Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

More reactions to Panama Papers leak

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Here are a few more recent articles on the offshore banking industry that were of interest to me:

  • Proposed U.S. rules that won’t do much
  • Law firm at center of the leaks is closing some remote offices

5/10 – Salon – The Obama administration’s Panama Papers misfire: Why new rules to curtail global tax avoidance could actually make things worse – This article follows up on my previous comments that the proposals from the feds to counter offshore banking will do very little to stop the practices.

Article says the details of the proposals accomplish very little and could actually make things worse.

The “Customer Due Diligence” rule requires banks to track who the beneficial owners are of any of their accounts. These will actually allow a company to list the agent who is managing a shell corporation instead of the actual owner. Thus the hired manager would be listed as the beneficial owner, thus negating the entire rule.

The definition of legal ownership is set at 25% of the corporation’s equity. This opens the door to setting up several channels of several layers of shells so that by the time you get to the actual asset each “owner” is under 25%. Each of those owners is in fact controlled by the person hiding money but would be under the 25% cut off.

The announcement also trumpeted a proposal to require disclosure of the owner of a corporation at the time of incorporation.

I’m struggling to believe that proposal is really as dumb as it looks. Even I can think up the extraordinarily simple way to circumvent that rule. Merely have one of the facilitating firms set up a bunch of shells with hired staff listed as the owners. Put the hollow shells on an inventory shelf. The shells have a few hundred dollars of assets so they actually exist and actually can pay their own bills.

When a customer wants to get a shell company, the facilitating firm sells one off the shelf. The disclosed owners were the facilitator’s staff. The new owner can now run with a newly anonymous shell and move his assets into it with no further disclosure.

5/25 – McClatchyDC – Panama Papers law firm’ U.S. business shrinking amid investigation The Panamanian law firm at the center of the Panama Papers leak resigned as the registered agent for 1,024 companies that it represents in Nevada. That means the owners of those companies will have to find another company to park their Nevada shell corporations.

Article also says the firm in Wyoming that is the local rep for the Panamanian company severed relations.

A registered agent handles bill paying and regulatory reporting for the company, which keeps the names of the real owners out of sight.

Apparently, Wyoming is a third place in the US where the laws favor privacy for shell companies. I knew Nevada and Delaware were leaders.

5/26 – BBC – Panama Papers: Mossack Fonseca closes island offices – The law firm is going to shut down its operations in Jersey, Isle of Man, and Gibraltar. Article says the local offices handled incorporations of companies and administering those entities.

A long time ago I attended an anti-fraud class for continuing education in which the instructor explained how money is laundered.

The very short version is you need to get the money out of the country on what appears to be legitimate reasons, say, paying for a consulting project. The money goes into an offshore shell. Then you make a couple of jumps to intermediate shells. Then you wind up in a place like Jersey or Isle of Man.

Why? It doesn’t do any good to leave the money outside the US forever, so you need some way to get it back into the US on the pretext of a legitimate transaction.

So, the apparently unrelated company in Jersey loans you money for your business, or invests in your company, or buys a mansion in the US and leases it to you for a good rate. Thus, you get your money back into the US. Structure it right and you can keep the cash flow or use it as pretext to get more money offshore.

The instructor at that long ago class said Jersey and Isle of Man are popular points to get money back into the U.S.

Written by Jim Ulvog

June 3, 2016, 6:27 am at 6:27 am

Posted in Fraud, Other stuff

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