The Paradise Papers - the Secret Is UBO

Even people who stand on stage promoting good causes can have something to hide when it comes to taxes. The latest example is the singer of an Irish rock band who has been listed in the Paradise Papers leak that exposes high-profile people, including monarchs, to charges of tax evasion.

Tax evasion is a huge global problem running right across all social classes and income categories, even involving people who otherwise like to present themselves as philanthropists and social benefactors heavily engaged in charity work. The world’s biggest, most famous celebrities and sport stars do business in tax havens, as do well-known mega-brands, business leaders and politicians. While they gain, the governments of countries around the globe lose $700 billion in tax revenues every year, according to estimates by the international Tax Justice Network.

The Leaks Get Bigger

The Offshore Leaks in 2013 were the beginning, followed by the Swiss Leaks, the Bahamas Leaks or the Panama Papers in 2015/2016. With 11.5 million files and 2.6 TB of data, the Panama Papers were the biggest leak, leading to more global investigative efforts to untangle how the so called “tax paradises” work.

With the Paradise Papers comprising 13.4 million files and 1.4 TB data, the second biggest leak in history reveals how international elites use complex structures of trusts, foundations and shell companies to optimize their tax legally or even hide their cash from tax authorities. The sensitive documents originate from the offshore law firm Appleby, two other corporate services providers and the company registries of 19 tax havens.

It’s Not Only About Tax Evasion

This renewed leak tremendously increases the pressure on regulatory side to finally tackle offshore secrecy and anonymous trusts as they are not only effective vehicles for tax evasion, but also for money laundering, corruption and terrorism financing. Many regulatory bodies across the globe have already issued rules requiring financial institutions to identify and verify beneficial owners of their corporate customers.

No bank wants to be part of a scandal nor see its good name affected by leaks like the Paradise Papers, and indeed banks can do a lot to limit their risk of reputational damage and regulatory fines through better KYC.

UBO — Blind Spot and Pain Point of Feasible?

Ultimate beneficial ownership (UBO) identification and verification needs to become an essential component of customer onboarding and ongoing customer due diligence (CDD) processes. However, many institutions still rely on customer self-reporting or conduct slow and costly manual due diligence to understand ownership structures. The issue is complex and cannot be underestimated, with millions of new companies being registered annually around the world.

Finding true UBO seems like searching for the needle in the haystack but technology and analytics can help streamlining processes, increasing transparency and reducing risk. End-to-end KYC solutions, like Siron® KYC, support the risk classification process of new and existing customers, and utilize third-party databases to match customer information with sanction and watch lists, and to identify beneficial owners and politically exposed persons.

With the publication of the Panama Papers, we at FICO already integrated the Offshore Leaks Database by the International Consortium of Investigative Journalists (ICIJ) to screen customers against these data to explore any existing offshore connections and better assign appropriate levels of risk for the ongoing customer due diligence requirements. The ICIJ database contains information on almost 500,000 offshore entities, is continuously updated, and includes Paradise Papers information.

Stay compliant and safeguard your business with Siron® Anti-Financial Crime Solutions!