Suspects acquitted in Panama Papers money laundering case

In a striking verdict in a money laundering case related to the Panama Papers scandal, a Panamanian judge on Friday acquitted all 28 defendants, including former employees of the law firm Mossack Fonseca, the source of the leaked documents that caused a worldwide furore. in 2016.

The verdict came eight years after a partnership of media outlets published it an explosive investigation in 11.5 million documents leaked by the Panama-based company. The leak exposed the offshore banking sector, led to international tax investigations and brought down heads of state.

Among the original 29 defendants were the shuttered company’s co-founders, Jürgen Mossack, 76, and Ramón Fonseca, who died in May at age 71 while awaiting sentencing. In her 339-page ruling, the judge, Baloísa Marquínez, said the case against Mr Fonseca had been dropped because of his death.

Prosecutors had alleged that Mossack Fonseca had set up shell companies for the purpose of hiding money made from illegal activities, and that the company had failed to act with due diligence and exercise due caution in assessing its customers .

In a written statement published Friday evening, Panama’s judiciary said the judge found that the electronic evidence presented by prosecutors did not comply with chain of custody protocols and that there were authentication issues. He also said the judge had not found sufficient evidence to hold the accused responsible.

The ruling was a major development for Panama, whose reputation was damaged by the leak and which has overhauled its laws in recent years to strengthen anti-money laundering efforts.

“These were years and years of demonstrating the innocence of our representatives,” said Guillermina McDonald, a lawyer at a firm that represented many of the defendants. “We demonstrated unfailingly that there was no money laundering, that those I represented did not commit any crime.”

A representative of the Public Prosecution Service said it was analyzing the ruling and that it could be appealed.

According to Juan Carlos Araúz, a lawyer specializing in corporate litigation in Panama City, the ruling reflects the fact that prosecutors were unable to prove that the company’s founders knew that the shell companies it controlled were being used for illegal activities.

“What the judge is saying is that ‘no, it is not proven that the company knew that there was conduct aimed at that purpose’,” he said.

During the live-streamed Panama Papers trial, which began on April 8 and lasted 10 days, all defendants pleaded not guilty. The defense argued that prosecutors failed to prove that the company managed money derived from illegal activities and that banks failed to provide warnings about suspicious transactions.

Keeping money in a foreign bank account is not inherently illegal. But prosecutors alleged the company operated shell companies with the goal of moving off-the-books money from German electronics company Siemens that was linked to illegal payments.

Prosecutors tried to build their case by pointing to previous allegations of wrongful conduct by Siemens and its employees. In 2008, Siemens agreed to pay $1.6 billion to U.S. and European authorities to settle charges of using bribes and slush funds to obtain public works contracts.

Millions of dollars passed through the shell companies. Court documents cited journalistic investigations which described how Mossack Fonseca maintained a high level of secrecy to protect its clients, using abbreviations to refer to Siemens employees.

Prosecutors also accused the company of being involved in illegal activities related to Argentina. They alleged that the company managed companies used to buy properties linked to an individual convicted in a major fraud scheme in Argentina in 2023.

Judge Marquínez had merged the Panama Papers case with a separate money laundering trial also involving Mossack Fonseca, ruling on both together. The other case was related to Brazil’s Operation Car Wash scandal, a bribery scheme involving state-controlled oil company Petrobras.

In the Lava Jato trial, which took place last summer, prosecutors alleged that Mossack Fonseca was used to open offshore companies that moved money derived from corruption. Judge Marquínez acquitted 31 suspects in the Lava Jato case on Friday. (Some suspects overlapped with the Panama Papers trial.)

Panama, a trading hub, has traditionally been a center for the creation of shell companies, according to Gabriel Zucman, an economist at the University of California, Berkeley. Panama shared little banking information with foreign countries and had lax rules (which have since been tightened) on a law firm’s responsibility to identify the ultimate beneficiaries of funds.

The investigation into the Panama Papers began with a message from an anonymous whistleblower to the Süddeutsche Zeitung, a German newspaper, asking if it was interested in the data. The newspaper decided to share the huge leak with the International consortium of investigative journalists in Washington, which brought together a team of hundreds of reporters from more than 100 news organizations around the world.

The leaked files covered nearly 215,000 offshore entities and more than 14,000 banks, law firms and intermediaries that worked with Mossack Fonseca. The journalistic partnership’s articles were published in April 2016. One of their effects was to prompt the prime ministers of Iceland and Pakistan to resign.

In 2017, Mr. Mossack and Mr. Fonseca were arrested in Panama on money laundering charges in connection with the Lava Jato scandal. They were released on bail after several months. Their company, which at one point had more than 600 employees, closed in 2018, insisting it had not broken the law.

In an interview shortly after the Panama Papers exposé broke, Mr. Fonseca said the company had carefully vetted its customers but that it was similar to a car factory in that it “is not responsible for what is done with the car after it is sold.”

Over $1.36 billion has been collected by governments in fines and back taxes stemming from the 2016 investigation. Subsequent journalistic collaborations investigating major data breaches, known as the Paradise Papers and Pandora Papers, have also revealed the workings of offshore tax havens.

Following the leak, Panama has adopted a series of laws aimed at preventing money laundering, by imposing stricter requirements on companies to know the beneficial owners of shell companies they create for their clients and creating a register of these beneficiaries, according to Carlos Barsallo, a lawyer and expert on money laundering.

“The companies cannot have the mentality that I am selling the shell company and it is not my problem who does what with it,” said Olga de Obaldía, executive director of the Fundación para el Desarrollo de la Libertad Ciudadana, the Panama organization. chapter of Transparency International.

It is difficult to determine how many people have been convicted worldwide because of the Panama Papers. But Frederik Obermaier, a journalist who investigated the leak at the South German Newspaper, said there were references to the Panama Papers in television series and pop songs showed how much the research resonated with the public.

“It has taught us about the price we all pay through tax evasion and corruption,” he said. “It’s not something abstract. It means we don’t have enough money for hospitals and universities.”