International Law

Panama firm obscured the trail of US funds to protect clients' money from scrutiny, says NY Times

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While there can be legitimate reasons for moving funds abroad to shell corporations, wealthy clients of the Panama-based law firm Mossack Fonseca wanted to know, as one put it in an email to the firm: “How does a US citizen legally get funds to Panama without the knowledge of the U.S. government and how can those funds be profitably invested without the U.S. government knowing about them?”

One answer was to utilize a series of transactions, shifting funds from one entity to another, as the firm communicated with some of its U.S. clients using secret email accounts and code names, reports the New York Times (reg. req.) in a lengthy article. The newspaper reviewed leaked documents concerning some 2,400 U.S. clients of the “Panama Papers” law firm.

“Simply by constructing all this in such a complex way, they make it extremely hard for enforcement officials to ever have resources to reconstruct what taxes should have been paid,” said attorney Jack Blum, a tax expert who has served as a consultant to the Internal Revenue Service. “What this is all about is obscuring the trail.”

Following a massive leak of confidential Mossack Fonseca documents that a firm partner has attributed to an illegal hacking attack, the firm has said repeatedly that it has done nothing wrong and complies with international banking and tax laws.

However, in response to questions by the Times about the U.S. client documents the newspaper reviewed, the firm’s response was a bit different.

It didn’t try to explain the firm’s role in matters summarized by the Times but said standards had tightened in recent years, following 2010 legislation by Congress, the article reports.

“Our significantly expanded compliance office today not only evaluates new client candidates, but also existing accounts, and especially those that were established prior to the new international regulatory regime coming into effect,” said a spokeswoman for Mossack Fonseca in a written statement. “It wasn’t always this way.”

Related coverage: “Partner: Massive data breach at ‘Panama Papers’ law firm was from hack attack, not internal leak”

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