An organisation dedicated to exposing dirty money and calling for openness has seen one of its senior figures resign because of offshore links, although no illegal activity is alleged.

The unfolding saga known as the “Panama Papers” claimed more high-profile victims as the president of the Chilean branch of Transparency International, a group that seeks to shine a light on dirty money, resigned after leaked documents showed he was linked to at least five offshore firms. The Icelandic Prime Minister Sigmundur David Gunnlaugsson also resigned yesterday.

Transparency International said Gonzalo Delaveau has resigned as the president of Transparency Chile, which has been accepted by the board of directors. He is not accused of illegal activity.

Delaveau is among a large number of persons identified in a leak, or theft, of documents stretching back to 1977 from law firm Mossack Fonseca, which is based in Panama.

The so-called Panama Papers were leaked to more than 100 news organisations co-operating with the US-based International Consortium of Investigative Journalists, or ICIJ, including Chilean watchdog CIPER.

“We are deeply troubled by what has happened with the chair of our chapter in Chile. At Transparency International we stand for transparency and integrity above all else and once we learned of Delaveau’s involvement with secret companies, our international board began the process of suspending the chapter before possible dis-accreditation. With Delaveau’s resignation our board decided to halt its efforts to sanction the chapter," the organisation said in a statement. 

"It is important to note that we fully support Chile Transparente and its serious efforts to combat corruption in Chile. The actions of one person should not be held against the whole chapter. While Delaveau is not reportedly accused of illegal activity, and he may be able to explain his activities, for us that is not the point. Not all secret companies are illegal, but many are used to hide money flows and to support acts of corruption. As we said yesterday in a press release about the Panama Papers investigation: Transparency International wants public registers of all companies' beneficial owners to make it harder for the corrupt to hide their illicit wealth in secret companies and trusts that use nominees to register ownership. We are now looking into measures to ensure this does not happen again. While Transparency International chapters are independent locally-governed entities, we are currently reviewing our accreditation process for an even greater level of due diligence to ensure that the chairs and board members of our chapters abide by the values essential to the pursuit of our mission," it added.

Ironically, when the story broke, Transparency International denounced what it saw as the abuse of offshore centres. In a statement, it said: “Transparency International calls on the international community to act immediately to adopt transparency laws to outlaw secret companies.”

Delaveau, a lawyer, reportedly acts as a representative for Turnbrook Corporation, DK Corporation, Heatlhey International Inc, Turnbrook Mining Ltd and Vizcachitas Ltd, all of which are domiciled in the Bahamas, Reuters said. Delaveau also serves as a director for Turnbrook Mining, which owns 51.6 percent of Los Andes Copper, a Canadian exploration and development company currently focused on a mine project north of Chile's capital, Santiago, the news service said. Deleveau has said he was a director only at Turnbrook Mining and that his relations with the other companies were consistent with his role as a lawyer and legal clerk, a report from Reuters and others said.

Chile's tax authority is beginning an "intense follow-up" of the Chileans mentioned in the Panama Papers, who range from ex-soccer stars to newspaper magnates. Other jurisdictions, such as the UK, Australia, US and New Zealand, are launching probes or ready to do so. 

Guernsey Finance, the body representing the island's financial sector, has stressed its own work in complying with global rules over disclosure and transparency. 

Separately, some jurisdictions were keeping their counsel on the Panama issue. "At this time it would be premature for us to comment on this developing matter and any possible implications in any detail. What we can say, is that the Bahamas has always been committed to complying with international best practice. We continue to monitor developments," Tanya McCartney, chief executive, Bahamas Financial Services Board, told this publication in a statement. 

Iceland

Icelandic Prime Minister Sigmundur David Gunnlaugsson resigned after the revelations about his personal finances. The decision was announced in parliament; there have been public protests that attracted thousands of Icelanders angered by the alleged tax evasion of their leader. The documents leak showed the premier and his wife had investments placed in the British Virgin Islands, which included debt in Iceland’s three failed banks. 

Defence

Mossack Fonseca has issued a lengthy defence of its business, responding on its website to a series of claims. 

“We conduct thorough due diligence on all new and prospective clients that often exceeds in stringency compared to existing, local rules and standards to which we and others are bound. If a new client is not willing and/or able to provide to us with the appropriate documentation indicating who they are, and (when applicable) from where their funds are derived, we will not work with that entity,” it said. 

“Similar in many respects to the requirements imposed on banks, we must validate and verify the true identity of all customers and to identify activities for which we have reasonable grounds to believe are suspicious and to report them to regulators in real-time, as soon as they are detected,” the firm continued.

“To be clear: our company is not itself a regulatory or enforcement agency. But we do have a responsibility to alert relevant officials and agencies when `red flags’ are triggered, and it’s a responsibility we take seriously. Mossack Fonseca is a legal and professional services firm. We do not advise clients on how to operate their businesses. We don’t link ourselves in any way to companies we help incorporate. Excluding the professional fees we earn, we don’t take possession of clients’ money, or otherwise have anything to do with any of the direct financial aspects related to operating these businesses,” it said.

Toxic
The issue is particularly toxic for politicians in countries, such as the UK and US, which have denounced the secrecy of offshore centres such as Switzerland and demanded more disclosure, to the point where this has raised concerns about protection of legitimate privacy. In Latin America, for example, there are worries that complete transparency could put wealthy persons at risk of extortion or kidnap. A continued challenge is drawing a dividing line between legitimate privacy and secrecy. (For more on this issue, see here.)

The Panama Papers, a massive leak of financial documents, reveal the offshore holdings of 140 politicians and public officials, including 12 current and former world leaders, who used more than 214,000 offshore entities to hide the ownership of assets.

In Asia, the saga has prompted China to limit local access to coverage of the matter with state media denouncing Western reporting on the leak as biased against non-Western leaders. (However, there are widespread reports that the late father of current UK prime minister David Cameron used offshore accounts.)

José Ugaz, the chair of Transparency International, said on his organisation’s website: “The Panama Papers investigation unmasks the dark side of the global financial system where banks, lawyers and financial professionals enable secret companies to hide illicit corrupt money. This must stop. World leaders must come together and ban the secret companies that fuel grand corruption and allow the corrupt to benefit from ill-gotten wealth.”

The body wants to see a “renewed push” for Group of 20 countries to agree that public beneficial ownership registers should be the global standard, and sanctions applied to jurisdictions that do not conform to this standard. 

Transparency International has named the US state of Delaware, home to thousands of anonymous shell companies thanks to its strict corporate secrecy rules, as part of its "Unmask the Corrupt" campaign specifically because its corporate registration rules help people hide the true owners of companies.