Never mind the Russians, political leaders and celebrities. The leaked papers from a Panama law firm have the potential to create a bigger headache for the global financial industry.
The leak of reams of confidential information about the use of offshore tax havens hasn't resulted in specific accusations of wrongdoing at any of the big banks, so far.
But a quick look through the accounts of some of the largest financial institutions provides an easy reminder of just how integral tax havens have become to the global banking system.
Take HSBC. Its Monaco-based and Swiss units asked Mossack Fonseca, the law firm at the heart of the affair, to set up offshore companies for clients, according to the International Consortium of Investigative Journalists.
Units of Credit Suisse, UBS, Societe Generale and Royal Bank of Scotland also get a mention in the documents released by the ICIJ. A quick cross reference to the banks' accounts shows dozens of subsidiaries, joint ventures and associates operating across a handful of havens.
Disclosure can be patchy. UBS doesn't disclose any subsidiaries in the Bahamas in its annual report even though its website offers offshore trust services through entities in the Bahamas and elsewhere that it says are wholly owned by UBS. The bank says its disclosure is in line with regulatory requirements.
To be sure, there is nothing illegal about operating in offshore jurisdictions and there can be legitimate reasons for having subsidiaries in low-tax countries. The banks also say they exercise proper due diligence when taking on new clients. (Mossack Fonseca told the ICIJ it too conducts through due diligence of its clients.)
The worry for the banks is that the Panama Papers raise the prospect of yet more scrutiny, additional regulation and compliance and the risk of more fines.
Unwinding the financial industry's network of offshore corporate entities would surely be traumatic and expensive. It might also hinder the banks' efforts to repair damaged reputations.
The banks can argue they didn't engage in setting up the shell companies -- that was the role of the law firm. But in a post-crisis world where governments are strapped for cash and keen to close as many tax loopholes as possible, scrutiny is unlikely to go away.
There's some evidence the banks are already overhauling their tangled corporate structures. HSBC sold its Panama bank in 2013, for instance. Credit Suisse also recently sold its Gibraltar and Monaco private-banking operations.
The tax havens too may be moving in the direction of greater transparency: the OECD's original blacklist of about three dozen "uncooperative" tax havens in 2000 dwindled to zero in the space of a decade as more countries agreed to share information. But Panama, Liechtenstein and Barbados were still included in a European Union list of uncooperative tax havens last year.
Analysts warned that providers of corporate and legal services could come under pressure. But the broader stock market reaction has been muted so far. That's understandable given it is far too early to gauge what the actual fallout from the leaks will be.
Even so, big banks need to brace for more pressure. EU Economic Affairs Commissioner Pierre Moscovici said on Monday the leaks are "good news" and add momentum to calls for financial transparency. He won't be the last.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
In an e-mail, HSBC said it works closely with authorities to fight financial crime and implement sanctions.
RBS referred questions to its Coutts unit, which said it's committed to the highest standards of regulatory compliance. Societe Generale and Credit Suisse didn't respond to requests for comment.
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