(Bloomberg) — From Moscow to Reykjavik to Buenos Aires and beyond, the same two words are suddenly reverberating in financial circles: offshore accounts.
No sooner did a group of media outlets report Sunday that some of the world’s wealthiest people, including politicians and business figures, had channeled billions through offshore accounts than the inevitable blowback began.
Public officials responded with outrage, bluster, denials, semi-denials or all of the above. Banks like HSBC Plc and UBS Group AG stressed that they follow the rules and carefully vet customers. And regulators said what regulators often do: We’ll look into it.
In many ways the articles, published by the International Consortium of Investigative Journalists, simply confirmed what experts have long known: Wealthy people, prominent or not, often use offshore accounts. And, in most cases, those accounts are perfectly legal.
Yet for political and business leaders, as well as their financial enablers, even legal offshore accounts can raise uncomfortable questions. Sunday’s reports, said to be based on 11.5 million leaked documents from a Panama law firm, have once again trained a spotlight on the offshore ecosystem used by a global elite who at times seem to operate beyond conventional borders. As yet, the full scope of the allegations is unclear.
To some, the Panama Papers, as the documents are being called, could represent the tip of the iceberg. The ICIJ said its cache of leaks outlined more than 200,000 shell companies. The Panama law firm at the center of the reports, Mossack Fonseca, has denied wrongdoing.
The law firm said in a statement to the ICIJ that it has “always complied with international protocols … to assure as is reasonably possible, that the companies we incorporate are not being used for tax evasion, money laundering, terrorist finance or other illicit purposes.”
“One leak exposed a global web of over 200,000 offshore shell companies: Imagine what leaks at other well-placed law firms and banks would expose?” Mark Williams, a lecturer at Boston University and author of “Uncontrolled Risk,” a book on the rise and fall of Lehman Brothers Holdings Inc., said in an e-mail.
‘Alive and well’
“Global offshore money laundering is a multibillion-dollar business and remains alive and well,” Williams said, speaking generally. “This leak is proof that despite explicit banking laws against tax evasion, criminal uses and money laundering, the global offshore shell game business remains open for the wealthy and well connected.”
Within hours of publication, the articles prompted a political storm in Iceland, where the prime minister, Sigmundur David Gunnlaugsson, faced a no-confidence vote. Gunnlaugsson told parliament Monday that the company mentioned in the ICIJ report “is a company in my wife’s ownership and it has always paid taxes and been declared in our tax returns.”
The reports drew a salty rebuke from a confidant of Vladimir Putin, the Russian president.
“It’s bulls**t,” Andrey Kostin, chief executive officer of the Russian VTB Bank, said in an interview with Bloomberg Television on Monday. The reports said Putin was linked to a “clandestine network” operated by his associates that had shuffled at least $2 billion through banks and offshore companies. Almost invariably, the report said, money and power moved through that network “to companies and people allied to Putin.”
Ukraine’s president, Petro Poroshenko, who was named in ICIJ’s reporting, said he didn’t handle his own money. Argentina said its president, Mauricio Macri, had been a director of an offshore company but had never held a stake in it.
According to the ICIJ, the trove includes offshore companies linked to 12 current and former world leaders, as well as hidden financial dealings by 128 more politicians, public officials and entertainment celebrities. The account holders include current and former leaders from Georgia, Iraq, Jordan, Qatar, Saudi Arabia, Sudan, and United Arab Emirates.
The report also alleged that HSBC, UBS and Credit Suisse Group AG were among the hundreds of banks that referred clients to the Panama law firm for help setting up shell companies. The banks denied wrongdoing.
While offshore holdings are usually legal, they can also be used to hide wealth. Since the 2008 financial crisis, Western governments have sought to shed greater light on offshore banking centers, arguing they can be used to avoid taxes or hide illicit funds.
The U.S. Department of Justice, which has entered into settlements with some of the banks named in the documents over charges they abetted money-laundering and tax evasion, is reviewing the new material, according to Peter Carr, a Justice Department spokesman.
Perhaps the most explosive claims in the reports involve links to Putin. The documents don’t name the Russian president, according to the report. It outlined an example of its findings: the creation, within 24 hours, of a chain of four shell companies in three countries, involving two banks — a process that made the money behind it “all but untraceable.”