Yes – is the answer. But law firms must enhance their data security. We live in the new world, where hacking and mass surveillance scandals are imminent.
A massive document leak from Mossack Fonseca, a Panamanian law firm which sells anonymous offshore companies around the world, has blown the lid on how companies and individuals use international havens to shield their wealth from taxation, with several international law firms gaining a mention for their connections to the firm.
The story goes as follows: over a year ago, an anonymous source contacted the SüddeutscheZeitung (SZ) and submitted encrypted internal documents from Mossack Fonseca. The leak is one of the most prolific breaches of a firm's data security in history.
In the months that followed, the number of documents continued to grow far beyond the original leak. Ultimately, SZ acquired about 2.6 terabytes of data, making the leak the biggest that journalists had ever worked with.
The disclosed data provides rare insights into a world that can only exist in the shadows. It shows how a global industry led by major banks, legal firms, and asset management companies secretly manages the estates of the world’s rich and famous: from politicians, FIFA officials, fraudsters and drug smugglers, to celebrities and professional athletes.
The SüddeutscheZeitung decided to analyze the data in cooperation with the other newspapers. Panama Papers is now the biggest-ever international cooperation of its kind. In the past 12 months, around 400 journalists from more than 100 media organizations in over 80 countries have taken part in researching the documents. These have included teams from the Guardian and the BBC in England, Le Monde in France, La Nación in Argentina and GazetaWyborcza in Poland.
The leak, for which the source is still unknown, has created a political and professional scandal. Among many questions, it has also put the issue of data security in law firms back into the spotlight. How safe is the confidential information entrusted to lawyers for their eyes only? Can we still trust lawyers?
Security experts all over the world call on law firms to enhance the protections and think of cyber-security. Security is no longer the role of IT department – say experts. It is a shared responsibility of everybody in the organization, from boardroom to reception. Law firms must realize that this is the biggest threat.
Generally speaking, owning an offshore company is not illegal in itself. In fact, establishing an offshore company can be seen as a logical step for a broad range of business transactions. Many law firms are involved in tax planning and using an offshore company is often seen as the best solution. There is nothing illegal in it, provided that the businessmen declare profits in their own countries and pay taxes. However, for politicians things look differently. They are not allowed to have shady businesses in offshore jurisdictions because they deal with public funds in their own countries.
A quick look at the website of Mossack Fonseca and similar offshore company providers reveals that concealing the identities of the true company owners is very easy. The system of shareholders’ nominees and directors’ nominees makes it easy to keep everything secret because the whole system is based on high level of confidentiality. Everybody used to act in this business so far under the general assumption that the facts and data that were disclosed to lawyers and bankers will remain secret forever and that the leak never happens. How did it happen that so much information has leaked out? How was it possible? Who is at fault?
This high-profile leak has swung the spotlight aggressively onto law firm data security. This is not the only case. Recently, Cravath, Swaine& Moore have suffered security breaches too. Security experts are calling on law firms to 'up their game' after what The American Lawyer has described as the legal sector's own 'Edward Snowden moment.'
Experts say that the risk which law firms are facing at present is incredibly real and they are now as a sector being targeted because of the sensitivity of the information they hold. This is a clarion call to all law firms that security is one of the biggest threats.
There are many law firms like Mossack Fonseca. If the leak happened in Panama (although earlier for 50 years there has been no leaks) it may happen anywhere in the world. This is why regulators all over the world are working now hand in hand to uncover the links to Mossack Fonseca and its clients and to find out what has actually happened.
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