Pandora Papers throw suspicion on Swiss financial advisers

Some of Azerbaijan president Ilham Aliyev's fortune has been handled by Swiss financial intermediaries. Azerbaijan's Presidential Press Office

Not for the first time Swiss financial advisers are in the spotlight for helping wealthy and powerful people move their money around the world.

This is unsurprising, given that Switzerland is the largest offshore wealth centre in the world, handling a quarterExternal link of the globe’s cross-border assets (nearly CHF8 trillion, or $8.5 trillion).

However, the latest “Pandora Papers” exposé of leaked documents by the International Consortium of Investigative Journalists (ICIJ) throws up some oddities.  

Not least, a former legal assistant in central Switzerland who ended up administrating dozens of letterbox companies when a Zurich law firm went bust. Most of them were set up on behalf of the children of Azerbaijan President Ilham Aliyev and other members of the country’s regime.

The former legal assistant, now a respiratory therapist, told the Tages-Anzeiger newspaperExternal link that she felt “somehow responsible” for taking care of the paperwork because “everyone felt a bit lost” when her former law firm went bust in 2015. And the task provided some useful income. “I thought it was cool,” she said in an interview. “Today, I don’t think it’s OK”.

And neither does the NGO Public Eye. Swiss lawyers and trustees help clients “hide their money via bogus companies registered in tax havens, which enables or at least facilitates tax evasion, crime and corruption on a large scale”, the anti-corruption campaigners said on Monday.

Public Eye is not the only entity demanding a change in Swiss law to oblige lawyers, notaries and consultants to report suspicious financial activity to the authorities. The list also includes the Financial Action Task Force, Transparency International and several left-leaning politicians. In March their appeals were rejected by parliament, which decided the current laws were strong enough.

Elaborate schemes

Last year the Swiss Money Laundering Reporting Office (MROS) received 5,334 reports of suspicious financial activityExternal link. The vast majority (4,773) were issued by banks. Fiduciary intermediaries reported 30 cases, lawyers six and trustees four instances.

Last week the United States Department of Justice (DoJ) charged six individuals and a Zurich-based financial services company with helping US clients evade taxes with elaborate schemes to wash money through Asia.

According to the DoJ indictmentExternal link, a Swiss private bank was at the centre of the round-tripping scheme. But the bank itself has not been accused of any wrongdoing. The charges have instead been laid at the door of other financial intermediaries.

“Taxpayers contemplating hiding money abroad – and the foreign bankers, attorneys and finance professionals who design and execute strategies to assist their evasion – should know that the Tax Division and IRS have the investigative resources and expertise to unravel even the most elaborate schemes,” said DoJ official Stuart M Goldberg.

Not necessarily a crime

Judging from the Pandora Papers, there are many elaborate financial strategies at the disposal of the wealthy. But that does not necessarily point to crimes being committed – even if the schemes appear baffling to the layperson or involve presidents of dubious repute. Tax “optimisation” can follow all the rules imposed by governments and regulators.

This could apply to Swiss financial services provider Fidinam Group, which has worked with a Panamanian law firm to create more than 7,000 shell companies since the early 2000s. The Pandora Papers reveal that some Fidinam clients have either been convicted or investigated for money-laundering offences, including the Petrobras oil company bribery case in Brazil. But Fidinam told ICIJ reporters that it was fully compliant with the law.

Anti-corruption campaigner Mark Pieth, of the Basel Institute on Governance, is unconvinced that there is always smoke without fire. Particularly when 26 of the 90 Swiss financial advisers mentioned in the Pandora Papers provided services to clients who have subsequently been subject to criminal investigations.

Pieth told the Swiss News Agency Keystone-SDA that the weight of evidence pointing to an “underground economy” of money laundering and tax evasion in Switzerland would inevitably force lawmakers to impose more stringent rules on financial advisors in future.