The Panama Papers, a massive leak of confidential documents from Mossack Fonseca, a law firm in Panama that helped wealthy clients and money launderers for drug trafficking organisations set up anonymous shell companies in tax havens, should open the outcome document of the UN General Assembly Special Session (UNGASS 2016) on the world drug problem, that will take place on April 19-21 in New York.

The outcome document was closed during the negotiations at the Commission on Narcotic Drugs (CND) in March 2016, and is now proposed for approval at the UNGASS. However, UN member states could still open the document during the General Assembly special session. The Panama Papers can tell us a lot about how to counter tax evasion and money laundering. Crucially, they demonstrate the absolute need to be able to identify the ultimate beneficial owners of anonymous shell companies set up around the world by law firms like Mossack Fonseca.

TNI proposal

TNI proposed to several delegations to include the following paragraph in the outcome document:

“Ensure the implementation of effective measures to identify the beneficial ownership of companies, trusts and other business and financial corporations to enhance the countering of money laundering and detect illicit financial flows.”

Nevertheless, nothing on this crucial matter was included in the document at the negotiations. Instead, some general references were made in the 12 operational recommendations under the heading “Addressing links with other forms of organized crime, including money-laundering, corruption and other criminal activities”, in particular paragraph 3 (o):

“Continue to foster international cooperation by implementing the provisions against money-laundering contained in all relevant international and multilateral instruments, such as the 1988 Convention, the Organized Crime Convention and the Convention against Corruption and, in accordance with national legislation, the Financial Action Task Force Recommendations on Money Laundering.”

However, these provisions have failed to effectively counter money laundering as the Panama Papers, which were revealed after the 2016 Commission on Narcotic Drugs (CND), have made abundantly clear. The first provisions against money laundering were agreed in the 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances. In other words, the 2016 UNGASS would have been a good occasion to show that the global community should take their commitment to counter money laundering seriously, instead of issuing bland statements.

While offshore financial centres (OFCs) like Panama outside the main financial centres London, New York and Amsterdam are often identified as facilitating unregulated and illicit money flows, the principal sources of tax evasion, tax secrecy and money laundering are located in onshore banking systems in the developed world, according to the Stiglitz Commission, formed in 2008 to advise the United Nations on the consequences of the financial meltdown and its impact on development. The Panama Papers might not have touched Americans because Americans already have Delaware and Nevada. They don’t need to go to Panama.

Sustainable Development Goals

Deficiencies in financial oversight enable money laundering. After more than 25 year of failed efforts, experts still ponder how to implement an anti-money laundering regime that works. Identifying ultimate beneficial owners of shell companies is a crucial and effective way to do so. Not only do these deficiencies in financial oversight assist money laundering, they also facilitate tax evasion, depriving states of badly needed revenue to finance essential institutions and services to their populations, identified as a fundamental issue to reach the UN Sustainable Development Goals (SDGs) by 2030.

The global community agreed to “substantially reduce illicit financial flows” by 2030 in Goal 16.4 of the SDGs. Illicit financial flows from developing and emerging economies reached $1.1 trillion in 2013 according to a Global Financial Integrity study. The UNGASS outcome document also pays lip service to the SDGs. Instead it should help to reach these goals by issuing a strong recommendation to help procure the necessary funding for them; funding that now disappears in the black hole of ineffective measures to identify illicit financial flows.

After the release of the Panama Papers, it has become increasingly clear that the global community needs to get their act together to counter illicit financial flows. The UNGASS outcome document is not definitive yet, it is only recommended for approval by the General Assembly. However, the General Assembly can still reopen it. There are plenty of reasons to do so, and a stronger operational recommendation to close one of the main facilitators of money laundering and tax evasion, anonymous shell companies that prevent the identification of ultimate beneficial owners, would honour the global community’s commitment to the SDGs.

See also:

• It’s none of your business! – Report on Europe’s Closed Company Registers
• As #PanamaPapers break, Europe plans to water down company ownership transparency, Tax Juxtice Network, press release, April 8, 2016
• Secrecy For Sale, by Eric Guttierez, Volteface, June 2, 2016