Expert: Panama MEPs should focus on money laundering rules breach

A preparatory document for MEPs of the Panama Papers committee of inquiry has suggested that the committee’s focus should be on the alleged failure of the European Commission to enforce – and of Member States to implement and to enforce effectively – anti-money laundering rules, and taxation and auditing directives.

The document was prepared for the Pana committee, set-up to investigate alleged contraventions and maladministration in the application of EU law in relation to money laundering, tax avoidance and tax evasion – specifically the 2005 directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (AMLD III).

In April 2016, the International Consortium of Investigative Journalists revealed over 214,000 offshore entities, connected to people in more than 200 countries and territories, including EU member state Malta – among whom were minister Konrad Mizzi and the Prime Minister’s chief of staff Keith Schembri.

MEPs from the committee are scheduled to visit Malta to speak to experts and civil society on the ramifications of the Panama leaks.

According to the document’s author, Prof. Robby Houben of the University of Antwerp, EU banks, tax advisors, lawyers and middlemen who set up offshore companies and bank accounts, were negligent in performing enhanced due diligence measures on their clients, both at the establishment of the business relationship with them and during that business relationship, even when there was a suspicion of money laundering or terrorist financing.

Prof. Houben said that no or insufficient research was done to identify the beneficial owners of the offshore entities, to understand the ownership and control structure of the customer or to obtain information on the purpose and intended nature of the business relationship.

“Allegedly, this relates both to politically exposed persons and others,” Prof. Houben said, although without specifically referring to any of the EU politicians who featured in the Panama leaks.

“As a result, no sufficient documentation was gathered for use by the Financial Intelligence Unit or by other competent authorities in accordance with national law in any investigation into, or analysis of, possible money laundering or terrorist financing…

“In addition and more in general, allegedly, the banks, tax advisors, lawyers… did not pay sufficient special attention to this, whereas they should have, because offshores by their nature favour anonymity and are particularly likely to be related to money laundering or terrorist financing.”

Two confidence motions filed against Konrad Mizzi and Keith Schembri, both defeated, but no discussion at committee level analyzing effects of Panama Papers on tax laws or tax avoidance

Prof. Houben said that in some instances, tax or other administrations or supervisory bodies discovered the existence of the offshore constructions, but this was not adequately reported to the FIU.

An audit by the Inland Revenue Department is still taking place into the offshore structure set up for Konrad Mizzi, formerly the minister for energy, by Mossack Fonseca, the Panamanian law firm whose records were leaked to the ICIJ.

A separate, external audit by a Big Four firm in London is also taking place, although its contents are as yet unknown. Mizzi set up an offshore company in Panama, with a corresponding offshore trust in New Zealand, but never notified the IRD of the company.

A total of 55 people are said to be facing an investigation by the tax authorities over possible tax evasion linked to the Panama Papers. According to Inland Revenue Commissioner Marvin Gaerty, “limited resources” have made it impossible to audit all individuals at the same time, he had told The Sunday Times.

The tax audits will determine whether a person had declared the correct income in their tax returns.

The Prime Minister’s Chief of Staff, Keith Schembri, was found to have a similar offshore set-up as Mizzi, which they established through their financial advisers Nexia BT, a representative of Mossack Fonseca.

According to the correspondence between Nexia and Mossack Fonseca revealed by the ICIJ and the Australian Financial Review, the offshore companies and a corresponding bank account, were required for potential business earnings.

Panama reactions: EU national parliaments

Malta: Two confidence motions filed against Konrad Mizzi and Keith Schembri, both defeated, but no discussion at committee level analyzing effects of Panama Papers on tax laws or tax avoidance

Netherlands: MPs proposed to hold a “parliamentary interrogation” related to the Panama papers

Belgium: In April 2016 MPs made a proposal to establish a parliamentary investigative commission to update the recommendations in the fight against the largest tax fraud in the light of major fraud cases uncovered including Panama papers. A special commission was established on 3 May, 2016. The Committee meets weekly and has already interviewed representatives from a range of stakeholders, such as banks, the press, the government controls (including the national bank and the authority of financial services and markets authority), etc. 

Finland: Panama papers issues have been debated in the plenary twice in April on the initiative of the Green Party. The Audit Committee and the Finance Committee and the Commerce Committee, held a hearing in May 2016 on ‘Tax havens, tax evasion and international tax avoidance’.

Cyprus: The Cypriot Parliamentary Committee on Institutions, Merit and the Commissioner for Administration (Ombudsman) discussed the topic during two sessions at end June 2016. 

Germany: In June a debate on Panama papers took place in the Finance Committee of the Bundestag, and both the Ministry of Finance and the Länder said they would be examining measures as a consequence of the Panama leaks. This would include widening the disclosure obligations of taxpayers and credit institutions and examining whether the Fiscal Code on Protection of bank customers should be repealed. 

Slovenia: the Committee for Finance and Monetary Policy and the Committee for Justice following the Panama papers revelations discussed the issue of tax havens. They adopted conclusions that call for scrutinising State companies having bank accounts abroad; submission of a report on tax havens and amendments to the Act on Money Laundering and Financing of Terrorism in order to introduce a register of the real company owners and make it publicly accessible.

Italy: draft law approved on the ratification and implementation of the Convention between Panama and Italy to avoid double taxation and prevent tax evasion. 

Lithuania: Chairman of the Bank of Lithuania invited to answer questions related to his previous professional activities linked to persons mentioned in the Panama papers and in particular to businesses close to Russian President Vladimir Putin. 

Romania: the Committee for Budget, Finance and Banks organised a hearing with the heads of the National Office for Prevention and Fight against Money Laundering and of the National Agency for Tax Administration in early April. Further during the Plenary both authorities were criticized for the lack of communication. It also discussed the establishment of an additional tax for offshore transactions. The Minister of Public Finances was asked to present measures taken to fight tax evasion in a Parliamentary request. 

Sweden: Riksdag debated international tax evasion and the behaviour of Swedish banks. 

Spain: Parliament proposed 17 initiatives related directly to the “Panama Papers”. Only the Non-legislative proposal on tax reform and fight against tax fraud and tax evasion was approved on 19 April, 2016, which includes creating a Special investigative Committee on the Panama Papers.

UK: Parliament published a report concluding that the UK’s tax collection authority is not doing enough to tackle tax fraud. Established a cross-government taskforce on the Panama papers case, and assigned initial new funding of up to £10 million to support the taskforce’s work. The taskforce will be jointly led by the tax collection authorities and the National Crime Agency and draws on investigators, compliance specialists and analysts from tax authorities, the National Crime Agency, the Serious Fraud Office and the Financial Conduct Authority. 

Hungary: Announced formation of special teams to examine the Panama leaks. The police and the National Tax Authority will be involved in analyzing any information that has emerged from the leak with relevance to Hungarian taxpayers. Hungary’s Prosecutor’s Office would also take part in the investigations. 

Denmark: Following a hearing in the Danish Parliament (Folketinget) in April 2016 on the Panama Papers and subsequent consultation with all political parties, the Danish Minister for Taxation announced on 7 September, 2016 his decision to buy data leaked as a measure to catch tax evaders. An anonymous offer to sell data on some 320 cases, involving approximately 500-600 Danish citizens was made to Denmark’s tax authorities over the summer.