On May 9th 2016, The International Consortium of Investigative Journalists (ICIJ) will release the Panama Papers data to the public. A searchable data base of much, but not all, of the Panama Papers data will be available to citizen analysts everywhere! That data will be added this existing data base of offshore company information which was released a few years ago on the site: "Offshore Leaks"
What will citizen analysts and others be able to do with this offshore data? Let's take a look at some possibilities and what has already been done with existing data.
Much of the talk about the Panama Papers is about the wealthy and their tax avoidance and tax evasion schemes using offshore companies. I am more interested in how offshore entities are used in money laundering of ill-gotten assets -- stolen money. An interesting case of how stolen money has been laundered is the so-called Magnitsky Case. Sergei Magnitsky was a Russian financial investigator who discovered a massive tax fraud, was arrested for what he discovered, and later beaten and died in jail. The Magnitsky Case revolves around how a $230 million fraudulent tax refund was re-routed and then laundered through dozens of banks and offshore entities.
Figure 1 below shows the flow of the stolen money from the Russian Treasury to various offshore entities. First the money ran circuitous routes through Russia shell companies and bank, then was transferred to Moldova where two two shell companies were created to further launder the money via various Baltic banks and offshore entities registered in all of the famous offshore havens. Much of the data in Figure 1 is available in the original ICIJ Offshore Leaks data base and via reports from investigative journalists in eastern Europe: Re:Baltica and Organized Crime and Corruption Reporting Project (OCCRP).
|Figure 1 - Follow the Money
To dig deeper into the various laundering schemes, we will show subsets of the total money flow network, that focus on specific flows. Figure 2 shows how the complete wash and spin cycle of a portion of the $230 million stolen from the Russian Treasury. It shows the flow of the dirty money from the original corrupt tax officials and their associates(Kyluev Gang) through multiple steps, back to them, -- all laundered and clean.
Network distance distorts and deceives
In Figure 2 we see an interesting dynamic of networks -- distance distorts and deceives. The more steps/links between any two events/people in a network the easier it is to claim/feign plausible deniability of any real or intended connection. The more indirect links between two nodes, the harder it is to show any relation or influence between them. Figure 2 shows us how the criminal group (Kyluev Gang), discovered by Sergei Magnitsky, washed their dirty money through very long loops of international banks and offshore entities. The small world theory tells us that we are all connected to each other via 5 intermediaries (the famous "6 degrees of separation"). Yet, this money took a journey of over 10 steps! Distance distorts and deceives... yet, it is trackable via electronic bank records.
|Figure 2 - Multi-step money laundering cycle
|Figure 3 - From Russia with Fraud
|Figure 4 - From Russia to Russia
The offshore company data from the Mossack Fonseca clients will be useful, but it will not provide the full picture of the offshore ecosystem that is shuttling and hiding money around the world. More data will need to be obtained, from more sources, to assemble the full picture of the alternate money flows that still remain mostly hidden.