Attestation Update – A&A for CPAs

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Initial follow-up to Panama Papers leak

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Previously mentioned the massive leak of data about offshore banking that hit headlines this past Sunday. This is now called either the Panama Papers or Panama leak, take your pick. Here are a few of the initial articles on the follow-up that I found interesting.

There are more and deeper issues than just tax evasion. By the way, the term we should be discussing is tax evasion, not tax avoidance. Avoidance means complying with the tax law in order to lawfully reduce your tax bill. Evasion means breaking the law.

Simple introduction to offshore banking

4/4 – Vox – The Panama Papers leak, explained with an adorable comic about piggy banks – Simple cartoon gives a great illustration of a little boy hiding some quarters from his mommy in a piggy bank stored in his little friend’s closet. Lots of other little boys to the same. Eventually the friend’s mommy finds all the piggy banks and calls all the moms.

Some of the little boys may just have wanted to hide a few extra quarters from mommy because they wanted some privacy. Others may have been stealing lunch money from their schoolmates and don’t want mommy to know. Some may have been stealing from mommy’s purse. Yet others may have been wanting to save up a couple of dollars to buy an actual surprise birthday present for mommy and daddy. Some have gotten tired of their siblings sneaking into their piggy bank.

First casualty

4/5 – The Guardian – Iceland prime minister resigns over Panama Papers revelations – Watch how fast things have developed.

News of the Panama Papers broke on Sunday. The prime minister of Iceland was reportedly holding bonds of Icelandic banks in offshore account; his claim is those belonged to his wife and taxes were paid on the money.

On Monday there were mass protests outside parliament. This article says there were 10,000 people present. Reports yesterday said there were 22,000. Either way that is a huge protest in relation to the approximately 330,000 population. Perhaps it was 6.7% of the population, or perhaps it was only 3%.

Three percent. Of the population. Of the entire country. In one protest.

On Tuesday, the prime minister resigns.

Whether this is a good thing or not, and whether you think this was too fast a reaction or needed more consideration, keep in mind the speed of the response.

Ponder that as you consider how you might respond to a media firestorm involving you or your business or your charity.

Well, never mind….

4/6 – Politico – Iceland’s prime minister claims he did not resign – Instead, he just asked another member of his party to take over the PM duties for an unspecified time.

Some other perspectives; this isn’t just about tax evasion

4/4 – Kelly Phllips Erb at Forbes – What Are the Panama Papers – Article reminds us there are legal, moral, and legitimate reasons to have offshore accounts.

4/5 – Wall Street Journal – The Panama Papers in Perspective – Article raises some wonderful questions that aren’t getting enough attention.

For starters, how does it happen that career politicians who have worked in government jobs their entire lives gather so much money? How can so many politicians have possibly have gathered enough investable assets to make it worthwhile to move funds into offshore accounts?

Here’s an extra: if the public interest is on illegal activity, why is the only focus tax evasion? There are major issues to be raised of evading US sanctions against doing business with bad people (as US officials choose to define ‘bad’). There are also serious issues of corruption and embezzlement.

4/4 – The American Interest – Big Leak, Big Corruption, Deep Rot – Article suggests there is something more important than the specific politicians and headliners who were routing money through the secret banking system.

The bigger issue is that such a system even exists and is operating on such a huge scale. Article says that reveals a moral rot amongst the senior leaders in politics, business, and society.

4/5 – Reason – Panama Papers Are About Government Corruption, Not ‘Tax Evasion’ – Article claims the far bigger issue than tax evasion is official corruption. Politicians caught with money in offshore accounts claim they paid taxes on the money.

That very well could be true. Let’s stipulate that usually is the case. Doing so raises deeper issues.

The far bigger motivation may be to hide from everyone other than the tax authorities that the money exists. Maybe the goal is to hide from the public that they’re taking a position on a major public issue that is in radically contrary to their own financial interests. The prime minister of Iceland is a perfect example.

Other articles of interest

4/5 – Bloomberg – China, Pakistan Push Back on Offshore Revelations as Syria Named – Article mentions the first reaction from Global Times, which is controlled by the Chinese government, said there is a ‘powerful force’ driving the leaks and the goal is to hurt non-western governments. Western media will cooperate in that effort, according to the article.

The Russian reaction is to deny President Putin has any involvement and this is merely an effort to destabilize Russia.

4/4 – Journal of Accountancy – Panama papers leak provides a roadmap for tax investigations – the massive leak obviously will be able to provide a huge amount of details tax authorities don’t currently have. Piecing together those tidbits will allow them to track money backwards and forwards as it moves through the international system. This is a big break for the tax man.

Article says there are reports that quite a few countries have already started investigations, including Australia, Austria, France, and India, among others.

Why so few Americans on the list?

Lots of discussion ‘round the ‘net wondering why the initial reports have so few Americans listed in either the headlines or the non-headliner names.

I can think of a variety of reasons we haven’t seen many names of Americans.

The first and most obvious is a semi-official comment from one of the participating media sources that this is merely the first round and additional information soon to be released will have names of Americans.

Second possibility is the journalists researching the 2.7 terabytes (that’s 2,700 gigabytes) of data have not worked their way through everything yet or are stilling trying to nail down details about Americans.

Third possibility is that Americans might have a tendency to use other firms. Reinforcing this idea is there seems to be a concentration of British individuals and entities on the first round of reveals, suggesting that some sort of tendency of Brits to use this firm. That suggests Americans might tend to use another firm.

Fourth possibility is Americans go offshore through a shell company in Nevada or Delaware before the money is handled by this Panamanian firm. If that were the case, all the accounts set up by this law firm would have invisible owners.

Fifth (a variation of the previous idea) possibility is a huge portion of the companies set up by this law firm are in between jumps, neither the entity used to get the money out of a country or return it to the owner. It is my understanding a good offshore scheme involves multiple layers of hidden companies.

Stay tuned, I know there will be much more news to follow.

Written by Jim Ulvog

April 6, 2016, 8:23 am at 8:23 am

Posted in Fraud, Other stuff

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