Page 15 - Monocle Quarterly Journal Vol 3 Issue 2 Spring

The Twin Peaks approach to regulation represents a fundamental shift in the role banks play in society. In the past, banks were simply expected to manage the credit and market risk inherent in their positions. They were not expected to monitor the origins and purposes of funds, or identify the people who moved them, and this made offshore structures an especially easy target for criminal activity. However, new market conduct regulations require that banks evaluate their customers and their
such as Jersey, Cyprus, and Luxembourg. But then came its great fall, when German newspaper Süddeutsche Zeitung revealed the central role that the company had played in helping its clients to circumvent tax regulations and commit fraud. These clients were not just a handful of gangsters or smugglers – but included respected businessmen, current and former heads of state, public officials, and celebrities. And this was not just a case of a newspaper trying to punt sensationalist news, based on a few shaky pieces of evidence. The shocking story was based on one of the largest data leaks of all time – 2.6 terabytes of data comprised of 11.5 million confidential documents that detailed the transactions of over 214 488 offshore entities from the 1970s up until 2016.
The description of the events that took place leading up to the publication of the story – as recounted by Süddeutsche Zeitung journalists Bastian Obermeyer and Frederik Obermaier in the book The Panama Papers (2016) – reads much like a John Grisham novel. Late one night, Obermeyer is contacted by a mysterious “concerned citizen” who offers him access to a well of data so enormous that it will take nearly 400 journalists from over 80 countries over a year to sift through it and follow-up on the leads it provides. The source will not give any information about him or herself, and fears for their life if they are ever found out. A secret encrypted method for sharing the files must be devised, and the
The Twin Peaks approach
to regulation represents a
fundamental shift in the role banks play in society.
transactions on a much more personal level, culminating in the need for a substantial amount of personalised information about the people who use a bank’s services. Through the Know-Your-Customer process, banks are required, on an ongoing basis, to verify the identities of potentially high-risk clients, such as politically exposed persons, to assess the potential risk of accepting them as clients. They do this through a detailed analysis of documentation and other external data, and continually monitor their transactions for any suspicious behaviour.
Banks have essentially become crucial watchdogs in larger State efforts to predict and quell criminal activity. And the need for banks to ensure effective client background checks and to perform ongoing surveillance of the funds that are channelled through their business is more pressing than we may have realised, until recently. For whilst an analysis of the unusual trades leading up to 9/11 may provide an extreme example of the ability for greed or destructive impulses to eclipse all sense of morality, the reality is that unethical financial activities are disturbingly commonplace – as the Panama Papers case clearly demonstrated.
How the Rich Stay Rich
In March 2018, Panamanian law firm Mossack Fonseca announced that it was closing its doors. The firm, which was established in 1977, had operated up until 2016 as the fourth largest provider of offshore financial services in the world, with many of its offices located in tax havens
These clients were not just a handful of gangsters or smugglers
BANKING AND THE DIGITAL REVOLUTION
– but included respected businessmen, current and former heads of state, public officials,
and celebrities.
journalists must piece together many disparate pieces of information to discover how the names are linked to the extraordinarily large monetary figures that are recorded.
Mossack Fonseca denied any wrongdoing after the story broke. And indeed, much of the data the journalists received detailed the use of offshore accounts for purposes that are considered perfectly legal. Business people in politically or economically volatile countries may, for example, hold financial assets offshore to protect them from being frozen or seized. Others may choose to make use of offshore accounts for estate planning and
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