Trial underway for Panama Papers, case that changed the country's financial rules

PANAMA CITY: Eight years after the leak of 11 million confidential financial documents, which exposed how some of the world's wealthiest individuals conceal their wealth, over two dozen defendants are currently on trial in Panama for their alleged involvement.

The fallout from the leaks was extensive, leading to the resignation of Iceland's prime minister and drawing attention to the then-leaders of Argentina and Ukraine, Chinese politicians, and Russian President Vladimir Putin, among others.

However, those currently on trial for alleged money laundering are primarily the leaders and associates of a now-defunct boutique law firm in Panama that assisted in setting up the shell companies used to hide the true owners.

The leaders of that firm, Jürgen Mossack and Ramón Fonseca, are among those on trial.

What is the Panama Papers case about?

Panamanian prosecutors claim that Mossack, Fonseca, and their associates established a network of offshore companies that employed intricate transactions to conceal money associated with illegal activities in the "car wash" corruption scandal involving Brazilian construction giant Odebrecht.

In December 2016, Odebrecht pleaded guilty in a US federal court to a charge related to its use of shell companies to disguise hundreds of millions of dollars in bribes paid globally to secure public contracts.

According to Panamanian prosecutors, the Mossack Fonseca firm established 44 shell companies, 31 of which opened accounts in Panama to conceal money linked to the Brazilian scandal. Last year, the judge on the case, Baloisa Marquínez, decided to also merge the Odebrecht-related charges with prosecutors' allegations about the firm's work for German giant Siemens. Prosecutors allege a former executive with the company used entities created by Mossack Fonseca to transfer funds for bribes.

A spokesperson for Siemens declined to comment, noting that it is not a party to the Panama case and that it involves former Siemens employees in their private capacity.

What do Mossack and Fonseca say?

Fonseca, who is 71 years old, has not been present for the trial because his lawyer stated he is hospitalised. However, he had previously stated that his firm did not control how their clients used the shell companies the firm created for them. Its role was simply the creation and sale of the companies.

Mossack, a 76-year-old lawyer originally from Germany, stated in a message to The Associated Press that "we categorically reject that we have committed any crime, not Mossack Fonseca nor the subsidiaries … and we hope that can be proved in the trial. If there is in fact justice in our case, they have to absolve us."

Both men were arrested in 2017 but had awaited trial out on bond.

What happened to the firm?

Mossack Fonseca assisted in the creation and sale of around 240,000 shell companies over four decades in business. It announced its closure in March 2018, two years after the scandal broke.

"The reputational deterioration, the media campaign, the financial siege and the irregular actions of some Panamanian authorities have caused irreparable damage, whose consequence is the complete cessation of operations to the public," the firm stated at the time.

How did the scandal affect Panama?

The scandal tarnished Panama's international reputation for financial services. The European Union included Panama on a list of tax haven countries — characterised by low taxes or fiscal opacity — which led international financial institutions to demand the implementation of measures that would allow scrutiny of the banking and financial systems. Consequently, the country's business of creating shell companies plummeted by approximately 40% within a year of the scandal.

What changes did Panama make?

The government of Panama implemented changes to make it possible to identify the ultimate beneficiary behind limited liability companies and their assets. Changes also sought to give greater responsibility to the registered agents — typically lawyers from Panamanian firms — listed for the shell companies. The objective was to enable Panamanian authorities to respond to requests to assist in investigations.

Julio Aguirre, a financial specialist in Panama, said the government wants the registered agents to actively monitor the companies. Previously, "the law didn't ask them to follow up, there wasn't that legal obligation," he said.

Banks had also previously been restricted in their ability to know who was really behind accounts. "They gave the bank the vehicle to obtain that information," Aguirre said.

By RSS/AP