Cyber coverage back in the limelight with huge weekend leak news

Cyber_Security

Unless you’ve been living under a rock over the last 24hrs, chances are you’ve heard of the Panama Papers: dubbed one of the biggest leaks in history. However, just how big is it, what is it all about and how does something in Panama send an important message to financial advisors and brokers in Canada? We have the answers.

So what do the Panama Papers focus on?
The Panama Papers controversy revolves around Mossack Fonseca, a law firm based in Panama which includes wealth management among its lists of services. Most notably, however, it incorporates companies in offshore jurisdictions and administers offshore firms in return for an annual fee.

Though the firm is based in Panama it is operated across 42 countries. Specifically it has operations in tax havens including the British Virgin Islands, Cyprus, Switzerland, the Isle of Man, Jersey and Guernsey. Overall, it is the fourth largest provider for offshore services worldwide – Mossack Fonseca has acted on behalf of around 300,000 companies.

So what’s the problem?
On Sunday (April 03), it was revealed that 11.5 million highly confidential documents from the firm had been leaked. These papers have revealed how associates had been hiding their money offshore. Overall, the documents contained 2.6 terabytes of data and covered records spanning 40 years – dwarfing even the WikiLeaks controversy of 2010.

The papers were acquired by Süddeutsche Zeitung, a German newspaper, before being shared with the International Consortium of Investigative Journalists (ICIJ). The papers contain details on everything from tax evaders to money launderers, from mafia leaders to the secret offshore holdings of a number of celebrities.

Among those implicated by initial media reports are Russian President Vladimir Putin, Iceland Prime Minister Sigmundur David Gunnlaugsson, footballer Lionel Messi and a number of FIFA officials.

But isn’t using offshore structures legal?
Yes, offshore structures are legal – indeed many business people may choose to keep their assets offshore in an effort to keep them away from criminals and to avoid restrictions on hard currency. Others, meanwhile, may use offshore structures for estate planning or inheritance.
The problem is that many people also use them for tax evasion and money laundering, taking advantage of these usually anonymous company formats. This issue is currently being investigated in the UK, for example, where, from June, offshore companies will have to reveal their owners.

So how many people have been breaking the law?
For its part, Mossack Fonseca says that it carries out due diligence and meets anti money laundering laws. It states that it can’t be blamed for intermediary failings.  The firm was a registered agent for more than 200,000 companies but in the bulk of cases was acting on instructions it received from various intermediaries including banks, lawyers, trust companies and accountants.

However, what’s clear is that many of the people involved have been breaching ethics rules. For example, the Prime Minister of Iceland is alleged to have not declared that he was part of an offshore company when he entered parliament even though the rules in that country state that he should have done so. So while it’s not necessarily a case of the people implicated doing anything illegal, they have, in some cases, breached ethics.

So what lessons can be learned here?
One thing that the Panama Papers has, perhaps indirectly, emphasized, is the importance of cyber security particularly when it relates to dealing with large sums of money.

Just last month we looked at how both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) were making cyber security a priority in the USA (see article) with Taylor Boivin, community leader at Advisor Websites, encouraging Canadian advisors to take a number of steps to protect both themselves and their clients.

“Never collect any sensitive information over your website unless you are using an encrypted webform service or SSL Certificate,” she said. “While it might seem like a good idea to get as much information as possible from a prospect as possible, if you are using an unsecured medium for that collection, you are essentially putting that information up for grabs online.

“Stick to basic, already publicly available information like name, email and phone number and stay away from personal information like SIN or credit card details. The same goes for file sharing. Be sure to use a secure service for the transfer of any sensitive files over your website.

“The simplest way to put it is, if there is nothing worth hacking on your website, no-one will hack it. Those who target websites and aim to steal information are looking for specific information they can use to do things like access bank accounts or steal identities. If you don’t offer up any of that information by collecting it over your website, hackers will move on.”

You can also read our article focusing on cyber risks for advisors now.

What do you make of the Panama Papers controversy? What is your reaction to so many world leaders and celebrities potentially engaging in secret offshore money movements? Leave a comment below with your thoughts.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.