First it was banks, and now it is lawyers and other middlemen who are under the tax evasion and money laundering spotlight. The Panama Papers have put the Swiss legal community on the defensive over offshore shell companies and links with shady characters.
For anti-corruption campaigners, the media-driven exposé provides the missing link between such financial intermediaries and the murky activities of the rich and powerful. Furthermore, they claim that the emerging details highlight loopholes in regulations that are supposed to clamp down on financial crimes.
But lawyers bridle at the suggestion that they are doing the dirty work of criminals. They argue that trusts and shell companies provide mostly clean, ethical functions and that the media has not proved otherwise. Furthermore, they say tough and exacting rules prevent widespread abuse.
“Despite certain cases reported in the media, I am sure that the public is able to avoid simplistic and hasty conclusions,” Didier de Montmollin, a board member of the body that self-regulates Swiss lawyers and notaries, told swissinfo.ch.
In between the two camps, the Swiss authorities appear keen to test the opposing claims of each side. The Swiss federal prosecutor has seized legal documents from the headquarters of European football, UEFA. And Geneva’s chief prosecutor has opened an investigation into the activities of lawyers and financial institutions based in the city.
The country’s financial regulator, the Swiss Financial Market Supervisory Authority (FINMA), was more circumspect, saying it would look into the Panama Papers details, but that it was too early to tell if it would launch formal proceedings.
“This has not shown us anything about the role of financial intermediaries in the system that was not already known,” FINMA chief executive Mark Branson told swissinfo.ch. “What has been revealed are details of how individual intermediaries have been operating.”
Control of financial intermediaries
The Anti-Money Laundering Actexternal link (AMLA) defines financial intermediaries (FI) as “persons who, on a commercial basis, accept or hold assets belonging to others or who assist in the investment or transfer of such assets”.
Such people or entities include lawyers, notaries, financial advisors, asset managers and insurers.
They must either submit to direct supervision from FINMA or belong to an approved self-regulatory organizationexternal link (SRO). There are 12 such SROs in Switzerland, which must be recognized and approved by FINMA.
The financial regulator also supervises SROs and can conduct spot checks to make sure they are carrying out their duties properly. In the case of lawyers, FINMA appoints an auditor to carry out such checks to protect lawyer-client confidentiality.
Setting up a shell company is not covered by AMLA unless the FI accepts control, or transfers, third party assets that run through it. Payments for legal services in connection to setting up a shell company are not covered by AMLA.
However, the Swiss criminal legislation (article 305 on money laundering) obliges FIs to reasonably ensure that they are not assisting a client in criminal activity before accepting a mandate to set up any company. Furthermore, the beneficial owner of any Swiss bank account linked to a company must be disclosed to the bank.
Some of those details have been circulated by the media, including links between Swiss law firms and arms dealers, corrupt public officials and the unexplained finances of people linked to Russian President Vladimir Putin and former Chinese Premier Li Peng.
The ICIJ data shows that the Panamanian company Mossack Fonseca worked with 1,233 Swiss middlemen who created more than 34,000 offshore shell companies over the last 40 years. Only Hong Kong specialists were responsible for more creations (37,675).
Lawyers and scandals
Swiss pressure group Berne Declaration is particularly concerned about the role of lawyers and notaries who act as financial intermediaries for their clients. Some of these players are regulated by FINMA, but others are governed by a code of self-regulation which is monitored by the authorities. This system is designed to protect lawyer-client privilege.
“Every time there is a financial scandal we see financial intermediaries failing to apply self-regulation in the way they should,” Berne Declaration’s Olivier Longchamp told swissinfo.ch. “We have very little data to see how well they carry out their regulatory duties.”
Longchamp is also concerned that financial intermediaries can set up shell companies away from the gaze of Swiss regulators, provided they do not actively funnel money through such structures.
But de Montmollin, who helps oversee the self-regulation of around 1,000 Swiss lawyers, is adamant that the Swiss penal code closes all possible loopholes in anti-money laundering legislation, particularly article 305 that places responsibility on lawyers to ensure they are not assisting criminal activity (see box above).
“The fact that a small minority of lawyers have decided to include in their offering of services the setting up of so-called domiciliary onshore or offshore companies is not illegal,” he said. “I don’t believe that the reputation of the Swiss legal industry is really endangered.”
Transparency International Switzerland is hopeful that any past indiscretions by Swiss financial intermediaries may remain a thing of the past.
“The revelations that implicate lawyers in dubious activities make us think that some actors in these circles were probably a bit more relaxed than banks in the past,” TI Switzerland President Eric Martin told swissinfo.ch. “But anti-money laundering legislation has been tightened up in the last couple of years.”
Martin is confident that Swiss laws are now tight enough to prevent financial intermediaries from operating as a back door to nefarious activities. He sees money laundering as a global problem not confined to Switzerland. The only real answer to the problem is to create a global public registry listing all company owners and beneficiaries.
The International Consortium of Investigative Journalists (ICIJ) first published the so-called Panama Papers on April 3. They are a 2.6 terabyte trove of leaked data from the Panamanian law firm Mossack Fonseca.
They list the activities of global banks and financial intermediaries on behalf of wealthy clients. The records date back 40 years, containing information on more than 210,000 companies set up in 21 tax haven jurisdictions.
Iceland’s Prime Minister Sigmundur Davíð Gunnlaugsson has resigned because of the affair. Swiss lawyers have been linked to unexplained funds of friends or relatives of Russian President Vladimir Putin and former Chinese Premier Li Peng.
Gianni Infantino, newly elected President of football’s world governing body, FIFA, has also had his name linked to the data during his time as General Secretary of UEFA. This led to raids on UEFA’s Nyon headquarters by Swiss police.