According to the ICIJ's analysis of the Panama Papers, over 500 banks opened nearly 15,600 shell companies with the Panamanian law firm Mossack Fonseca, most of them since the 1990s. Ten of these banks are responsible for 7,364 offshore companies, with affiliates of HSBC Holdings PLC (HSBC) responsible for more than 2,300. UBS Group A.G. (UBS) and Credit Suisse Group A.G. (CS) each account for 1,100, and Royal Bank of Canada (RY) clocks 378.
That many of these accounts appear to have been opened or maintained in violation of laws and regulations may be cause for concern for the bank's investors, who have seen their returns dampened by fines in the past.
Among the beneficiaries of accounts requested by UBS, according to the ICIJ, were Saudi Arabia's Crown Prince Muhammad bin Nayef bin Abdulazziz Al Saud, convicted fraudster Roberto Videira Brandão, and Venezuelan banker Marco Tulio Henriquez, who is wanted by the U.S. for laundering drug cartel money. (See also, Panama Papers Tip of the Iceberg: Congress Aids Tax Cheats and Terrorists.)
HSBC, meanwhile, elected to continue doing business with Rami Makhlouf, cousin of Syrian President Bashar al-Assad, as the conflict in Syria escalated. The U.S. Treasury had frozen Makhlouf's assets in 2008, but a 2011 email chain shows HSBC and Mossack Fonseca deciding to continue their relationship with him anyway. (See also, Why Is Panama Considered a Tax Haven?)
The U.S. government has not had a sense of humor about banks' violations of its mandates in the past. To take just one example, on May 18, 2014, Credit Suisse pled guilty to helping clients hide money in offshore accounts and was fined $2.8 billion. In February 2015 the company had to restate its full-year earnings, lowering its 2.9 billion Swiss franc (CHF) loss to CHF 3.1 billion due to "an increase in litigation provisions." (It said these provisions were related to American mortgages, not offshore accounts.)
The stock has slumped 54.1% since its guilty plea, or 51.9% accounting for dividends.
In all, the Department of Justice has settled with 78 Swiss banks for tax-related offenses since 2013 as part of the Swiss Bank Program. Wegelin, Switzerland's oldest private bank, closed after pleading guilty in a Manhattan court in 2013.
The Bottom Line
A number of large banks have been implicated in the Panama Papers scandal, possibly opening them up to even more litigation and fines, particularly at the hands of U.S. authorities. Given the ways these fines have impacted banks' earnings and stocks in the past, investors may have to brace themselves for disappointing news.