New Panama Papers Leaks Show Law Firm Scrambling To Contain The Chaos Of The First Leak

Posted By:
Kreller Group
July 6, 2018

Recently there was a new round of leaks from Mossack Fonseca, the law firm at the center of the Panama Papers leak that happened several years ago. We’ve covered the Panama Papers several times here on the blog. These latest leaks, of internal company emails and other documents, don’t just add more names and companies to those already leaked, they also give a lot more detail on the practices of this law firm, and the chaos inside the firm after the initial leak, and the eventual demise of Mossack Fonseca.

One of the best summaries of the situation the we’ve read comes from Will Fitzgibbon and Ben Hallman, writing for the Organized Crime and Corruption Project. The article details how Mossack Fonseca tried to deal with the problems caused by the original leak. The article also goes into detail on all the ways the business practices of the firm left them so unprepared for the original leak. Not only were the names and holdings of many of their clients leaked (some of them very high profile), but it turns out in many cases Mossack Fonseca didn’t even know who their clients were, which caused problems when regulators came asking questions.

From the Fitzgibbon and Hallman article:

Newly obtained documents reveal that Mossack Fonseca couldn’t identify tens of thousands of owners of companies it had registered in opaque, low-tax jurisdictions. Two months after the firm became aware of the records breach, it still hadn’t identified the owners of more than 70 percent of the 28,500 active companies it had registered in the British Virgin Islands, the firm’s busiest offshore hub, and 75 percent of its 10,500 active shell companies in Panama.

The company used intermediaries to set up many of their accounts in the many jurisdictions where they formed companies and made little to no effort to find out or document who the ultimate beneficial owners were. Even in the loose regulatory environments where many of these off-shore companies were based, this was in violation of a number of “know-your-client” laws.

Leaked emails show that in the days, weeks and months following the original leak of Mossack Fonseca’s files, the company scrambled to try to find out who their clients were. Much to the consternation of many of the intermediaries they had worked with, who were often asked for one set of documents, and then different documents a short time later. In a few cases some were even asked to try to make it look like Mossack Fonseca had always had the documents.

From the Fitzgibbon and Hallman article:

One Uruguayan accountant stopped answering his phone and rejected the law firm’s suggestion that he hand-write and post-date an old document to make it appear that the firm had accurate information on the ownership of a company controlled by the family of Argentina President Mauricio Macri. The idea was dropped after the accountant told Mossack Fonseca the document would be “easily refuted by an expert calligrapher.”

The article by Fitzgibbon and Hallman contains a lot more information and is very much worth the read.

Ultimately Mossack Fonseca couldn’t weather the storm and announced on March 14, 2018 that the firm would be closing. These latest leaks make clear just how poorly run the operation was.

The whole saga illustrates many of the ways that due diligence is so important. We use the ICIJ databases for the Panama Papers and the Paradise Papers (a similar leak that happened after the Panama Papers, which we've also discussed before) in our investigations, so this new leak will increase what we can find when investigating companies and individuals. But the revelations from the leak also highlights why it’s so important to know not only about your potential business partners, but also you clients. It could be legally required. Even if it’s not, it might tell you something unexpected about who you’re working for.

About the Kreller Group

For nearly 30 years, Kreller has relied on “extensive boots-on-the-ground” research, conducted by investigators who are well-versed in worldwide military, law enforcement, business and government matters to deliver the concise information our clients need to make decisions.


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