Disclosures spur questions about offshore tax loopholes; North Korean connection spotlighted

The widening Panama Papers scandal is lifting the lid on a bubbling hot pot of involvement by South Korean citizens — with a few North Korean and Australian connections tossed in. Public pressure also is building in South Korea to pass stalled legislation that would make it harder for local tax evaders to hide money in offshore accounts.

Stacks of ten thousand Korean won bills are piled up at the headquarters of the Korea Exchange Bank in Seoul

A total of 195 South Korean individuals, so far, have been identified in the leak of 11.5 million documents, dubbed the “Panama Papers.” The trove of records came from Mossack Fonseca, a Panamanian law firm specializing in offshore client accounts. The papers disclosed the financial activities of hundreds of well-connected individuals, including friends of Russian President Vladimir Putin, relatives of the prime ministers of Britain and Pakistan and Chinese President Xi Jinping, and the president of Ukraine.

Newstapa, a website operated by the Korea Center for Investigative Journalism, one of several global news organizations that obtained copies of the Panama Papers, says the list includes the eldest son of former South Korean President Roh Tae-woo.

Roh Jae-heon, 50, is alleged to have created three offshore companies in the British Virgin Islands in May 2012, Yonhap news agency reported. Each was created with the issuance of a $1 share of stock, used an address shared with thousands of other offshore firms, and had complex ownership structures.

Roh has publicly defended his decision to establish the firms, saying they were created for “business purposes” and for personal reasons, including divorce. “I never did anything with the companies,” Roh said.

An ABC investigation in Australia, meanwhile, has tapped the Panama Papers to uncover the alleged links of  two Australian businessmen believed to be involved in striking mining deals with North Korea.

ABC says Sydney-based businessman David Henty Sutton and South African born, Brisbane-based geologist Louis Schurmann were directors of two companies which announced the mining sub-license agreements on the Australian Stock Exchange (ASX).

An ex-UN official reportedly told ABC that the deals involved North Korean entities under sanctions. The UN has imposed a ban on individuals and companies doing business with North Korean companies.

ABC says the documents show Sutton is part of a network of businessmen who use shell companies to mask their identities.

The Panama Papers are increasing calls for South Korea’s government to close offshore tax loopholes — especially in the US.

The Korea Times reported Wednesday that a bill that would allow the country’s National Tax Service and US financial firms to cooperate in identifying Korean offshore tax evaders has been gathering dust for nine months because of partisan infighting.

The Foreign Account Tax Compliance Act (FATCA), calling for the exchange of financial information between the two nations, was signed last year between Seoul and Washington. Though officials have signed FATCA, Korea’s parliament is yet to ratify the act.

It’s been in limbo for nine months because opposition parties are refusing to cooperate in convening a meeting of the National Assembly’s Foreign Affairs Committee that would help get it ratified. Opposition lawmakers refuse to do so because they oppose a bilateral agreement on ending the WWII sex slaves issue that was signed between Japan and South Korea late last year.

FATCA requires US financial firms to automatically provide South Korean tax officials with data about Koreans who have US savings accounts that pay interest of more than $10 a year. It also requires the US institutions to provide information on income generated from US sources, making it much harder for such Korean holders to evade taxes in their home country.

Currently, the US Internal Revenue Service only provides information on specific tax evasion suspects if asked to do so by Korean tax officials.


The Panama Papers isn’t the first time that prominent Koreans have figured in an offshore tax flap. South Korea’s government issued a report in 2013 that detailed alleged offshore tax dodging by 245 Koreans, including a son of former President Chun Doo-hwan.

In related news, Ramon Fonseca, the founder of the Panamanian law firm Mossack Fonseca, said Wednesday that the massive document disclosure was the result of a hack and not a leak by his firm.

Iceland PM Sigmundur David Gunnlaugsson resigned on Tuesday due to his ties, becoming the first casualty of the leak.

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