On April 3, 2016, the International Consortium of Investigative Journalists reported a gigantic leak of offshore financial records exposing a work wide network of crime and corruption. The papers were initially released to German newspaper Süddeutsche Zeitung, which then partnered with the International Consortium of Investigative Journalists. For more than a year, 300 journalists reviewed approximately 2.6 terabytes of data before releasing their findings, now called the Panama Papers.
What is Mossack Fonseca?
Mossack Fonseca, is a little-known but powerful law firm based in Panama that has been exposed to be one of the world’s top creators of shell companies, corporate structures that can be used to hide ownership of assets in cities such as Zurich, London, Virgin Islands and Hong Kong. It has founded, sold, and managed thousands of such offshore companies. It administers these offshore firms for a yearly fee.
Where is it based?
The firm is based in Panama but runs worldwide operation. Its website boasts of a global network with 600 people working in 42 countries. It has franchises across the world, where new customers are signed in. It operates in tax havens including Switzerland, Cyprus and the British Virgin Islands, and in the British crown dependencies Guernsey, Jersey and the Isle of Man.
What are the Panama Papers?
The Panama Papers include approximately 11.5 million documents – more than the combined total of the Wikileaks Cablegate, Offshore Leaks, Lux Leaks, and Swiss Leaks. The data primarily comprises e-mails, pdf files, photo files, data from Mossack Fonseca and covers a period spanning from the 1970s to the spring of 2016.
What do the Panama Papers reveal?
The confidential documents have revealed how the rich and powerful use tax havens to hide their wealth. The documents show how a global industry of law firms and big banks help the rich exploit secretive offshore tax regimes and offer financial secrecy to politicians, fraudsters and drug traffickers as well as billionaires, celebrities and sports stars by offering them a place to park their money.
The papers have exposed how black money flows through the global financial system, breeding crime and stripping national treasuries of tax revenues.
Who have the papers exposed?
The millions of documents have exposed heads of state, criminals and celebrities who have used secret hideaways in tax havens. These include criminals and members of various mafia groups, Ponzi schemers, drug kingpins, tax evaders and at least one sex offender.
The files have revealed the offshore holdings of several politicians and public officials from around the world. Twelve national leaders are among 143 politicians who have been using these tax havens.
World leaders, their families and close associates from around the world known to have been using offshore tax havens. The data include the prime minister of Iceland, the president of Ukraine, and the king of Saudi Arabia, the children of the president of Azerbaijan and the prime minister of Pakistan. A $2bn offshore trail led to Russian President Vladimir Putin.
The leak also provides details of the hidden financial dealings of 128 more politicians and public officials around the world. The law firm’s leaked internal files contain information on 214,488 offshore entities connected to people in more than 200 countries. They also include at least 33 people and companies blacklisted by the U.S. government.
The files include a convicted money-launderer, 29 billionaires featured in Forbes Magazine’s list of the world’s 500 richest people and movie star Jackie Chan, who has at least six companies managed through the law firm.
The records also show best soccer player Lionel Messi and his father were owners of a shell Panama company: Mega Star Enterprises Inc.
How does it work?
Having an offshore company isn’t illegal. For some international business transactions, it is a logical choice. Under national laws and international agreements, firms like Mossack Fonseca that create companies and bank accounts are supposed to be on the lookout for clients who may be involved in money laundering, tax evasion or other wrongdoing. They are required to pay special attention to ‘politically exposed persons’ or PEP, government officials or their family members or associates for any political corruption.
However, the documents show that banks, law firms and other offshore players in these holdings have turned a blind eye to such people and in fact, indulged in a lot of irregularities and illegalities, and gone the extra mile to keep their clients dubious finances secret.
Banks, including giants like UBS and HSBC have created thousands of companies which exist on paper only for clients.
What has been the impact of the Panama Papers leak?
The leak has created an upheaval globally and continues to do so. Governments have pledged to unearth the truth on the people named in the leaks and investigate other leads.
As names began to be exposed, it has caused a barrage of denials of any wrong doing. Mossack Fonseca said it has operated beyond reproach for 40 years and never been accused or charged with criminal wrong-doing. It refused to divulge any information about its clients as it was obliged to keep their secrets, it said.
Most leading figures and financial institutions also responded to the leak with denials of any wrongdoing as prosecutors and regulators began a review of the information leaked.
The impact of the leaked documents began to snowball and one by one heads began to roll. The first causality was Iceland’s prime minister, Sigmundur Davíð Gunnlaugsson, who stepped aside since the revelations were made public. The next was Spain’s acting industry minister. British Prime Minister David Cameron, was implicated and had to pay taxes for the first time.
Mossack Fonseca had been largely operating in the shadows. But, now the law firm is under growing scrutiny in Germany and Brazil. Employees of the firm were among those arrested by Brazilian police under Operation Carwash. The leaks also sparked off tax haven debates and measures to counter large scale tax evasions.
Recently, European finance ministers announced a tax information exchange initiative at the World Bank-IMF Springs meeting in Washington and also urged G20 leaders to participate in the initiative.