Panama Leaks, Money Laundering and Off-shore Companies


Image courtesy:

Only those turn to offshore companies who have no valid answers about the source of their funds


Money laundering through offshore companies is a thriller because it involves thick layers of secrecy and clandestine dealings of complex nature. Consider: you hire lawyers to stash your ill-gotten billions in places unheard of and in enterprises which are only shell companies doing no business and, therefore, are run not by qualified business managers but lawyers. These shell companies only exist in the files of the law firms which facilitate parking of the funds. And investment is so easy; no questions asked about the sources of your cash like in regular businesses. This is so because you use those companies to make your transaction look legitimate shrouded in secrecy on the tons of billions of proceeds of crime. This is not only thrilling, it is quite interesting too.

Let’s make one thing very clear at the outset; investment in offshore companies may be technically legal but it is no legitimate investment. Those tiny “off-shore” islands, like Swiss banks of yore, attract your funds through incentives and facilitation which may be deemed as criminal in other countries. Investors turn to these shady companies registered in some farthest shores only to conceal their wealth and conceal they do because they cannot reveal the source of that money. They try to whiten their black money, or proceeds of crime, through offshore companies.

This process is called money laundering. This is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, has originated from a legitimate source.

According to experts, there are three steps involved in the process of laundering money: placement, layering, and integration. Placement refers to the act of introducing “dirty money” (money obtained through illegitimate, criminal means like drugs and corruption) into the financial system in some way; “layering” is the act of concealing the source of that money by way of a series of complex transactions and bookkeeping gymnastics; and integration refers to the act of acquiring that money in purportedly legitimate means.

Let’s illustrate; you have tons of ill-gotten money and you smuggle the cash, through people like Ayyan Ali, across the borders to deposit into some “offshore” company. This is called placement. Then the experts make complex transactions from one bank to another in favor of many people in such a complex trail that source of that money is concealed. This step is called layering. Then you buy some Surrey Palace through that offshore company and you are spared the process of having to answer the questions. This looks like a perfect transaction where a “company” is making a transaction. Your company can buy you expensive jewelry and make a series of transactions which will look to have been made from a legitimate source.

Some common forms of money laundering include smurfing, where a person breaks up large chunks of cash and deposits them over an extended period of time in a financial institution, or simply smuggles large amounts of cash across borders to deposit them in offshore accounts where money laundering enforcement is less strict.

Normally big dons dealing in drugs, politicians involved in massive corruption and terrorists find offshore companies ideal way of whitening the money. This is the reason there is hullabaloo on massive leaks known as Panama Papers. Many countries whose citizens were identified doing money laundering through offshore companies have ordered investigations. Those who are trying to defend their ownership of offshore companies can be asked a simple question; why they had to leave investment opportunities in their own countries. And if it is the rulers or their scions choosing offshore companies; it is clear that they have to conceal the source of funds for obvious reasons.