The Panama Papers: Cyber-Tax-Political-Reputation Risk on Steroids

This latest cyber revelation (http://www.bbc.com/news/world-35918844) may be one of the most impactful cyber-leaks ever given what it reveals about whom. Some of the details, according to the BBC and The Guardian:

  • “The documents show links to 72 current or former heads of state in the data, including dictators accused of looting their own countries.”
  • “They were obtained by the German newspaper Suddeutsche Zeitung and shared with the International Consortium of Investigative Journalists (ICIJ).”
  • “BBC Panorama and The Guardian are among 107 media organisations in 78 countries that have been analysing the documents. The BBC does not know the identity of the source who provided them.”
  • “Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.”
  • “Among national leaders with offshore wealth are Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Davíð Gunnlaugsson.”
  • “Six members of the House of Lords, three former Conservative MPs and dozens of donors to UK political parties have had offshore assets.”
  • “The families of at least eight current and former members of China’s supreme ruling body, the politburo, have been found to have hidden wealth offshore.”
  • “A key member of Fifa’s powerful ethics committee, which is supposed to be spearheading reform at world football’s scandal-hit governing body, acted as a lawyer for individuals and companies recently charged with bribery and corruption.”
  • The leaks came from the files of a major Panamanian law firm, Mossack Fonseca, showing the vulnerability of law firms to cyber-hacks.

You can read more from the BBC here: http://www.bbc.com/news/world-35918844 and from the Guardian here: http://www.theguardian.com/news/2016/apr/03/the-panama-papers-how-the-worlds-rich-and-famous-hide-their-money-offshore

Cutting through the enormous reverberations that these revelations will undoubtedly occasion, I would suggest keeping the following key points in mind as we learn more about this treasure trove of incendiary information:

  1. Cyber-Risk Governance is Critical.Everyone is vulnerable to cyber-breach, including law firms who until now or recently didn’t think they were subject to the typical governance, risk and compliance standards that other entities – such as global companies, their clients – are subject to. See the strategic summary of The Conference Board “Emerging Practices in Cyber-Risk Governance” report I wrote late last year here: http://bit.ly/1NB2 for 10 key take-Aways for cyber-risk governance
  2. Cyber-Reputation Risk is a Risk of Risks, Turbocharged. There is huge reputation risk associated with cyber-vulnerability as I just argued in my latest column for Ethical Corporation Magazine, “Cyber-Reputation, Risk Turbocharged”, downloadable here:  http://bit.ly/1RxOV6I
  3. Reputation Risk Amplifies Other Risks.Reputation risk attaches itself and amplifies underlying risks that are either (a) ignored, (b) unknown, (c) half-heartedly mitigated or (d) outright violated (as seems to be the case with the Panamanian law firm clients seeking tax havens, money laundering and worse).
  4. The Stakeholder Expectations Game. The law firm clients in question (whether existing or former government officials and other well-known folks) will all suffer serious reputational harm and potentially other consequences (like investigation, prosecution, incarceration).  While some stakeholders expect certain entities and people to behave badly and those individuals and governments will not be held accountable, in the case of others (e.g., the Icelandic Prime Minister), may not be so easily forgiven by his stakeholders – the Icelandic people, media and prosecutors.  For more on how reputation risk amplifies other underlying risks that are either ignored or outright violated and the importance of stakeholder analysis, see my recent book, The Reputation Risk Handbook: Surviving & Thriving in the Age of Hyper-Transparency(http://bit.ly/1284TMR)

How do entities (companies, government, NGOs) ameliorate and protect against these severe downsides? In addition to not violating the law, they need to build long-term resilience., For more resources on these topics please visit: https://gecrisk.com/