05 April 2016
by Elizabeth Knight

Panama papers: Banks in the spotlight as ATO gets fresh list of Mossack Fonseca's tax skirters

The average tax-paying Australian must be feeling futility fatigue amid another round of explosive revelations that the that super rich have skirted many millions in tax while at the same time the government is telling them their will be nothing by way of personal tax cuts coming their way any time soon.

The enormous drop of documents around the establishment of offshore accounts in tax havens could hold the key to an Aladdin's Cave for the Australian Tax Office and regulators and investigators of white collar crime.

Described as the world's biggest data leak, the 11.5 million documents from Panamanian law firm Mossack Fonseca reveal how law firms and banks sell financial secrecy to some of the world's wealthiest. Courtesy ABC News 24. Investigating and prosecuting tax evaders is complex and difficult. It comes on the back of a two high-profile investigations uncovered over the past couple of weeks around Australian companies allegedly involved in another reputational black mark for Australia – its poor record of prosecuting corruption and bribery.

At least this week's uncovering of new information about the murky network used to evade tax provides another salvo in the push against companies and high net worth individuals engaged in dubious conduct.

The Australian Tax Office is now investigating 800 wealthy people – some of whom are already known to them; others are part of a fresh new vein of leads.

The new information came to light from a leak of client information from a Panama-based law firm Mossack Fonseca from files that go back as far as 40 years and cover several thousand Australian clients.

Not all those Australian clients will have been doing anything illegal – opening accounts in foreign jurisdictions including tax havens is a legitimate way of doing business.

But not all.

"Currently we have identified over 800 individual [Australian] taxpayers and we have now linked over 120 of them to an associate offshore service provider located in Hong Kong," the ATO said in a statement.

And investigations will not be confined just to those looking to skirt tax.

The Australian Financial Review report said the files show how Mossack Fonseca thwarted Australian regulators and police inquiries, continued to act for individuals accused of fraud and embezzlement, and lobbied actively to prevent Australia signing agreements that would allow the exchange of tax information with Samoa, a key tax avoidance jurisdiction.

The documents reveal the firm's services can also be used to facilitate massive money laundering, tax avoidance and criminal activity, including drugs and arms dealing.

Not surprisingly the leaked information, which is in the hands of the tax office, is particularly complex and an ATO Deputy Commissioner, Michael Cranston, commented to the ABC that there was a consistent characteristic around the fact they were often linked to foundations and complex structures.

There is also information contained in the leaked documentation that many Australian clients of Mossack Fonseca used an intermediary in Hong Kong.

Potentially the Australian banks may be caught as collaterally damaged given all four received more than 100 mentions in the voluminous documentation involving Mossack Fonseca.

Banks are an essential part of the ecosystem in moving money around and it would seem that some of this law firm's clients were also customers of the Australian banks.

While ANZ gets a disproportionate number of mentions in the leaked documents its international operations which previously included the ownership of Grindlays may account for much of this (it sold Grindlays in 2000).

In a statement from ANZ this week it said: "customers that ANZ identifies to be at higher risk of money laundering or facilitating terrorist financing are subjected to enhanced due diligence at the time of commencement of the customer relationship and on an ongoing due diligence during their customer relationship."

For banks it is not enough to simply allow customers to open an account and say they have no responsibility for the actions of their clients.

Banks are governed by rules that are called "Know Your Customer".

The objectives of KYC are to ensure banks do a number of things, including "ensuring that only legitimate and bona fide customers are accepted: ensuring that customers are properly identified and that they understand the risks they may pose; verifying the identity of customers using reliable and independent documentation; monitoring customer accounts to prevent or detect illegal activities and; implementing processes to effectively manage the risk posed by customers trying to misuse facilities".

Logically even when these steps are taken banks will not completely escape all dodgy clients. And some bank culpability that may ultimately get exposed could relate to many years ago when the responsibility of banks to scrutinise clients was less onerous.

And in most respects Australian banking is not on trial here.

It is the responsibility of governments around the world to do their bit to ensure legislation, regulation and enforcement agencies are up to the task of combating fraud.