This Week in AML
The International Consortium of Investigative Journalists (ICIJ), The Washington Post and many other news organizations around the world have published a series of stories based on nearly 12 million records obtained by the ICIJ – known as the Pandora Papers - which shed light on how heads of state, the super-rich, and criminals have hidden their assets. John and Elliot look at some of the key findings by the ICIJ, The Post and other media outlets and discuss the implications for oversight and regulation going forward.
Pandora Papers: Global and Local Financial Secrets TRANSCRIPT
Elliot Berman: Hi, John, how are you this week?
John Byrne: Hey, Elliot, how's it going?
Elliot Berman: It's going okay. Kind of a rainy day here in the Midwest. You know, some weeks you and I sort of thought, well, what do you want to talk about? We've got lots of choices some weeks. Some [weeks] don't have any choices. There's only one choice this week, and that's the Pandora Papers.
John Byrne: They're staying with the P theme, obviously from the other, paradise and Panama. Yeah, and obviously, there's a lot of really smart people that are looking at this. The International Consortium of Investigative Journalists is doing stories every day. All the major papers are, so a lot of this stuff will continue to play out, but I thought it would make sense just to give our quick reaction. Obviously, we will plan to do more, certainly pass on what we see as valuable to our clients.
But sort of a big picture thought I had here is nothing so much to do with the content of what's in the Pandora papers, but what's going on in terms of whistleblowing and leaking of documents, obviously, you know, the Pentagon papers had to be xerox thousands of pages over months before that could be "leaked" to be distributed. That's not the case anymore. So there [are] more and more opportunities for good, bad and neutral reasons, to disseminate information like this.
Elliot Berman: That is absolutely true. There's so much in here that it's hard to really wrap your head around all the detail. Still, it's pretty clear that while sanctions have been effective in many circumstances, there's some clear evidence here that there's been some significant sanctions avoidance that we're now seeing pop-up. I thought that was very interesting. I was disappointed but not surprised to see how many heads of state from the world were mentioned in this, current and former. Particularly where their actions and their rhetoric are totally misaligned. That was not also surprising, but it'll be interesting to see what happens to them politically through time as a result of this disclosure.
John Byrne: Sure. You had King Abdullah of Jordan, [and] you had President Zelensky of Ukraine. So yeah, that obviously is both embarrassing, and you're right; it's hard to know what's going to come from this. I think the other part too, in terms of our world [is], what it's going to mean in terms of potential legislation or studies?
One of the themes in the stories was the use of two offshore trusts by an art dealer for the looting of Cambodian artifacts. So, you know, one of the questions where we're going through the process of looking at the antiquities world to be under BSA, I think this makes it very clear that art will also be under BSA at some point.
Elliot Berman: I think that's right. I wonder whether there'll be enough reaction, politically in the US, to amend the Anti-Money Laundering Act section on the ultimate beneficial owner registry to make it public. It's public in the UK.
John Byrne: Belgium too, I believe.
Elliot Berman: Yeah. Right. So, I mean, there is precedent and, you know, a private one in the light of all of this discloser. It makes you scratch your head about how effective it will really be if it doesn't have the power of sunlight on it.
John Byrne: That's right. I've seen something just reported today that there'll be legislation. If it's not already introduced, it's been described as something called the Enablers Act, which would amend BSA to include gatekeepers. So, interesting because that's always been something that's been sort of lingering, you know, lawyers, real estate, accounting firms. You're making that case, and I think that's one thing that will happen. I also think besides what you mentioned about the registry, I think it's pretty clear that once everything sort of shakes out with the beneficial owner, laws, and registry.
[There's] very little chance that they would tailor back the CDD rule that banks have been implementing since May of 2018. I just don't see that [happening]. Congress has a short memory, so who knows? Maybe in a couple of months, they no longer care, but I think it'd be pretty hard for that to happen now.
One of the other things that's really interesting to me [is], who would have guessed that South Dakota was a player in this, right? We knew about Delaware, Nevada, and Alaska as places where there's onshore activity, onshore trusts. Offshore is no longer the pejorative term because you could argue South Dakota is the same as the Cayman Islands, for gosh sakes.
I think what's interesting is nobody knew about this outside of the legislatures that push this because nobody's focusing on this until something like this happens. So I think there'll be further oversight on what are we doing here? Where's the transparency? I think that's going to be the major question.
Elliot Berman: Yeah. It'll be very interesting to see from a federal legislative perspective because of the way we do corporate law in the US, really at the state level. I mean, essentially, trust companies are just corporations with a special purpose.
It'll be interesting to see other than using the gatekeeper approach, which you talked about, it's not perfectly clear that we could have sweeping federal legislation that would make what's happening in South Dakota illegal per se. Not saying it couldn't happen, but you know, it's not just a, well, Congress will pass a law, and that'll go away. That would be challenging.
John Byrne: But that's why you have the gatekeepers potentially do that.
Elliot Berman: Correct.
John Byrne: So you're a hundred percent, right. You know, sunshine is the best disinfectant, as they've been saying forever. The other thing here that I heard, which is really interesting, is how come there's not that much US reference in these papers.
One of the reporters said, well, because here the taxes or so less on the very very wealthy, people really need to do offshore banking as much as the foreign Kleptocrats do, whether that's true or not. It's kind of an interesting take on that. Still, I think the sanctions issue becomes a question, and does there need to be legislation at the federal or state level and what our folks in South Dakota and other places think about their state being a Haven for this type of activity. It's not illegal to have offshore banking, obviously, but some of the activity is clearly enabling money laundering and the use of illicit funds for other actions.
So, I think these sorts of disclosures are always valuable. Now we need an intelligent response to it, but I think we just got to stay focused on this and continue to see what legislation makes sense. What does it, and just how best to help our clients in the community navigate all of this.
Elliot Berman: And keep reading. I've probably spent five or six hours, reading from the various sources, the Washington Post and, The Guardian and a number of other, very, sophisticated journalistic enterprises along with the coalition, or the consortium rather, have done a lot of work and just waiting through it is a time-consuming thing, but worthwhile. So I encourage people to find one or more sources and do some reading.
John Byrne: I agree. We'll stay on top of this, and as news breaks, if it's worth reporting on a particular week, we'll give you our 2 cents.
Elliot Berman: Yep. So I'll do the shameless plug again this week. If you're interested in this and our other podcasts, please find us on Spotify, Apple Podcasts, or wherever you find your podcasts. John, I'll let you do the shameless plug for the webinars.
John Byrne: So the webinar this month in late October is with two individuals that have done so much in our space. Jack Sonnenschein, who's a career auditor, and Rick Small, from Truist. We're going to talk about navigating and working with your internal auditor. We'll probably talk a little bit about exams, do's and don'ts as well. It's an area that we constantly get asked about. So we are definitely excited about this program.
Elliot Berman: Yep. You can go to our website and sign up so that you get the link and, we think it's going to be an interesting program. So join us for that too.
John, I will talk to you next week.
John Byrne: Take care, Elliot. Stay safe.
Elliot Berman: Bye-bye.