Panama Papers and the Optics of Global High Finance
According to the BBC, the leak of 11.5 million documents from one of the world’s most secret companies, Panamanian law firm Mossack Fonseca, shows how clients were able to launder money, dodge sanctions and avoid taxes. It’s the biggest leak in history, dwarfing the data released by Wikileaks in 2010. For context, if the amount of data released by Wikileaks was equivalent to the population of San Francisco, the amount of data released in the Panama Papers is the equivalent to that of India.
The 11.5 million documents popularly known as the “Panama Papers” were obtained by the German newspaper Sueddeutsche Zeitung and shared with the International Consortium of Investigative Journalists (ICIJ). The ICIJ then worked with journalists from 107 media organizations in 76 countries, including UK newspaper the Guardian, to analyze the documents over a year. The BBC does not know the identity of the source but Mossack Fonseca says it has been the victim of a hack from servers based abroad.
There are links to 12 current or former heads of state and government in the data, including dictators accused of looting their own countries. More than 60 relatives and associates of heads of state and other politicians are also implicated. The Panama Papers even reveal a suspected billion-dollar money-laundering ring involving close associates of Russia’s President, Vladimir Putin. None of the money that seems to have flowed from Russia into tax havens belongs to President Putin, but billions of dollars of it seems to belong to his friends including an inordinately wealthy cellist.
Also mentioned are the brother-in-law of China’s President Xi Jinping; Ukraine President Petro Poroshenko; Argentina President Mauricio Macri; the late father of UK Prime Minister David Cameron and three of the four children of Pakistan’s Prime Minister Nawaz Sharif. Part of the documents suggest that a key member of FIFA’s ethics committee, Uruguayan lawyer Juan Pedro Damiani, and his firm provided legal assistance for at least seven offshore companies linked to a former FIFA vice-president arrested last May as part of the US inquiry into football corruption. Some of the leaked files from Mossack Fonseca show it enabled a leading regime figure in Syria, Rami Makhlouf, to keep his companies trading, despite being blacklisted by US Treasury sanctions and UK sanctions.
The leak has also revealed that more than 500 banks, including their subsidiaries and branches, registered nearly 15,600 shell companies with Mossack Fonseca. In all, the details of 214,000 entities, including companies, trusts and foundations, were leaked.
The information in the documents dates back to 1977, and goes up to December last year. Emails make up the largest type of document leaked, but images of contracts and passports were also released. Lenders have denied allegations that they are helping clients to avoid taxes by using complicated offshore arrangements. It is also alleged that Mossack Fonseca helped launder the millions stolen during the notorious Brink’s Mat gold bullion robbery of 1983, when three and a half tons of gold disappeared.
Although there are legitimate ways of using tax havens, most of what’s going on here is about hiding the true owners of money, the origin of the money and avoiding paying taxes on the money. The countries themselves talk about their “specialist financial expertise” and “tax planning” abilities.
Some of the main allegations centre on the creation of shell companies, which have the outward appearance of being legitimate businesses but are just empty shells. They do nothing but manage money, while hiding who owns it. Mossack Fonseca says it has operated beyond reproach for 40 years and never been accused or charged with criminal wrongdoing.
Germany, Norway, France, Spain and Australia are just a few of those that have promised to examine how many of their citizens have been using the company and if they have been evading taxation illegally. There was a surge in business for Mossack Fonseca when the European Savings Directive made hiding your money in Europe more difficult.
The list of allegations continues to grow and the scale of the issues involved is also on the rise – from corrupt officials and regimes to money laundering, tax evasion and sanctions-busting. So far we have read only a small percentage of the total number of documents. The accusations are likely to keep coming and the pressure on governments to do something is bound to continue, if only to show that it is not just the little people who pay taxes.
The Panama Papers may not be what many hope that they will be. Using tax-efficient structures to hold assets is not a crime; it’s more the equivalent of using the “avoid tolls” button on your GPS. Of course the level of hypocrisy involved, particularly in Iceland where they had been taking corporations to task for using off-shore tax havens, is infuriating but for many this will be nothing more than bad optics in the current political climate.