What do North Korea, Zimbabwe, Syria, Iran, and Russia all have in common? They all have either individuals or groups that the United States Department of the Treasury has imposed economic sanctions upon.
They all have also used Panamanian law firm Mossack Fonseca in order to set up shell companies to hide their financial assets and evade these crippling sanctions.
Last week’s Panama Papers leak brought attention to the general public of an issue that the U.S. intelligence community has been tracking for years: how easy it is for individuals and entities to use shell companies to surreptitiously move their assets abroad for secrecy and tax evasion. But more than that, the massive leak of over 11 million documents reveals how notorious individuals and entities that have been sanctioned by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) have been circumventing the government’s efforts to stem the flow of illicit funds that can endanger our national security.
OFAC is a powerful yet relatively unheard of office of just 200 people in the U.S. Treasury Department that enforces American foreign policy and interests through levying fines and freezing assets of those that don’t follow our laws or those that endanger national security. Many new notable targets have been identified through the Panama Papers.
While Russia tries to claim the leak is simply the Western world cashing in on “Putinphobia”, these timely leaks have brought new attention on Putin’s network of close cronies that have in recent years become mysteriously ultra-wealthy. One such oligarch, previously not sanctioned by OFAC, is Russian cellist Sergei Roldugin. Rodulgin, who is godfather to Putin’s first child, has appeared in the leaked papers with having shell companies worth over $2 billion. Similarly, others with close ties to Putin are making billions off of government deals that could not have originated without his support. Through these friends Putin keeps control of his local government and funds groups abroad as in Middle East and in funding Russian aggression in Eastern Ukraine and Crimea.
In other countries the Panama Papers show how Mossack Fonseca helped companies hide assets that were specifically targeted by OFAC. Although OFAC has imposed sanctions against Petropars Ltd, a large Iranian government oil company which funds Iran’s nuclear missile program, Mossack Fonseca provided Petropars corporate structuring in order to move assets. Mossack Fonseca helped agents of North Korea sell weapons internationally to fund their nuclear program using so-called “shell companies” and “shelf companies”. The firm serviced Syria dictator Assad’s cousin, worth $5 billion, despite U.S. sanctions against the individual in 2008. Although Panama falls under European Union jurisdiction, as it is part of the British Virgin Islands, it still took the firm four months after EU sanctions were placed on the individual in 2011 to rescind services. Mossack Fonseca habitually refused to follow American, European, and United Nation laws and sanctions.
Combing through the massive amount of data for sanctions violations will take OFAC quite a bit of time if and when they get access to the raw data, which it is not yet clear that they have. First, in the sheer volume of data in which there is to go through — over 2.6 terabytes — but largely in fact of the legal aspect of the data.
Perhaps the reason that the U.S. Government has been remarkably silent in response to this leak is that they are unsure what to do with this data. Could information such as this, leaked from a law firm, be protected by attorney client privilege? The U.S. and European governments are likely deciding amongst themselves if and how they can use and mine this data. At this point in time, only 149 documents have been released.
OFAC has to wait for the rest of the paperwork to be released by the International Consortium of Journalists, and it is unlikely that they will encourage the group to release legally protected documents publicly.
The Panama Papers have already proven incredibly helpful in identifying both individuals and companies that are getting around OFAC asset freezes and sanctions. Russian oligarchs, North Korean proliferators, Iranian sanctions evaders and others are going to have to perform emergency damage control as they worry about how much they will be exposed. The work of OFAC is incredibly worthwhile in protecting American security, by encouraging countries to comply with our policies, through discouraging illegal arm funding and drug trafficking, and in protecting our economy against money laundering and black market dealing. Future releases of these documents can only work in furthering American democracy at the peril of our enemies.