The purpose may be tax avoidance or the cash and assets may be the result of illegal activities such as payoffs to government officials, illegal drug sales and arms trafficking.
Backdating can involve assigning an event “to a date prior to that of actual occurrence” or dating a document “to reflect an event that occurred prior to execution.” The propriety of backdating, says law professor Jeffrey L.
In comparison, had the options been granted at the year-end price when the decision to grant to options actually might have been made, the year-end intrinsic value would have been zero.
Backdating does not violate shareholder-approved option plans.
The Mossack Fonseca law firm, at the center of the Panama Papers storm, says its document backdating for high net worth clients setting up offshore shells is not intended “to cover up or hide unlawful acts.” Backdating is back.
Also see: 5 things to know about the Panama Papers In a written response to questions from ICIJ and its media partners, the firm said that backdating documents “is a well-founded and accepted practice” that is “common in our industry and its aim is not to cover up or hide unlawful acts.” Erik Lie, a finance professor at the University of Iowa, published an initial study in 2005 and then another in July 2006 that said more than 2,000 companies had used options backdating between 19 to reward senior executives.
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The leaked Mossack Fonseca files show the law firm regularly offered to backdate documents for clients, according to a report by the International Consortium of Investigative Journalists, a not-for-profit that coordinated the expose.
Mossack Fonseca is one of the world’s leading providers of shell companies, the corporate structures that can be used to hide ownership of assets by designating “a natural person nominee” or straw man, who pretends on paper to own assets the actual owners want to hide.