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Newsletter: Recent Hackings of “Offshore Holdings” – Be Prepared

Recent Hackings of “Offshore Holdings” – Be Prepared

The Department of Defense; Citibank; Sony; and now, Mossack Fonseca (or “MoFo” for our purposes), an obscure Panamanian law firm joining the unfortunate ranks of the “hacked.” The result, unauthorized public disclosure of over 11 million documents detailing confidential “offshore holdings” of the politically connected, potential money launderers, tax cheats, and debtors. It’s not just the paparazzi who are interested this time. Governments seeking to enforce money laundering and tax laws are combing the documents. Creditors seeking hidden assets to satisfy debts are combing the documents. Debtors and those with “creative” tax planning are sweating. The consequences of this MoFo disclosure are sure to ripple through the global legal and business communities, but the biggest waves are likely to be felt here in South Florida.

The first wave: government investigations. Given its proximity to Panama and the Latin American and Caribbean tax havens in general, it’s a sure bet that a significant portion of these assets ended up invested in Florida. Further, for those assets not held or invested in Florida, because Panama is a U.S. dollar economy, it is likely that U.S. prosecutors will assert jurisdiction over foreign people and on the basis that money was paid or received in U.S. dollars. Banks, accountants, and legal professionals will be subjected to additional scrutiny as well.

The second wave: non-governmental creditors will investigate and pursue asset recovery based on this newly disclosed information. Debtors holding assets in undisclosed Panamanian or other offshore structures should beware the collection efforts these investigations will spawn—and should scrupulously avoid conduct, which might be deemed a fraudulent transfer to avoid obligations to creditors. Creditors lucky enough to find useable information should be cautious as well. A thicket of legal and strategic issues surround the efforts to collect a civil judgment in the context of potential criminal investigations.

Consider for example:

• the ethics of threatening criminal prosecution to obtain a civil settlement, which may well qualify as extortion.
• the wisdom of raising the possibility of criminal prosecution only to have witnesses invoke the 5th Amendment privilege against self incrimination to stymie further collection efforts until the threat of prosecution is over;
• the wisdom of seeking governmental cooperation only to have satisfaction of your debt stand in line behind any claims the government may have.

The third wave: one might guess that at least a portion of the wealth held by such offshore entities has been parked in the rebounding South Florida real estate market. Some of that money, surely is parked in the unoccupied but fully owned condominium “safety deposit boxes” built by high end luxury developers lining our fair city. As the investigations progresses, expect a sell off and listen for the sound of the popping of yet another Florida real estate bubble.

Ehrenstein Charbonneau Calderin has the knowledge and expertise to soundly advise clients with respect to these and other MoFo events. If you have any questions, please contact Michael Ehrenstein at mde@ecclegal.com or 305-722-7002.

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