Panama Papers Should Prompt Compliance Review

By Claire Rauscher

The “Panama Papers” are back in the news with confirmation last week that federal prosecutors are conducting a criminal investigation of individuals at the Panama-based law firm Mossack Fonseca. The Justice Department and Manhattan U.S. Attorney’s Office are investigating whether some at the law firm knowingly helped its clients launder money or evade taxes, according to the Wall Street Journal. The investigation is the latest in a series of recent international developments (most notably the Brexit vote) that underscore the need for global corporations to ensure compliance with money laundering regulations when pursuing tax strategies.

To refresh everyone’s memory, the “Panama Papers” scandal blew up in April when the

Claire Rauscher

International Consortium of Investigative Journalists released a report on 11.5 million confidential documents hacked from Mossack Fonseca and leaked to journalists. The report revealed, among other sensitive information, that Mossack Fonseca used global law firms and large banks to create hundreds of thousands of offshore shell companies in more than 200 countries and territories, including more than 6,000 shell companies linked to the U.S. Many of the countries where the shell companies were formed have no online registry. The majority of those of companies provided no information about shareholders and their identities remain secret.

While some of Mossack Fonseca’s activities were questionable at best – the law firm has admitted to back-dating documents – many of the firm’s permissible legal business practices have come under scrutiny. Specifically, there is nothing illegal about creating offshore companies to reduce tax exposure, and some jurisdictions allow shareholders to remain anonymous or use nominees or registered agents. However, the wide-scale use of shell companies, coupled with with the fact that the list of  identified clients includes celebrities, politicians and other famous individuals dodging their tax responsibilities, has created a firestorm of public outrage, the results of which have included the resignation of Iceland’s prime minister and calls for his British and Pakistani counterparts to do the same.

Still, the increased scrutiny from regulators and investigators, as well as the political bluster that has followed the scandal has rightly caused some anxiety for companies with sophisticated international operations. There are, however, compliance monitoring and other precautionary steps that can be taken to limit exposure to investigations and penalties. Here are a few:

1. Ensure you are constantly monitoring the OFAC list - “Know Your Customer"
2. Understand the money-laundering regulations in ALL jurisdictions where you do business
3. Conduct thorough risk assessments
4. Using risk assessment data, review and update compliance plans

Potential New Legislation

• In light of the Panama Papers, Congress is working on legislation to ensure more corporate transparency. The fate of the Incorporation Transparency and Law Enforcement Assistance Act will depend on the outcome of the Presidential election. The bill seeks to:

“ensure that persons who form corporations or limited liability companies in the United States disclose the beneficial owners of those corporations or limited liability companies, in order to prevent wrongdoers from exploiting United States corporations and limited liability companies for criminal gain, to assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, and other misconduct involving United States corporations and limited liability companies, and for other purposes.”

• Changes to Fed.R.Crim.P 4 - Service in Foreign Countries

New Rule amendments have been submitted for comment by the U.S. Supreme Court. The rule changes will eliminate the restrictions on foreign service by providing express means for serving foreign defendants that do not maintain a domestic agent, principal place of business or mailing address. If approved, the changes would take effect December 1, 2016.

In pertinent part, the rule change says a summons is served on an organization not within a judicial district of the United States:

1. by delivering a copy, in a manner authorized by the foreign jurisdiction’s law, to an officer, to a managing or general agent, or to an agent appointed or legally authorized to receive service of process; or
2. by any other means that gives notice, including one that is: a. stipulated by the parties; b. undertaken by a foreign authority in response to a letter rogatory, a letter of request, or a request submitted under an applicable international agreement; or c. permitted by an applicable international agreement.

This change will make it easier for the government and others to serve individuals and corporations in criminal and civil matters outside the U.S.

Claire Rauscher has more than 25 years of courtroom experience as a White Collar Criminal Defense Attorney. She represents clients in complex litigation across all phases of state and federal proceedings, including pre-indictment investigations, grand jury practice and criminal trials. In addition to her litigation experience, Claire conducts corporate internal investigations and assists clients in developing and implementing compliance programs.