Panama Papers: US launches criminal probe

20 April 2016

The US Department of Justice has launched a criminal investigation into the widespread international tax avoidance schemes exposed by the Panama Papers leak, first published by The Guardian and other journalistic partners.

Preet Bharara, US attorney general for the Southern District of New YorkPreet Bharara, the US attorney for Manhattan, said he had ''opened a criminal investigation regarding matters to which the Panama Papers are relevant''.

Bharara has written to the International Consortium of Investigative Journalists (ICIJ), which coordinated the unprecedented leak of 11.5 million files from offshore law firm Mossack Fonseca, to ask for further information to assist with his criminal investigation.

The inquiry comes after President Barack Obama described the revelations from the leaks which have caused political tumult across the world ''important stuff'' and global tax avoidance as a ''huge problem''.

''There is no doubt that the problem of global tax avoidance generally is a huge problem,'' Obama told reporters in an unscheduled appearance in the White House briefing room earlier this month. ''The problem is that a lot of this stuff is legal, not illegal.

''A lot of these loopholes come at the expense of middle-class families, because that lost revenue has to be made up somewhere.''

The US president said the leak from Panama illustrated the scale of tax avoidance involving Fortune 500 companies and running into trillions of dollars worldwide.

''We shouldn't make it legal to engage in transactions just to avoid taxes,'' he added, praising instead ''the basic principle of making sure everyone pays their fair share''.

The US attorney general's office was unable to provide any further details about the criminal investigation because it is ongoing.

Bharara investigates
Bharara, who as US attorney general for the southern district of New York has led several crusades against criminal wrongdoing in the financial sector, is already investigating several of the more than 200 US citizens named in the papers.

Among them is Wall Street financier Benjamin Wey, who has been charged with securities fraud, wire fraud, conspiracy and money laundering for using family members to help him amass ownership of large blocks of stock in companies through so-called ''reverse merger'' transactions between Chinese companies and US shell companies.

He made tens of millions of dollars of illegal profit by manipulating the companies' stock prices, according to the indictment.

The Panama Papers leak shows that Mossack Fonseca helped set up the offshore companies used in the stock manipulation.

''Ben Wey fashioned himself a master of industry, but as alleged, he was merely a master of manipulation,'' Bharara said when he announced the indictment against Wey in September. Wey, the chief executive of New York Global Group, denies the charge.

The release of the Panama Papers has sparked public outrage across the world, including the resignations of the prime minister of Iceland and Spain's industry minister following revelations about their offshore tax arrangements.

David Cameron, the British prime minister, has also been forced to defend his family's tax arrangements after disclosures about an offshore fund established by his late father. He also has taken the unprecedented step of publicly releasing details from his tax returns.

The offices of Mossack Fonseca in El Salvador were raided by police officers last week on the orders of the country's attorney general in an attempt to ''establish the use of the firm for illicit activities'' (See: Panama papers: El Salvador raids Mossack Fonseca offices). 

Mossack Fonseca is the world's fourth biggest offshore law firm. It specialises in incorporating companies in offshore jurisdictions such as the British Virgin Islands.

WB, IMF concerned
The leaders of the World Bank and the International Monetary Fund (IMF) have warned that the industrial scale of international tax avoidance revealed by the Panama Papers represents a ''great concern'' for the global economy and is having a ''tremendously negative effect on our mission to end poverty''.

Jim Yong Kim, the president of the World Bank, said last week that the revelations that many of the world's richest and most powerful people are avoiding paying millions in taxes by hiding money from the taxman in offshore havens is a ''great, great concern'' and ''very, very damaging'' to the bank's ''mission to end extreme poverty''.

''When taxes are evaded, when state assets are taken and put into these havens, all of these things can have a tremendous negative effect on our mission to end poverty and boost prosperity,'' he said.

Christine Lagarde, managing director of the IMF, said the world's financial regulators had long been ''alarmed'' about Panama's lax approach to taxation and corruption but failed to take action.

In her strongest comments yet addressing the scandal exposed by the Panama Papers, Lagarde said, ''In the case of Panama there had been alert and alarm raised, but there had not been the level of implementation that was expected.''

She said the leak showed that ''the [international tax] rules appear to be skewed towards'' the global rich. ''Clearly what has resulted from the review of these Panama Papers indicates that however important [international tax rules to prevent] base erosion and profit shifting it is unfinished business,'' she said in an opening address to the meeting.

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