Panama Papers – A Different Perspective

Panama City – Recently, a giant trove of documents, which was internally leaked from Panamanian law firm Mossack Fonseca, was placed into the hands of German journalists. Some are calling this the biggest leak of confidential documents ever.

The leak contains internal communication, corporate documents, and personally sensitive documents like passports and proof of address documents. And we are trusting these to journalists!

Over the coming weeks, there will be countless articles naming and shaming Mossack Fonseca’s clients (Gasp! Jackie Chan!), but in all likelihood, there had been no wrongdoing on the part of the majority of the firm’s clients. Owning an offshore company is completely legal, and it’s a tool that is very powerful.

Let’s paint a picture by analogy.

Instead of documents from an offshore corporate service provider let’s assume the press got hold of many internal documents released from a Home Depot.

If the agency had been leaked documents from Home Depot – and it showed Jackie Chan owned a ladder – this ladder could be used to break into homes. Therefore the press assumed by correlation that Jackie Chan is a burglar? Of course, this is a silly abstraction from the truth – because Jackie owned a ladder – It doesn’t mean Jackie Chan is a burglar. It just means he bought a ladder.

Similarly, just because Jackie Chan owned shares in an offshore company does NOT imply that he is a tax evader.

One thing that reporters and the general public seem to get caught up with and overlook is that offshore companies are used for legitimate purposes 99 percent of the time. This is because of a fundamental misunderstanding about the nature of the business (and journalists’ need to write a salacious headline).

What is frustrating is that these writers haven’t even done enough research to use the proper terminology and generally don’t know what they are talking about. Yes – politically exposed persons shouldn’t be able to funnel funds illegally – but just because one is linked to an offshore company doesn’t mean there was any wrongdoing.

We cannot assume that because someone had financial affairs with M&F they were doing something wrong. To Assume – is to make an ASS out of U and ME.

We cannot assume because someone’s uncle, brother, donor, friend owned a company, that there is implicit wrongdoing. But these rational arguments matter not to an unrelenting press where will stop at nothing to reveal the truth write articles which get clicks to their websites and more eyeballs that read the usually expected nonsense.

As in all things, there are lessons to be learned. Here’s how relevant parties can react to this leak, and protect their privacy in the future.

What to Learn

Clients

What should you take away from this if you are a client interested in setting up an offshore company? Smaller firms, by their very nature, tend to have fewer people who have access to your sensitive documents. Working with a huge law firm like Mossack Fonseca may be cheaper hiring than a boutique firm, but it has its downsides.

Your information can be placed at risk, so it is best not to adopt a strategy that relies on privacy, especially if it’s not legally valid. Even if you’ve done nothing wrong, you may still wish to remain private. For such cases, we’ve built a special tool called KYC-Chain, which is a keychain for your passport and other sensitive documents.

Built on distributed technology, KYC-Chain essentially ensures your data is protected. Your information is encrypted and then stored in a distributed database, kind of like a torrent, except that only you know where the torrent is located, and even if someone were to find the location of one hard drive, he would have discovered only a small fragment of the file, thus making it unreadable. This means that if someone was compelled to hand over his hard drive by government agents, for instance, you won’t be placed in a compromising position. Our technology puts you at an advantage.

What’s even better is that it’s extremely easy to use KYC-Chain – you simply authorize a new person to view the files so as a consumer you have complete control over the storage, access and new views of your sensitive documents.

Providers

Offshore service providers or OSP’s need to join the 21st century in terms of technology. Rarely do I work with an OSP that has even basic technology infrastructure in place.

Mossack Fonseca had a secure server, and its data were most likely not hacked from the outside, but from within, where it is most vulnerable. No organization is impenetrable – just ask Edward Snowden. As a contractor for the NSA, he was able to steal documents from the largest and most sophisticated intelligence agency in the world.

A specific recommendation I have is that OSP’s need better segmentation of your customers’ KYC documents, which should be placed under the control of a specific employee or manager, and not be open to access by everyone in the company.

You need segmentation of critical user files, especially the sensitive identification documents. It’s one thing if some internal emails get leaked. It’s a much larger problem if your customers’ passports and identity documents are now floating freely on the Internet.

Most of what Mossack Fonseca was doing was completely legal, but it is nevertheless facing a backlash from the media and the public. Let’s finally look at what the media can and is doing.

Journalists

Look for politically exposed persons so you can grab those juicy headlines. You’re now paid on clicks generated, so better hop on the story while it’s hot. Best not to present an alternative view, just rehash what’s already been said with a new headline. /sarcasm

Seriously, I think that journalists play an important role in exposing dirty details, but more care should be taken when naming and shaming someone who literally did nothing wrong. It’s not illegal, it’s not wrong, it’s not shady to set up an offshore company. It’s a fact of business in the 21st century and there are countless legitimate uses of offshore companies that don’t involve any mitigation of tax (illegal or legal). Unfortunately painting a detailed picture rarely generates the broad interest that a headline with salacious accusations against celebrities and politicians does.

Governments

You need a way to allow people to set up companies more securely. The passing of notarized KYC documents via email is a fragile and outdated process. Here are ways you can use blockchain technology to create efficiencies in governance as it relates to corporate services.

Everything is becoming more transparent through AEOI agreements, leaks, bad employees, and tax agreements. You need a strategy that is 100% legal and allows you to have a solid foundation to stand upon.