The Financial Services Commission of the British Virgin Islands has has imposed an administrative penalty of $440,000 on the Panamanian law firm for its deficiencies in anti-money laundering control. Meanwhile, the United Kingdom has placed 43 HNWs with links to Panama under special review.

The Panama Papers scandal broke earlier this year when a cache of 11.5 million files containing account information was leaked by person or persons unknown from Mossack Fonseca in Panama. The FSC has been investigating the firm, which has a presence in the BVI, for the last six months. It is the largest penalty that the regulator has imposed on anyone.

The BVI FSC has imposed an administrative penalty of $440,000 on the law firm for its contravention of sections 11, 12, 19(2), 19(4), 19(5), 20, 21(1), 21(2), 31, and 43(2) of the Anti-Money Laundering and Terrorist Financing Code of Practice of 2008 and sections 43(2)(c), 43(3)(a), 43(3)(c) and 45(1)(a) of the Regulatory Code of 2009.

Its action under section 11 of the code of 2008 is for failure to establish and maintain a written and effective system of internal controls for forestalling and preventing money laundering and terrorist financing. Its action under section 12 is for failing to carry out risk assessments in relation to each customer and/or one-off transactions. Its action under section 19(2), 19(4) and 19(5) is for failing to undertake 'know your customer' or 'customer due diligence' exercises. Its action under section 20 is for failing to engage in enhanced customer due diligence or EDD.

Meanwhile, the regulator's action under section 21(1) and 21(2) of the code is for the firm's failure to review and update CDD in the manner required. Its action under section 31 is for failing to ensure that identification and verification is carried out with respect to written introductions by third parties. Its action under section 43(2) is for failing to maintain due diligence and identity records.

The regulator's actions under sections 43(2)(c), 43(3)(a), 43(3)(c) and 45(1)(a) of code of 2009 are "for failing to carry out obligations, duties and responsibilities of the compliance officer."

Transparency International, the charitable organisation that sponsors anti-corruption initiatives, has chided the BVI Government for not imposing a greater penalty than it has. Its website states: “It is at least welcome that the BVI has finally recognised inadequacies in the anti-money laundering controls at Mossack Fonseca, but given that it took a leak for its regulator to work out what was happening in its own backyard, the BVI’s own abilities as a regulator are inevitably called into question.

“Had the BVI established a public register of beneficial ownership as the international community has requested, it is possible that the problem could have been detected far sooner. Any financial penalty against Mossack Fonseca should be proportionate to the harm caused by the illicit financial flows revealed by the Panama Papers. When you remember that illicit financial flows comprise at least 2% of global GDP and have a devastating impact in developing countries, entrenching poverty and fuelling insecurity, the scale of these fines imposed on Mossack Fonseca is embarrassingly inadequate. It is a token gesture from a discredited and secretive regulatory regime that is neither a proportionate punishment for the damage caused nor a deterrent for future non-compliance.”

Meanwhile, in the United Kingdom, more than 30 people and companies are under active investigation for criminal or serious civil offences linked to tax fraud and financial wrongdoing uncovered by the 'Panama Papers Taskforce' (which HM Government set up in April) and its partners, with hundreds more under detailed review. HM Government recently published an update on the work of this cross-agency task force. It says that the task force has:

• opened civil and criminal investigations into 22 individuals for suspected tax evasion;
• led the international acquisition of high-quality, significant and credible data on offshore activity in Panama, despite the ICIJ’s refusal to release all of the information that it holds to any tax authority or law enforcement agency, which obviously rankles with HM Government;
• identified some leads that are relevant to a major insider-trading operation led by the Financial Conduct Authority and supported by the National Crime Agency;
• identified nine potential professional enablers of economic crime – all of whom have links with known criminals;
• placed 43 high-net-worth individuals under special review while their links to Panama are further investigated;
• identified two new properties in the UK and some companies relevant to an NCA financial sanctions enquiry;
• established links to eight active Serious Fraud Office investigations;
• identified 26 offshore companies whose beneficial ownership of property in the UK was previously concealed and whose financial activity might be suspicious;
• contacted 64 firms to determine their links to Mossack Fonseca; and
• seen individuals coming forward to settle their affairs in advance of any action that the "task force partners" might take.

In addition, the task force has established a Joint Financial Analysis Centre (JFAC). HM Revenue & Customs is claiming that the task force is "leading the world on the acquisition and analysis of data."

A previous but minor fine

Earlier in the year, just a week after the Panama Papers came to the world's attention, the regulator imposed a minor fine on the law firm of $31,500 for the following:

• breaking section 27(1) of the Regulatory Code for failing to establish a business continuity policy in the right way;
• breaking section 29(2)(k), 30(3), 31 and 32 of that code for failing to have in place adequate controls and reliable and secure information systems;
• breaking section 19(2) of the AMLTF Code for failing to do proper customer due diligence or CDD;
• breaking section 20 of the same code for failing to do proper extra/enhanced due diligence or EDD;
• breaking section 21 of the same code for failing to review and update CDD information in the required manner; and
• breaking section 30 of the same code for failing to ensure that copies of due diligence documents that were being relied upon were properly certified.