Technology as Integrity Policy Enabler in Pandora Papers

This blog is written by Camilo Cetina and Maffert Lizcano.

Following an investigation led by the International Consortium of Investigative Journalists (ICIJ), around 12 million documents in some 2.94 terabytes of data with information on the asset mobilization of the richest people on the planet were made public. These people include more than 330 politicians from at least 90 countries. This study also exposed complex networks that mobilize money—in several cases of allegedly illicit origin—around the world.  The Pandora Papers—as they are known—is so far the largest analysis organized by ICIJ and with the greatest global impact, after the Archivos FinCen (2020), Paradise Papers (2017), and the Panama Papers (2016).

In Latin America, the Pandora Papers exposed the financial activities of nearly 100 public officials from 18 countries, which were allegedly related to business and financial transactions in jurisdictions other than their country of origin. Of 35 incumbent or former presidents, 14 are from the region. The disclosure of those names has sparked a political schism.

A large portion of the files shows the systematic use of offshore companies to hide assets and to evade taxes on transactions such as investments, purchase and sale of properties and control of corporate vehicles. The term offshore refers to companies that are headquartered in any country other than the country of their owners. Countries such as the Cayman Islands, Singapore or Switzerland are recognized for having offshore financial hubs or tax havens. In these territories, it is easy to set up businesses, corporate taxes are low, and laws make it difficult to identify owners. That secrecy allows for an easy creation of money laundering schemes.

The Pandora Papers also exposed the use of shell companies domiciled in tax havens to hide assets and transactions. These types of companies are registered with the relevant agencies, but when examining their economic, financial and administrative data, they are found to have no operations, and are mere corporate facades with the sole purpose of defrauding or evading the law.

The research was aided by the use of artificial intelligence tools and programming language platforms. This helped analyze the information contained in 12 million documents, 4.1 million images and emails, 4 thousand pages in 2.94 terabytes of data. Analyzing and understanding the information contained in the leaked files required the use of programs such as Python, a high-level programming language used to analyze extensive datasets. Python is a key piece for Big Data, data science, machine learning and artificial intelligence technologies.

According to the ICIJ, once the information was collected, it was grouped into four large data sets. The first included those who used offshore companies to launder money from acts of corruption or other illegal activities. The second was formed with people whose operations were duly declared, but had a criminal record, or are persons of public interest, or politically exposed persons. The third group was made up of possible cases of evasion, and the fourth group contained information from anonymous individuals whose activities are not considered risky.

The Pandora Papers revealed the tremendous potential of digital technologies in terms of public integrity. Using platforms to process large amounts of data at time intervals that exceed the capabilities of humans allows stakeholders in the integrity and anti-corruption ecosystem to proceed more efficiently and effectively. Consequently, governments are encouraged to understand the need to incorporate this type of technology into their activities, increasing the capacity to prevent and manage corruption risks.

According to the International Monetary Fund (IMF) the use of tax havens costs the world’s governments up to USD 600 billion in lost taxes each year. With the help of technology, governments could implement tools to track these funds and try to limit the amount of money lost under these modalities.

The use of digital technologies also allows governments to anticipate and prevent events associated with corruption and tax evasion, thanks to techniques such as predictive analytics and the ex-ante assessment of risks in terms of public spending or tax collection. The case of Pandora Papers also highlights that the use of digital technologies democratizes and decentralizes the fight against corruption and other behaviors linked to money laundering, because it allows more stakeholders to become involved and monitor public monies. This is an invitation to enhance access to public information and the adoption of open data policies. It also invites us to rethink tax regulations whose coordination would be facilitated thanks to the use of data infrastructures, to achieve more progressive systems with fewer exceptions. 

Preventing this type of behavior will depend on the ability of governments to reform existing regulations and migrate the state, fiscal and tax function to the world of data technology and access to public information and open data.