October 5, 2021

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IntelBrief: Pandora Papers to Trigger More Reforms to Counter Corruption and Money Laundering

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On October 3, journalists from across the globe who teamed up under the umbrella of the International Consortium of Investigative Journalists (ICIJ) began publishing the findings of financial investigations that have been dubbed the “Pandora Papers.” The ICIJ’s social media blitz to promote the story has touted that the Pandora Papers are based on a leaked dataset of more than 11.9 million files – making it larger than the Panama Papers leak from five years ago. The last major investigation by the ICIJ, dubbed the FinCEN Files (named after the U.S. Department of the Treasury’s financial intelligence unit) documented how oligarchs continued to abuse the international formal financial system. The Panama Papers and the FinCEN Files prompted U.S. and international lawmakers to close loopholes that have long been exploited by corrupt officials, businesspeople, and the coterie of lawyers and accountants who facilitate the movement of wealth out of government coffers to the offshore money vaults owned by kleptocrats.

Among the early revelations from the first tranche of articles surrounding the leaked documents, which were ascertained by the ICIJ from more than a dozen offshore companies, were the offshoring of wealth by world leaders. For example, the Washington Post and Guardian documented the unexplained and sudden wealth of Vladimir Putin’s allies, to include a possible link between Putin and an alleged former lover (and possible mother to Putin’s daughter) – who has unexplained wealth that ICIJ investigations document, possibly linking back to Russia’s leader. In separate Washington Post reporting derived from the ICIJ Pandora Paper files, King Abdullah II of Jordan used offshore accounts to buy more real estate in the United States and the United Kingdom, which he has since justified as necessary for hosting foreign dignitaries and ensuring their security. King Abdullah II and Vladimir Putin are just two of the many high-profile individuals who are exploiting vulnerabilities in the international formal financial system, and it remains unclear what kinds of corrective measures might be taken in response.

Much like the efforts to fight corruption and money laundering in the wake of the release of the Panama Papers and the FinCEN files, lawmakers across the globe will seek to create new laws, amend ineffective ones, and force regulatory changes as part of the inevitable response to the Pandora Papers. For example, following the release of the FinCEN files, Congress passed the Corporate Transparency Act (CTA), the most significant law passed to counter money laundering since the passage of the U.S. Patriot Act in 2001. Among the many objectives of the CTA is to promote greater corporate transparency by establishing a Beneficial Ownership database and beneficial ownership reporting requirements with the intent of shedding light on the ways bad actors try to obfuscate and mask the possession of wealth. In essence, the CTA could make it more difficult for individuals to use shell companies in the United States. While the U.S. Department of the Treasury has not implemented new regulations related to beneficial ownership yet, it is expected that the law will require reporting companies to provide FinCEN identifying information for any individual who, directly or indirectly, owns or controls 25% of the company’s ownership interests or otherwise exercises “substantial control” within two years of the effective date of Treasury’s beneficial ownership rules. This and other reforms (such as the creation of the database) related to beneficial ownership are expected to be established by FinCEN no later than January 1, 2022. Finally, the Biden administration declared early on that it would prioritize efforts to combat corruption. The release of the Pandora Papers should accelerate the Biden administration’s efforts to do so, but success will need to include U.S. allies, given overseas territories involved in the affair.

Inevitably, the release of the Pandora Papers will spark new conspiracy theories and lead to the spread of disinformation. Conspiracy theories often rely on a central narrative that corrupt and malevolent global elites are fleecing ordinary people. The Pandora Papers render clear that there are global elites who are doing just that, but in the days ahead the public should expect to see new and false corollaries related to the Pandora Papers to also spread over social media platforms like Facebook. Altering facts to create false narratives is in the playbook of the purveyors of disinformation who will want to draw solid connections between those implicated in the Pandora Papers and political enemies who have no connection to corruption. In the weeks ahead, journalists, ICIJ, and government lawmakers would do well to work closely with disinformation experts to expose factually inaccurate information that will ride the coattails of the Pandora Paper data leak.