The firm at the centre of the Paradise Papers leak has been repeatedly criticised by inspectors in different jurisdictions for failures in the way it applies regulations designed to thwart money laundering and terrorist financing.

A stinging report by the Bermuda Monetary Authority (BMA) into Appleby’s operations in Hamilton left the firm privately acknowledging that it was being accused of “persistent failures and deficiencies” in some key areas, which resulted in the company being fined.

The private admission by partners followed an inspection in 2014, which made it clear that the company still had not addressed problems uncovered during an inspection a year earlier.

The documents hint at exasperation within the company that staff were not following the right protocols. In August 2014, one partner warned colleagues they were in danger of getting “carried away with fee-earning potential … At the end of the day, if it all goes wrong, they will be left holding the ‘steaming turd’”.



Hamilton, Bermuda. Photograph: John Zakszewska/Getty Images/EyeEm

In a slideshow presentation to staff about compliance, the partner noted: “We have a current case where we are sitting on about 400K that is definitely tainted and it is not easy to deal with.”

Yet in public, Appleby had been part of an aggressive lobbying effort to stop countries introducing more transparency in the offshore sector – in part because it argued that firms were already doing enough to curb bad practices.

The files show Appleby being criticised for flawed compliance procedures in 12 confidential audits over a 10-year period in the Isle of Man, the Cayman Islands, Bermuda and the British Virgin Islands (BVI), where it was accused in 2012 of “severe shortcomings”.

BMA’s concern about Appleby’s behaviour was set out in a 15-page “by hand” letter to Appleby’s board of directors. Delivered in April 2015, the letter pointed to weaknesses in the company’s internal procedures found during a seven-day, on-site inspection.

The authority recommended “high priority” remedial work in a number of areas and threatened sanctions unless it was done quickly. BMA also questioned why its recommendations from 2013 to tighten up the company’s approach to money laundering and terrorist financing appeared to have been ignored.

“The company did not develop a remediation plan … Oversight weaknesses were repeated in high-risk findings in both the 2013 and 2014 reports,” it said.

“These omissions have heightened the authority’s concern about the firm’s regulatory compliance and control environment, and its failure to demonstrate a cooperative approach to the authority’s mandated initiatives. These issues will be escalated within the authority for consideration of enforcement action.”

The BMA letter included a breakdown of what needed to be done in 14 different areas. Nine of the areas were designated “high priority” because inspectors had uncovered a “highly significant weakness in the adequacy of the organisation’s systems and controls, or a deficiency in meeting its regulatory requirements”.

The company’s compliance with anti-terrorist-financing and anti-money-laundering regulations – known as AML/ATF – was top of the BMA’s worry list, but it also raised concerns about the firm’s due diligence processes, the board’s attitude to and oversight of risk management and the company’s ability to keep track of cases.

Appleby was accused of completing “risk reviews in an ad hoc manner”.

In one case uncovered by BMA, a trust was lowered from a high-risk to a low-risk rating because the person who was funding it was no longer considered a politically exposed person (PEP). But the authority could not understand why this had been done because “there was no evidence the compliance manager had re-evaluated” the case.

The company accepted most of the criticisms but contested that the trust had been downgraded without scrutiny or that there was a backlog. But while the BMA letter, signed by its director, Marcia Woolridge-Allwood, acknowledged the company’s comments, it did not withdraw its main findings.

An image that appears on Appleby’s website. Photograph: Thanapol Marattana/Getty Images

The letter concluded: “We have indicated timelines for addressing the aforementioned issues and thus we remind you that it is the responsibility of the board and senior management to ensure the issues are conducted within the allotted timeframe.”

In November 2015, more than a year after the BMA inspection, Appleby was still running through the changes required. An email from BMA to the company urged it to “confirm that all of the outstanding points in relation to the 2014 review will be cleared by the end of the year”.

BMA noted that there were still “167 files reviews outstanding” and raised further questions about why for nearly one-fifth of its files, Appleby did not seem to know the jurisdiction of the settlors who were paying into trusts.

The email continued: “Can you confirm why this is, or confirm that [Appleby] knows the jurisdiction of the settlor behind these trusts?”

The Financial Services Commission in the BVI also took the firm’s Tortola operation to task following an inspection in November 2012. “In the opinion of the commission, [Appleby] has contravened financial services legislation … the anti-money-laundering code of practice 2008 and the anti-money-laundering regulations 2008,” a letter to Appleby said.

It said the firm was only “partially compliant” in a number of important areas, which meant it had “severe shortcomings with a majority of the legislation, prudential standards and good practice requirements not being met”.

The Guardian asked Appleby about the inspections and the fine, but the company declined to comment.

In a statement on 24 October, the company said it had investigated all the issues put to it by partners in the International Consortium of Investigative Journalists, which coordinated the global collaboration on the Paradise Papers, and concluded it had done nothing wrong.

“It is true that we are not infallible. Where we find that mistakes have happened, we act quickly to put things right and we make the necessary notifications to the relevant authorities,” the firm said.