Tuesday, May 17, 2016


The Financial Services Commission of the British Virgin Islands let the law firm of Mossack and Fonseca ignore due diligence and customer identification procedures in the BVI, for years, and apparently only cracked down when the widespread negative publicity generated by the release of the Panama Papers forced it to act.

The FSC recently prohibited MF from any new corporate formation, and fined the law firm $31,500, for its failure to minimum standards on due diligence, and on controls on its information systems. Unfortunately, prior FSC actions were limited to the levy of fines and penalties, without the implementation of any sanctions or actions against the firm's operation. In 2012, the FSC fined Mossack $20,500, and in 2013, it was fined $37,500, all for defective compliance procedures. In none of these years were sanctions of any kind imposed by the regulatory authority.

 Panama Papers documents indicate that for years, massive numbers of BVI companies were formed by Mossack, for dodgy clients, without either any due diligence, or adequate customer identification procedures. Complex schemes were created for Mossack clients, where the anonymous BVI corporation was the central tool for hiding Beneficial Ownership from view, and other offshore entities were created to further confuse any potential inquiries, by building layers of opacity.

Local BVI autonomy from the United Kingdom means that the lucrative filing fees collected by BVI Government go straight into local treasury coffers, which is a disincentive for regulators exercising any meaningful control over foreign financial service providers, such as Mossack & Fonseca. Until and unless effective legislation is passed in the BVI, its companies will continue to be the drug of choice for money launderers, tax evaders, and corrupt foreign government officials. 

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