By now everybody who did not acknowledge cyber security as the biggest threat to governance should have realized that “No secret is safe in the digital age.” Mossack Fonseca, the law firm from Panama has probably lost its business niche forever, along with its very lucrative business model. The directors of companies here, who are ‘penny wise’ may have to think twice before continuing with the thought that there’s no impact to their business. The 21 Sri Lankans named in the leaked papers also must be wondering about their security and about security of third party service providers!
Off shore accounts by itself are not illegal, but the notorious names of people involved points to ill-gotten wealth using political power and to wealthy people avoiding tax. Although there are legitimate ways of using tax havens, the leak points out that most of what has been going on is about hiding the true owners of money, the origin of the money and avoiding paying tax on the money. From a social angle these tax havens help people avoid paying taxes and therefore puts pressure on the working class that pays the required taxes.
Some of the main allegations centre on the creation of shell companies, that have the outward appearance of being legitimate businesses, but are just empty shells. They do nothing but manage money, while hiding who owns it. The leak has also revealed that more than 500 banks, including their subsidiaries and branches, registered nearly 15,600 shell companies with Mossack Fonseca. This just shows that global anti money laundering efforts and the many governance regulations have a big hole that lets the big fish escape. However, 99% of these companies were incorporated in economies that are generally known to be tax havens, which indicates an improvement in global efforts to curb money laundering.
The board of directors are responsible for data security in a company. They should be held responsible for any loss. According to the ‘economist’, three years ago a watchdog published a series of reports on tax havens based on leaks of confidential documents. Some nervous clients of Mossack Fonseca, a law firm in Panama that specialises in setting up offshore companies, asked if their secrets were safe. The law firm told them not to fret; its data centre was “state of the art” and its encryption algorithm was “world class”. Whoops. This week the same watchdog, the International Consortium of Investigative Journalists (ICIJ), published the first stories based on a trove of leaked data on Mossack Fonseca’s clients.
How many times I’ve heard these famous last words from local heads of IT- “state of the art” and “world class”. I ask them if a third party has certified them and the answer is “No, we know!.”