The British Virgin Islands Financial Services Commission (FSC) has imposed a $440,000 administrative penalty upon the beleaguered Panama City law firm of Mossack and Fonseca. More than 100,000 of the corporations MF formed for dodgy clients were formed in the BVI, which offers bearer-share corporations whose beneficial owners are extremely difficult, if not impossible, to identify.
The AML/CFT deficiencies that the FSC found were:
1. Failure to establish and maintain a written and effective system of external controls for forestalling and preventing money laundering and terrorist financing.
2. Failure to carry out risk assessment in relation to each customers or one-off transactions.
3. Failure to undertake customer due diligence, and engage in enhanced due diligence.
4. failure to carry out verification and identification of written introductions to third parties.
5.Failure to maintain due diligence and identity records.
6.Failure, on the part of the compliance officer, to carry out obligations, duties and responsibilities.
Some observers have already expressed an opinion that the failure of the FSC to terminate MF's operations in the BVI is a gross mistake, but that the BVI regulators fear corporate formation flight if it comes down too hard on Mossack. The revenue generated by company formation is a large portion of the country's cash flow.
The FSC is thought to share the blame, due to the fact that it took the Panama Papers to expose Mossack's tax evasion and money laundering facilitation. Whether the $440,000 fine is too small, given the circumstances, is a question that deserves further inquiry.