scandal’s spectacular explosion, it
seemed at first as though most of the
immediate fallout would be surprisingly
meagre. After the initial eruption of the
offshore island’s dreaded “righteously
indignant and offended” volcano, the
native population, fearing the worst,
took to their boats and relocated
for an indefinite period to several
neighbouring inhabited islands of the
“intriguingly dodgy yet exclusive”
archipelago... and waited.
A few of the braver souls among
the displaced population undertook
occasional exploratory forays to
their home island, where they found
clear evidence of the volcano’s
damage. Government investigators
and an evidently large contingent
of law firms and auditors had left
unmistakeable traces of their ravages:
the Prime Minister of Iceland had
abruptly resigned from office; and
the Presidents of Argentina and
Russia as well as the Prime Ministers
of Pakistan and (at the time) the UK
all felt themselves compelled to issue
blanket denials of illegal relationships
with the devastated offshore island. In
the aggregate, a ponderous amount
of structural damage had occurred,
to be sure; but with each succeeding
visit, the recon teams were bringing
gradually more encouraging reports
back to the displaced population.
But just a day or two before their
offshore island was to be declared once
again safe to inhabit, the natives were
horror-struck to learn that an even more
powerful earthquake on the Brazilian
mainland had wrought far more
devastation than the volcano which had
originally forced them from their homes.
At the time of writing, Panamanian
prosecutors have arrested the founding
partners of Mossack Fonseca, the firm
at the centre of the Panama Papers leak.
According to Kenia Porcell, Panama’s
Attorney General, the decision to arrest
Ramón Fonseca Mora and Jürgen
Mossack was related to the Panamanian
bank regulator’s seizure of FPB Bank in
connection with its alleged involvement
in Latin America’s largest ever corruption
investigation, Lava Jato, or “Operation
Car Wash”. Lava Jato is a Brazilian
bribery probe involving prosecutors
in numerous jurisdictions who are
investigating allegations of systematic
bribery of public officials by Petrobras
(Petróleo Brasileiro SA), Brazil’s state-run
oil company, and Odebrecht, a Brazilian-
listed engineering company (the largest
of its kind in Latin America).
Regardless of where these
investigations may ultimately lead, there
seems little room for doubt that the
Golden Age of the “offshore-osphere”
has waned, and those who continue
to make use of their “tax optimisation”
features now have the burden of
proving that their decisions are at least
legal, if not perhaps entirely ethical.
Vladimir Berezansky
was one of the first
foreign professionals
to bring Western (US,
UK, EU) regulatory
compliance
leadership to the Russian/CIS/
CEE financial services market. He
has experience in Russia/CIS and
Eastern Europe, as well as Cyprus,
Switzerland and in London’s financial
markets. Among his specialisations,
he is a recognised expert in structured
offshore Russian wealth.
THE PANAMA PAPERS
1. The Miami Herald, 2 January 2017
2. See inCOMPLIANCE issue 27, p.19
3. https://en.wikipedia.org/wiki/United_States_diplomatic_cables_leak
4. https://en.wikipedia.org/wiki/Offshore_Leaks
5. https://en.wikipedia.org/wiki/Luxembourg_Leaks
6. https://en.wikipedia.org/wiki/Swiss_Leaks
7. See, e.g., https://trofire.com/2015/07/31/the-worlds-wealthy-are-hiding-
up-to-32-trillion-in-offshore-accounts- 3/
8. http://www.fatf-gafi.org/publications/high-riskandnon-
cooperativejurisdictions/?hf=10&b=0&s=desc(fatf_releasedate)
9. http://www.oecd.org/tax/automatic-exchange/international-framework-
for-the-crs/
10. http://www.bbc.com/news/world-latin-america-38947440 and http://
www.comp-matters.com/article.php?id=173252#.WKdDO4VOK7U