The Panama Papers, named after Panamanian law firm Mossack Fonseca, have revealed a variety of disturbing information and sparked official investigation all over the world, with more to come. Much of it is not surprising; That powerful heads of state use such financial networks and firms to further their illicit and sanctioned activities is no secret. But specific information — names, companies, locations — is always welcome in the eyes of law enforcement, and this information limits the abilities of such actors to continue their dubious activities in their current manners and capacities.
Among the people and entities the firm has counted among its clients are “suspected financiers of terrorists and war criminals in the Middle East; drug kings and queens from Mexico, Guatemala and Eastern Europe; nuclear weapons proliferators in Iran and North Korea, and arms dealers in southern Africa.”
Conveniently, a spokesperson for Mossack Fonseca explained that it outsources the responsibility of vetting clients to third-parties.
Mossack Fonseca’s Syrian ties
In particular, there are several significant ties to Syria’s regime and its participation in Syria’s very lethal and ongoing civil war (in which the number killed is approaching half a million), making these Mossack Fonseca business deals lethal ones. According to the US government, a network of companies that skillfully skirt sanctions placed on the Syrian regime provide much of the fuel that the regime’s military aircraft need to carry out their sorties, including barrel-bombing raids and other types of attacks that have killed thousands of civilians.
A total of 33 individuals and companies sanctioned by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) did business with Mossack Fonseca. Three firms among the 33 were sanctioned for helping Syrian President Bashar al-Assad’s government in the civil war, and Mossack Fonseca continued doing business with at least one of them well after the sanctions were in place.
This one firm — Pangates International Corporation Ltd. – was a longtime Mossack Fonseca client, and part of a large Syrian conglomerate called the Abdulkarim Group. Two other Mossack Fonseca clients, Morgan Additives Manufacturing Co. and Maxima Middle East Trading Company, were also part of Abdulkarim and were also sanctioned for doing business that aided Syria’s war effort.
Maxima’s general manager, Ahmad Barqawi, and Pangates’ managing director, Wael Adbulkarim, were also targeted as individuals, with OFAC noting that Barqawi had “participated in supplying significant quantities of base oils…[and had] worked to arrange the supply of large quantities of aviation gasoline to Syria.” Abdulkarim had “worked to arrange numerous shipments of base oils and aviation gasoline to Syria.”
OFAC also charged in July 2014 that Pangates alone supplied the Syrian regime with 1,000 metric tons of fuel for military aircraft. A month earlier, Pangates, Morgan Additives, and Maxima had worked with Russian firms to acquire oil bound for refineries run by Assad’s government.
Morgan Additives responded to these charges, claiming that the sanctions placed on it were placed “in error.” Pangates, for its part, had previously claimed it was unaware of either how the fuel would be used or where it was going.
The business of turning a blind eye
Mossack Fonseca began its dealings with Pangates back in 1999, when it helped its client begin something of a shell game by setting up shop on the Pacific island nation of Niue. The company was later relocated after the island’s offshore registration practices were targeted by officials in response to allegations of money laundering, moving first to Samoa and then, eventually, to Seychelles in 2012. It was not until August 2015 – a full year after the sanctioning of Pangates – that Mossack Fonseca took action to properly report this to the Seychelles’ authorities.
Furthermore, one of President Assad’s cousins and a longtime client Mossack Fonseca’s, Rami Makhlouf, was sanctioned by the US for being “a powerful Syrian businessman and regime insider whom improperly benefits from and aids the public corruption of Syrian regime officials.” In 2010, officials from the British Virgin Islands requested information from Mossack Fonseca on a company owned by Makhlouf, Drex Technologies S.A. At that point, information was widely known and publicly available regarding Makhlouf that clearly documented his political associations and smuggling activities.
Mossack Fonseca’s compliance chief wanted to end business ties with Makat at this point. But one partner at the firm, Chris Zollinger, pushed back against this, wanting to keep his business and noting that HSBC was “comfortable” doing business with him. Eventually, Zollinger gave up trying to maintain ties and admitted he was wrong to push for keeping them.
Middle East business beyond Syria
Elsewhere in the Middle East, Mossack Fonseca has been linked to a shell company that the US governmentsays was used to help finance Hezbollah. This firm, Ovlas Trading S.A., has been under US sanctions since December 2010, a fact which was not acted upon by Mossack Fonseca until May 2011.
Another questionable tie is to Petropars, an Iranian oil company. Even many years after it had earned notoriety and headlines for corruption issues, Mossack Fonseca maintained business dealings with Petropars. Another similar Iranian company, Petrocom, has been a client for some time and may still be doing business with Mossack Fonseca. Both business relations ran up against international efforts to pressure Iran to halt is nuclear uranium enrichment and to reign in its support of militant and terrorist groups in the Middle East region.
The need for more legal, government enforcement
What seems to be present in these situations are provably willful yet ostensibly verifiable ignorance, a lack of basic interest in doing due diligence, and/or complicity with — and lack of concern for — doing business with widely known individuals and entities of, at the very least, a questionable nature. A less generous perspective could suspect illicit activity of a more deliberate nature.
Unfortunately, such attitudes are not uncommon in the world of business. The history of business shows that unless there are clear regulations and associated penalties regulating certain kinds of unethical behavior, and unless there is active enforcement and punishment to go along with them, such behavior will occur not infrequently.
To be sure, Mossack Fonseca is a big find and big scandal with a big firm, but there is a lot more that has not been discovered. Unless voters, office-holders, and governments make such firms more accountable through establishing more regulations, more penalties, and more enforcement, it can hardly be expected that such behavior will be significantly curbed.
Of course, the issue of international sanctions is hardly a simple one. Clearly, sanctions on the Iranian regime were effective in bringing it to the negotiating table to talk about its nuclear program and in pushing it reach an agreement with world powers; conversely, the American government’s sanctions on Cuba have hardly been effective in promoting democracy there.
When it comes to sanctions, each application must be analyzed on a case-by-case basis. Often, when diplomacy fails or is not effective, sanctions are one of the only options short of military force to alter undesired behavior. As problematic as sanctions often are, the use of military force is often fraught with far more problems; thus, sanctions are often preferred, often with the hope of avoiding or mitigating armed conflict.
Staffing, resources key to enforcement
What is clear is that OFAC in its current capacity does not have the ability to actively enforce its sanctions as much as would be desired.
In 2015, there only were only a total of 15 penalties and/or settlements, and these are sometimes voluntarily self-disclosed on the part of the company committing the violations. In addition, OFAC only had about 200 employees and a budget of $30.9 million in FY 2013. Treasury’s FY 2016 enacted budget for its Terrorism and Financial Intelligence (TFI) section, which implements sanctions and under which OFAC operates, was $117 million, with a full-time staff equivalent of about 400 people.
From Syria to Brussels, if governments are serious about fighting the shadowy networks that facilitate war and terrorism, that are, in turn, facilitated by shadowy entities like Mossack Fonseca, and if they are serious about protecting the lives — from hospital workers in Aleppo to commuters in Brussels — that are put at risk by these networks and the activities that they facilitate, the lack of staffing and resources for the government agencies tasked with these responsibilities are an enormous obstacle that must be overcome as soon as possible.