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TRANSCRIPT
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Workshop Panama Inquiry Committee of the European Parliament
Money Laundering and Tax Evasion
by Prof. Dr. Brigitte Unger
26th of January 2017
Presentation |
Source: UNODC
The Role of Offshore
for Money Laundering
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Overview
1. The Use of Offshore Centers for Criminal Purpose
2. Evaluating the 3rd Anti Money Laundering Directive
3. Evaluating the 4th Anti Money Laundering Directive
4. Recommendations how to Reduce Money Laundering and
Tax Evasion in the view of the Panama Leaks
3
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1. The Use of Offshore Centers for Criminal Purpose
• What are Offshore Centers?
4
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1a. What are Offshore Centers?
• Offshore first mentioned in 1920ies: Al Capone, Meijer Lanski brought their money outside their US state `‘offshore‘ (Delaware, New Jersey....)
• Offshore companies have been established after World War II so that occupied zones (Germany..) could do business overseas. MNCs like Shell and Unilever could continue their business with this ‚remote access‘ instrument‘.
• Offshore centers were after the oil shock 1975 centers for finance out of the control of the regulations of national central banks and indeed off the mainland (Bahrain…).
• Later, big mainland financial centers who engaged in offshore trading were also called ‘offshore centers’ or ‘in between offshore and onshore centers’.
5
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1a What are Offshore Centers Today- financial centers included or not?
“The term offshore is not necessarily restricted to tiny or remote islands. It can also be applied to any location (e.g. New Jersey, Delaware, City of London) that seeks to attract capital from non-residents by promising low/no taxes, low regulation, secrecy and confidentiality.” (Prem Sikka , Essex, 2003)
“jurisdictions that specialize in attracting the registration of investment vehicles with foreign sponsors.” (excludes important banking centers, such as Switzerland or Germany, by focusing on shell companies, trusts, special purpose vehicles, and mutual funds (see Meinzer, Tax Justice Network 2016).
6
Presentation | 7
• Diverse lists of Offshore Centers due to different definitions.• The IMF (2014) lists 20 Offshore centers. • Van Koningsveld 40 OFCs• paper IMF 2000: 69 OFCs• In Murphy 2010: 92 OFCs
• The stock of assets of Offshore Companies worldwide is estimated in a far too wide range between 1 trillion and 21 trillion USD (van Koningsveld 2015, p.233)
1a OFCs Definitions and Estimated Volumes
Presentation | 8
Top OFCs Consensus Basis Murphy (2010)
1 Bahamas 29 St Kitts and nevis 57 South Africa 86 Sark
2 Bermuda 30 Andorra 58 Tonga 87 Somalia
3 Cayman Islands 31 Anguilla 59 Uruguay 88 Sri lanka
4 Guernsey 32 Bahrain 61 US virgin islands 89 Taipei
5 Jersey 33 Costa Rica 62 US 90 Trieste
6 Malta 34 Marshall Islands 63 Alderney 91 Cyprus (Turkish Republic of Northern Cyprus)
7 PANAMA 35 Mauritius 64 Anjouan 92 Ukraine
8 Barbados 36 St. Lucia 65 Beligium
9 British Virgin Islands37 Aruba 66 Botswana
10 Cyprus 38 Domnica 67 Campione D’Italia
11 Isle of Man 39 Liberia 68 Egypt
12 Liechtenstein 40 Samoa 69 France
13 Netherlands Antilles41 Seychelles 70 Germany
14 Vanuatu 42 Lebanon 71 Guatemala
15 Gibiltar 43 Niue 72 Honduras
16 Hong Kong 44 Macau 73 Iceland
17 Singapore 45 Malasia 74 Indonesia
18 St. Cincent and Grenadines46 Monserrat 75 Ingushetia
19 Switzerland 47 Maldives 76 Joran
20 Turks and Caicos 48 UK 77 Marianas
21 Antigua and Barbuda49 Brunei 78 Melilla
22 Belize 50 Dubai 79 Myanmar
23 Cook Islands 51 Hungary 80 Nigeria
24 Grenada 52 Israel 81 Palau
25 Ireland 53 Latvia 82 Puerto rico
26 Luxemburg 54 Madeira 83 Russia
27 Monaco 55 Netherlands 84 San Marino
28 Nauru 56 Phiippines 85 Sao Tome e Principe
TOP OFFSHORE
CENTERS
In Murphy 2010
- So many??
almost half
the world!?
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1b. What are Offshore Centers Doing?
• Helping to do business, finance investments?
• Helping to evade taxes?
• Helping criminals and Organized Crime Groups to launder
money?
9
.
Ian van Koningsveld, PhD Tilburg University 2015, `The offshore world of big money: abuse and myths` (De Offshore wereld van het grote geld: Misbruik en Mythes)
studies the volume of assets involved in Offshore Centers and in how far criminal money was involved
analyses offshore companies in which owner is from abroad and which are not allowed to do business in offshore center.
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Geographic location of 4.2 million Offshore Companies (OSV)
10
Most Offshore Companies in America
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Most Offshore Assets are held in Europe!!
Presentation | 12
EU Countries:BAMLI: Basel
Anti Money Laundering Index
FSI: Financial Secrecy Index
Murphy 2010 Tax Havens
OFCs: Offshore Centers
of EU Countries
UK: Channel Islands,
Isle of Man, Bermuda,
Guernsey, Jersey,
British Virgin Islands,
Isle of Man, Gibraltar,
Turks and Caicos Islands,
Anguilla, Montserrat,
Alderney, Sark
BAMLI 2015 FSI 2015 Murphy 2010 OFCs
Austria 109 24 * *
Belgium 126 38 * *
Bulgaria 146 * * *
Croatia 141 * * *
Cyprus 100 35 10 *
Czech Republic 125 81 * *
Denmark 143 83 * *
Estonia 147 77 * *
Finland 149 90 * *
France 103 31 69 Monaco
Germany 92 8 70 *
Greece 84 85 * *
Hungary 142 84 51 *
Ireland 131 37 25 *
Italy 90 58 * Campione d’Italia, San Marino
Latvia 112 59 53 *
Lithuania 148 * * *
Luxembourg 70 6 26 *
Malta 132 27 6 *
Netherlands 107 41 55 Aruba, Netherlands Antilles
Poland 135 75 * *
Portugal 139 78 * Madeira
Romania 134 * * *
Slovakia 116 73 * *
Slovenia 144 88 * *
Spain 109 66 * Melilla
Sweden 137 56 * *
United Kingdom 121 15 48 Channel Islands, Isle of Man, Bermuda, Guernsey, Jersey, British Virgin Islands, Isle of Man, Gibiltar, Turks and Caicos Islands, Anguilla, Montserrat, Alderney, Sark
San Marino
Presentation |
Van Koningsveld study 2015
• Van Koningsveld analyses the biggest 17 drug cases with which the Dutch fiscal police (FIOD) was confronted between 1990 and 2012
• plus data from the police and the Chamber of Commerce for criminal cases where Offshore Companies were involved. He calculates that in 741 criminal cases Offshore Centers were involved in 3434 financial transactions with a volume of 56 Billion Euro within the last fourteen years.
• 80% of cases concerned money transfers between banks
• Many activities of OFC in Dutch real estate and mortgage market
• Since stricter AML rules: shift of offshore activities from tax avoidance to corruption, money laundering, tax evasion...
• US Senate Study 2008: 100 billion of tax fraud through
OFC, of which 70% by individuals, 30% by companies
13
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2. Evaluating the 3rd Anti Money Laundering Directive
14
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2. ECOLEF
B. Unger
H. AddinkP.J. Engelen
J. Walker
F. Kristen
M. van den
Broek
I. Deleanu
M. Barlage
J. Ferwerda
D. v/d Linde
J. Brettl
The Economic and Legal Effectiveness of Anti-Money Laundering
and Combating Terrorist Financing Policy – ECOLEF 2009-2012
JLS/2009/ISEC/AG/087
With the financial support from the Prevention of and Fight against Crime
Program of the EU-Commission - Directorate-General Home Affairs
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2. ECOLEF Study
201 questions
Desk Study (Mutual Evaluation Reports….)
27 times 5 questionnaires to Ministries, FIUs, Public Prosecutors (PPOs), Supervisors and Supervised Banks
Visited all the countries, more than 100 interviews.
Four regional workshops with Ministries, FIUs, PPOs
Dissemination conference 29th and 30th of November 2012 in Amsterdam
Several Presentations of interim results to EU (DG Home and DG Internal Market, ARO Conference in Cyprus)
Presentation | 17
2. Five Building Blocks
ThreatLegal
ImplementationExecution of
AML/CTF
Enforcement + international cooperation
Evaluation
Threat Analysis
Legal Effectiveness Study
Cost-Benefit Analysis
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Vulnerability in mln Euro
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Vulnerability in % of GDP
Presentation | 20
Five Building Blocks
ThreatLegal
ImplementationExecution of
AML/CTF
Enforcement + international cooperation
Evaluation
Threat Analysis
Legal Effectiveness Study
Cost-Benefit Analysis
Presentation | 0 5 10 15 20 25 30 35 40
Austria
Belgium
Bulgaria
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
The Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United Kingdom
Number of months delay
Implementation of the 3rd AML Directive Delays in Months
Presentation |
Delays of 3rd Directive Implementation Implementation of 3rd Directive: 15th of Dec 2007 due
Countries mentioned as Reasons for Delay
Legal Difficulties (System did not fit IRE)
Social Difficulties (Opposition of legal professions BEL,F,PL)
Political Difficulties (BEL no government)
Other Difficulties (F long parliamentary procedure)
No political resistance from countries:
EU prepared Directive well
FATF standards where there anyway and had to be dealt with
Old member states statistically significantly more delay than new member states
Member states with internal supervision (professional organizations) statistically significantly more delay
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Legal Effectiveness of MS’ Preventive AML/CTF Legislation
• General factors that have negative impact – Divergence FATF Recommendations and Third Directive with
respect to simplified due diligence and third party reliance (‘EU equivalence’)
• Proposal Fourth Directive
– Open norms, application and interpretation difficulties (UBO, PEP, simplified CDD)
• Country-specific factors that have negative impact (cf. table 4.6 p.68 in report)– Due to no or wrong implementation or practical difficulties
– Fundamental and technical legal hindrances.
• Fundamental: gaps in scope of coverage of obliged institutions (e.g. trust and company service providers not covered in A) , deficiencies in criminalisation…)
Presentation | 24
Five Building Blocks
ThreatLegal
ImplementationExecution of
AML/CTF
Enforcement + international cooperation
Evaluation
Threat Analysis
Legal Effectiveness Study
Cost-Benefit Analysis
Presentation |
FIU Typologies across EuropeLegend
Administrative FIUs – yellowLaw enforcement FIUs – blueHybrid FIUs – orange
Judicial FIUs – fuchsia
Stylized facts•All EU FIUs are classified•13 administrative FIUs•We complete the IMF (2004) classification•Overall valid IMF/ Egmont classifications
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0
20
40
60
80
100
120
AT BG DK EE FI DE EL IE IT LV LT LU PL PT SK SL SE UK BE CY CZ FR MT NL RO ES HU
FIU Staff (in fte)
FIUs with shared premises FIUs with
own premises
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FIU additional tasks
0
1
2
3
4
5
6
7
8
9
Tasks additionally imposed on the FIU
Top 5 most commonly observed additional tasks No of MS
Supervision of obliged entities 13
Imposing administrative sanctions 11
Drafting AML/CTF legislation 11
Issuing guidelines for reporting entities 8
Conducting pre-trial investigations 6
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FIU Spread of Additional tasks
LegendAbove EU average– fuchsiaAverage – greenBelow EU average – yellow
Stylized facts• FIUs with more additional tasks do not have significantly higher budgets•FIUs that have undergone organizational changes have more additional tasks
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FIU Access to Databasestax data?
0
10
20
30
40
50
60
70A
T
BE
BG
CY
CZ
DK
EE FI
FR
DE
EL
HU IE IT LV
LT
LU
MT
NL
PL
PT
RO
SK
SL
ES
SE
UK
Commercialregister
Tax
Custom
Social security
Bank data
Real estate
Police
Access to data unrelated to the type of FIU
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LegendRed – FIU modelGreen – External (gvmt)Blue – Internal (profess. associations)Yellow – Hybrid IOrange – Hybrid II
Eastern and Southern EU Member States generally include the FIU in the AML/CTF supervisory architecture
Very Diverse Supervision
Presentation | 31
Five Building Blocks
ThreatLegal
ImplementationExecution of
AML/CTF
Enforcement + international cooperation
Evaluation
Threat Analysis
Legal Effectiveness Study
Cost-Benefit Analysis
Presentation |
Enforcement - The role of the Public Prosecutor
• PPOs build on the information flowing from the FIUs
• Different legal systems – different PPO involvement in the repressive enforcement chain
Common law (PPO participation in RED)
Civil law (PPO participation in RED)
• Differences within the system:– Malta (common law system) – police also prosecutes
– UK (common law system) – PPO advises police in the pre-trial stage
– Finland (civil law system) – PPO is not involved in the pre-trail stage
FIU investigation
Pre-trial investigation
Trial investigation
Court decision
FIU investigation
Pre-trial investigation
Trial investigation
Court decision
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Criminal sanctions - averages
Huge Differences in Punishment of Money Laundering and Terr. Fin.
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0,00
5,00
10,00
15,00
20,00
25,00
30,00
AT BG CY CZ DK EE FI FR DE EL HU LV LT LU MT NL PL PT RO SK SL SE UK
ML convictions per FIU employee
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
90,00
100,00
AT BG CY CZ DK EE FI FR DE EL HU LV LT LU MT NL PL PT RO SK SL SE UK
ML convictions per 1,000,000 inhabitants
Not Many Convictions
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Effective repression in Europe?If I were a launderer…
LegendLow expected costs – fuchsiaMedium expected costs – yellow
High expected costs – green
Proxy: Where are my overall expected costs for committing ML higher?
Presentation |
International cooperation
PPO
FIU
Ministry
PPO
FIU
Ministry
FIU.net
Interpol
Europol
Egmont
EuroJust
MoU
MoU
EJN
?
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Difficulties in international cooperation
Mentioned difficulties in international
cooperation
No of member
states
Time delays 15
Generic information (not specific to the
request)
6
Conflicting data protection systems 9
Language barrier 4
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Definitions of ML in practice
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Definitions of TF in practice
Presentation | 40
Five Building Blocks
ThreatLegal
ImplementationExecution of
AML/CTF
Enforcement + international cooperation
Evaluation
Threat Analysis
Legal Effectiveness Study
Cost-Benefit Analysis
Presentation |
Thre
at a
s %
of
GD
P v
s.FA
TF c
om
plia
nce
sco
re
Thre
at in
mill
ion
s vs
. FA
TF c
om
plia
nce
sco
re
Thre
at a
s %
of
GD
P v
s.Le
gal e
ffec
tive
nes
s
Thre
at in
mill
ion
s vs
. Le
gal e
ffec
tive
nes
s
Thre
at a
s %
of
GD
P v
s.Im
ple
men
tati
on
ti
mel
ines
s
Thre
at in
mill
ion
s vs
. Im
ple
men
tati
on
ti
mel
ines
s
Thre
at a
s %
of
GD
P v
s.FI
U r
esp
on
se s
core
Thre
at in
mill
ion
s vs
. FI
U r
esp
on
se s
core
Thre
at a
s %
of
GD
P v
s.In
form
atio
n f
low
sco
re
Thre
at in
mill
ion
s vs
. In
form
atio
n f
low
sco
re
Thre
at a
s %
of
GD
P v
s.In
tern
atio
nal
co
op
erat
ion
sco
re
Thre
at in
mill
ion
s vs
. In
tern
atio
nal
co
op
erat
ion
sco
re
Thre
at a
s %
of
GD
P v
s.N
um
ber
of
con
vict
ion
s
Thre
at in
mill
ion
s vs
. N
um
ber
of
con
vict
ion
s
AT G G G Y G G G G Y Y G G Y R
BE G G G G Y R G G Y Y Y G Y R
BG G G G G G G G G Y Y G G Y Y
CY G G G G G G G G Y Y G G R Y
CZ G G G G G G G G Y Y G G Y Y
DK G G G G G G G G G G G G G G
EE Y G Y G Y G Y G R Y G G R Y
FI G G G G G G G G Y Y G G Y Y
FR G Y G Y Y R G G Y Y G G Y R
DE G Y G Y G G G G Y Y G G Y Y
EL G G G G G G G G Y Y G G Y Y
HU G G G G G G G G Y Y G G Y Y
IE G G G G Y Y G Y Y Y G G Y Y
IT G G G G G G Y Y Y R G G Y Y
LV Y G Y G Y G Y G R Y G G R Y
LT G G G G G G G G Y Y G G Y Y
LU Y Y Y G Y G Y G Y Y Y G R R
MT G G G G G G G G Y Y G G Y Y
NL G G Y Y G G G G G Y G G G Y
PL G G G G Y Y G G Y Y G G Y Y
PT G G G G G G G G Y Y G G Y Y
RO G G G G G G G G Y Y G G Y Y
SK G G G G G G G G Y Y G G Y Y
SL G G G G G G Y G Y Y G G R Y
ES G G G G Y Y G G Y Y G G Y Y
SE G G G G G G G G Y Y G G Y Y
UK G Y G Y G Y G R Y R G Y G Y
Presentation |
Group Countries
1 Austria, Denmark, Finland, Germany, Ireland and Sweden
2 Belgium, France, Greece, Italy, Portugal, Spain and the United Kingdom
3 Cyprus, Luxembourg and the Netherlands
4 Bulgaria, Hungary, Romania, Czech Republic, Malta, Poland, Slovakia, Slovenia, Latvia, Estonia,Lithuania
4 Groups of AML Europe
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3. The 4th AML Directive
stresses ´tax crime‘ as predicate crime for money laundering
Presentation |
Definition of Money LaunderingTax Fraud – Tax Crime - Tax Evasion?
Types of
crime
US Germany Austria Switzerla
nd
Netherlands
Fraud yes only by
business and
criminal
organizations
only by
business and
criminal
organizations
..If more than
100.000 Euro
yes yes
Tax
Evasion
Yes/
no
only by
business and
criminal
organizations
...If more
than 50.000
Euro
no no no,
misdemeanour
Bribery,
Corrupti
on
yes yes yes yes yes
Source: Unger 2007
Presentation | 45
Evolution of AML and Tax Fraud Regulation 1996-2016From cold to hot phase
USA PATRIOT ACT 2001
1989 FATF 1991
1st AML Directive 3rd AML DIRECTIVE 2005 4th AML DIRECTIVE
2015
Presentation |
WP1: City
Ronen Palan
Plus Richard Murphy
WP2: TJN
Markus Meinzer WP4: CBS
Duncan Wigan
(Leonard Seabrooke)
COFFERS Combating Fiscal Fraud and Empowering Regulators EU Horizon 2020 1.11.2016-31.10.2019
WP3: UB
Thomas Rixen
WP5: UL
Sheila Killian
WP7: CBS
Bo Bøgeskov
WP6 & 8: UU
Brigitte Unger
(Joras Ferwerda)
Presentation | 47
Darwinian Devils Hitting the Tax-Eco System
Ruleswill createnew loopholes
Presentation |
4. Conclusions and Recommendations• Money laundering needs true compliance of a lot of different actors (countries,
Ministries, FIUs, PPO, Courts, reporting entities..) and at an international level.
• Is a ‘victimless’ crime’ - no direct victim visible. Makes it difficult as a policy goal.
• Different Legal Systems, • Different Goals of AML Policy: Drugs, Smuggling – Corruption – Tax Evasion
• Different Vulnerabilities and Threats to which countries are exposed:Cash countries versus big financial centers
• Barriers for international cooperation: time delay, language, data protection
• Avoid compliance in the books, number games (danger of blowing up STRs, SARs, UTRs.....)
Presentation |
Recommendations• There are four different country groups for AML:
External Pressure – Internal Pressure – Through flows – New MSThey need different speed, different subgoals for compliance in practice. Avoid a one size fits all approach.
• AML is a very American idea, with US taking the lead. EUROPEAN way Needed. European strength is VARIETY of institutions.
– Historically settled institutions (legal system..)
- Some institutions are very old, chambers (from medieval guilds) who work in supervision of AML policy in some countries
• EU should develop best practice model, a WHITE LIST for creating voluntary compliance.
• Wrt Offshore: – close European offshore islands– Transparency, Central Registers (Bank Accounts, Ultimate Beneficial
Owner, Tax Payments)– Compliance of Banks and of Facilitators (laywers, notaries, accountants,
tax advisors...) Needed!!!Trade-Off between AML, Anti Tax Evasion and Privacy!
Presentation | Brigitte Unger50
Prof. Dr. Brigitte Unger
Utrecht University
School of Economics
Kriekenpitplein 21
3584EC Utrecht
The Netherlands
+31-(0)30-253-9809
THANK YOU !
Presentation |
European OffshoreCompanies and Personsin ICIJ Panama Papersopen access database
51
Jurisdiction Offshore Entities Officers Jurisdiciton Offshore Entities Officers
Albania 2 25 Luxembourg 10877 1764
Andorra 490 55 Macedonia 2 3
Austria 76 121 Madagascar 0 14
Belgium 61 363 Moldava 2 85
British Virgin Islands 69092 15211 Monaco 3168 1398
Bulgaria 50 117 Montenegro 13 29
Croatia 20 38 Netherlands 251 352
Cyprus 6374 3678 Norway 17 115
Czech Republic 173 272 Panama 18122 5357
Denmark 14 65 Poland 161 146
Estonia 881 108 Portugal 246 300
Finland 66 60 Romania 8 109
France 304 1005 Russia 11516 6285
Germany 197 504 San Marino 0 1
Greece 223 400 Serbia 9 54
Hungary 90 186 Slovakia 1 128
Iceland 15 213 Slovenia 21 58
Ireland 1936 261 Spain 1170 831
Isle of Man 4893 2018 Sweden 84 201
Italy 347 1196 Switzerland 38077 4595
Jersey 14562 7100 Ukraine 469 643
Latvia 2941 162 United Kingdom 17973 5676
Liechtenstein 2070 1147 United States 6254 7325
Lithuania 33 36 Not identified 25700 39446
linked entities defined as: A company, trust or fund created in a low-tax, offshore jurisdiction by an agent; officers defined as: A person or company who plays a role in an offshore entity;
ICIJ Panama Papers (2016) licensed under the open source data base license.