The most interesting information from the Panama Papers is what *isn’t* in the files.
The best stories to be told as a result of the massive data leak cannot yet be written.
The really smart people use multiple layers of shell companies to hide assets. When laundering money, one should move assets through a series of companies, with each subsequent jump being anonymous.
A long time ago I attended a continuing education class helping CPAs understand fraud. Why are such classes required? So that, hopefully, maybe, CPAs will be able to recognize fraud when it stares them in the face during the course of an audit.
During the class, the instructor went off script and explained to us how to launder money.
The very short version is you have to get money out of the country for what appears to be legitimate reasons. Perhaps payment for plausibly legitimate services, investing in a joint venture, or repaying a loan. Consulting services obtained from an international firm with offices in Panama would be a good way to start.
The money goes into an offshore account, which you control. You then transfer the money into another offshore account, which is owned by another company which you also control. For best results, you need to transfer the money into yet another offshore account, preferably in one of the havens near England.
Then the challenge is to get the money back into the US.
After all, what good does it do you to spirit money out of the country and not be able to use it? You then bring the money back by a loan to your company or an investment into your company or a mortgage on your new home.
It is easy to launder small amounts of money. It is really difficult to hide a big pile of cash.
So that is what I learned in class that day.
If the dollars are small you could use an ATM card or credit card to pay for incidental living expenses.
Another option if you need a bit less security or the dollars aren’t that large would be to use a Nevada or Delaware corporation to hide your money. You could park money there and bring it back as you wish. You could use that account to buy your household electronics or that new boat.
The starting point for moving money offshore could be a shell company in either Delaware or Nevada.
At one point in my career, I had opportunity to look at a business which was housed in a Nevada shell company. Even though everything in this situation was completely legitimate, I learned much during that engagement, all of which were things auditors would rather not know but are a useful education anyway.
Other than explain the corrupt uses for this system are well-known and have been in place a long time, why do I mention all of this?
Notice above that if the volume of laundered dollars is large enough you would be best to push the money through multiple jumps. If one was smart and the dollars were huge, seems to me that a different legal firm would be used to create each of the jumps. Seems to me you would want to use different banks at each step.
There are two obvious reasons that immediately come to mind why you would want to use multiple jumps. First, you can make the money coming back to you look completely innocent. Second, it is extremely hard to trace money through multiple layers.
The instructor in that long-ago class said there are places where not only bankers but police (who are not constrained by Western legal niceties) take a rather dim view of anyone who asks questions about other people’s accounts. Yes, that means that your physical safety and freedom are in danger in some places of the world if you ask too many questions about other people’s private concerns. If hiding a lot of money, you want to route your new-found wealth through one of those jurisdictions.
The headlines in the Panama Papers story are politicians who show up in the accounts. Entertaining though that may be, the far bigger story with far more names would involve finding out who is upstream from the identified accounts and where the money goes after the next jump. I will guess a huge portion of the accounts visible in the leaked data are an intermediate jump. That means the names on the upstream accounts aren’t the names of the real owners of the money.
As yet one more angle in this issue, consider one possibility for why we haven’t seen many names of Americans in the current round of leaks. Perhaps a large portion of Americans going into the offshore world start the trip in a Nevada corporation. If that is the case, those names would never appear in the Mossack Fonseca files.
The biggest payoff would be to find where the anonymous money came from upstream or where it resurfaced downstream.