It’s been 12 months since the release of the Panama Papers, the biggest data leak in history from the internal files of Panamanian law firm Mossack Fonseca. One of the biggest headlines from the leak was the way in which shell companies were being used by individuals to circumvent sanctions applied to their name, a perfect illustration of which is Rami Makhlouf, the richest man in Syria, and cousin of President Assad (a family whose talent for generating negative headlines remains unmatched, with this week another member – Rifaat al-Assad – being named as part of a €691 million money laundering investigation).
Makhlouf was a Mossack Fonseca client. He owns many businesses in Syria including Syriatel, the country’s largest mobile operator; luxury department stores and banks made up some of Makhlouf’s business portfolio, and it is alleged he controlled 60% of the whole country’s economy. This was a very powerful, very influential individual, connected to an even more powerful figure in Assad - Makhlouf was the very definition of a PEP.
The United States imposed sanctions on Makhlouf in 2008 for public corruption, at which point he had been a Mossack Fonseca client for a decade. Fonseca was not legally obliged to adhere to US sanctions, but they were obliged to follow EU sanctions against Makhlouf imposed in July 2011, due to the British Virgin Islands’ UK connection. He was eventually dropped by Mossack Fonseca in September of that year.
Six businesses in Makhlouf’s name were ran by Mossack Fonseca, including ‘Drex Technologies’, in which his named appeared as the beneficial owner (see p.90 of the UK’s sanctions list). Mossack Fonseca was aware of his sanctioned status. An email from the law firm’s compliance department explicitly highlighted the fact: ‘I believe if an individual is found on a sanctions list then this is a serious red flag and we should make every effort to disassociate ourselves from them.’
Makhlouf is reputedly worth $5 billion and was described in a US diplomatic cable as ‘a poster boy for corruption’. The consequences of Mossack Fonseca having provided shell companies for Makhlouf are huge.
An excellent Al Jazeera piece here by James Denselow outlines why: first, the consensus that poor economic conditions, exacerbated by corruption, paved the way for the now six-year-old Syrian conflict, and second, the fact that Makhlouf used proceeds from his companies to pay for fuel for the Syrian air force jets and helicopters within this conflict. These two facts are indelibly linked; the consequences for the Syrian people hardly need pointing out.
Makhlouf, according to reports, remains an influential figure within the Syrian regime. Mossack Fonseca are, a year later, under scrutiny, with prosecutors in Panama revealing last month that they have been building a case against the law firm. The law firm denies any wrongdoing, and has said that it isn’t their fault if individuals for whom they open shell companies later use them for illegal purposes. The investigation into Mossack Fonseca by Panamanian authorities will give us a good idea of just how seriously the authorities are in making sure sanctioned individuals like Makhlouf are unable to access loopholes.
This case study illustrates how corporate structures and professional enablers can hide the identity of beneficial owners, further emphasising the importance of proper customer due diligence in ensuring that your firm does not inadvertently deal with sanctioned individuals.
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