10 months on, Panama Papers heat up again with senior lawyers arrested

The founders of Mossack Fonesca, the law firm at the centre of the Panama Papers scandal, have been arrested. The arrests follow a surprise raid at the firm’s offices on 9 February 2017, after which Jürgen Mossack and Ramón Fonseca voluntarily surrendered to the Panamanian authorities.

The 9 February raid follows an earlier raid of the firm’s office in mid-April 2016. While many lawyers undoubtedly watch with schadenfreude as this mess unfolds, we examine some of the common themes and risk factors that you should look for.


Battle of the press releases

Panamanian Attorney General Kenia Porcell released a statement (in Spanish) describing Mossack Fonesca as a “criminal organisation” that devotes itself to “hiding assets or money from suspicious origins.” Demonstrating the global impact of the Panama Papers scandal, the Attorney General also thanked prosecutors in Brazil, Peru, Ecuador, Colombia, Switzerland and the United States for their assistance.

Mossack Fonesca hit back with their own statement, describing the Attorney General’s action as “arbitrary and biased”, alleging that the Panamanian authorities have not “presented a single piece of evidence that shows us guilty.” The firm even tweeted a photo of the search warrant.

“Operation Car Wash”

The Attorney General links the arrests to Brazil’s long-running corruption investigation, “Operação Lava Jato” or “Operation Car Wash”.

Alongside the impeachment of a sitting Brazilian president, Operation Car Wash has led to the unraveling of a global bribery scheme. In December 2016 Odebrecht S.A., a construction company, and one of its subsidiaries  agreed to pay over US$3.5 billion to settle an international investigation. The investigation was led by the U.S. Department of Justice, which stated that:

“Odebrecht engaged in a massive and unparalleled bribery and bid-rigging scheme for more than a decade, beginning as early as 2001. During that time, Odebrecht paid approximately $788 million in bribes to government officials, their representatives and political parties in a number of countries in order to win business in those countries. The criminal conduct was directed by the highest levels of the company, with the bribes paid through a complex network of shell companies, off-book transactions and off-shore bank accounts.” (our emphasis)

Back in Panama, the Attorney General alleges that Mossack Fonesca facilitated Odebrecht’s schemes by setting up these shell companies and off-shore bank accounts.

Key red flags

The Odebrecht case exhibits a range of typical risk factors for money laundering that we see time and time again:

  1. Involvement of politically exposed persons
  2. Payments not commensurate with expected or reasonable flows
  3. Large infrastructure projects involving government tenders
  4. Jurisdictions with relatively low rankings on the Corruption Perceptions Index
  5. Unduly complex and offshore company structures

Whether Mossack Fonesca investigated these risks before accepting work from Odebrecht is presently unknown. To be fair, the expectations on lawyers are typically lower than for banks that are closer to the money. And there can, of course, be legitimate reasons for each the above factors. But each and every risk factor should always prompt thorough investigation by lawyers, bankers, accountants and other service providers – or they may end up as unwitting cogs in a money laundering machine.

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