Understanding the Panama Papers

April 7, 2016

On April 3rd, the International Consortium of Investigative Journalists (ICIJ) published over 11 million leaked documents, a treasure trove of evidence connecting many of the world’s rich and famous to a Panamanian law firm, Mossack Fonseca. The papers implicate hundreds of individuals in hiding assets, facilitating bribery, arms deals, tax evasion, money laundering, financial fraud, and even drug trafficking. Politicians, businesses, and celebrities around the world are dealing with the fallout from these leaked documents, with outraged citizens calling for political resignations and deeper investigations.

The Panama Papers: Over the course of the last year, the ICIJ, together with Süddeutsche Zeitung and 100 other media partners, has delved through 11.5 million leaked files, the largest data leak with which journalists have every worked. The papers were first leaked to the German newspaper, Süddeutsche Zeitung, over a year ago. The leaker, who has not been identified, provided the German newspaper with the 11.5 million files through an encrypted channel. The anonymous leaker requested no money, only that they be able to remain anonymous and that security measures be put into place for his/her protection (Al Jazeera, 2016). Some of the files date back four decades (ICIJ, 2016).

Panama as a Tax Haven: Panama has classified as a tax haven for decades. A tax haven is a country or independent area where taxes are levied at a low rate (Golshan, 2014). Tax havens allow the extremely wealthy to put their money in another country in order to escape the tax rules, transparency regulations, or criminal rules of their own country. Tax havens allow wealthy individuals to place their asset in an intermediate legal structure, and not directly. For example, a wealthy businessman who wants to own a new company, instead of owning it directly, can own it through an intermediate structure in a tax haven. Business registries will not list the wealthy businessman’s name, but instead the name of an offshore shell company, making it almost impossible to tie that business to the wealthy individual. While the ethics behind these sort of activities certainly need to be questioned, the basics of using a tax haven are not illegal. Issues of legality will be unclear unless investigators examine every case individually and follow all the money.

Panama is one of the most entrenched tax havens in the world. It hosts the third largest number of secretive International Business Companies, a staggering 350,000 registered (Tax Justice Network, 2016). Panama’s history with tax havens started following the completion of the Panama Canal. Specifically, “The history of Panama as a tax haven started . . . when it began to register foreign ships to help Standard Oil escape US-American taxes and regulations. Offshore finance followed in 1927, when Wall Street interests helped Panama introduce lax company incorporation laws, which let anyone start tax-free, anonymous corporations, with few questions asked (Pires, 2013). Since then, Panama has ignored international cries for transparency in their banking and financial sectors. Panama has built a reputation around minimal taxes, regulations, and disclosure requirements, offering sanctuary for wealthy internationals who want to avoid these sort of domestic regulations.

Mossack Fonseca: Mossack Fonseca was established in 1986 when Ramón Fonseca and Jürgen Mossack merged their small local law firms in Panama. Both Mossack and Fonseca are major players in Panama. Fonseca, until recently, was a top adviser to Panamanian President, Juan Carlos Varela, but took a leave in absence in March following allegations that the company was involved in Brazil’s current corruption scandal. Mossack has also spent time in Panama’s politics, having served on the Conarex, Panama’s council on foreign relations, from 2009 to 2014.

Mossack Fonseca is the world's fourth biggest provider of offshore services. Since the leak, the firm maintains a belief that it has not done anything wrong. In a statement addressing the leak, Mossack Fonseca stated:

Our industry is not particularly well understood by the public, and unfortunately this series of articles will only serve to deepen that confusion. The facts are these: while we may have been the victim of a data breach, nothing we've seen in this illegally obtained cache of documents suggests we've done anything illegal, and that's very much in keeping with the global reputation we've built over the past 40 years of doing business the right way, right here in Panama... Our plan is to continue to serve our clients, stand behind our people, and support the local communities in which we have the privilege to work all over the world, just as we've done for nearly four decades (Mullen, 2016).

Mossack Fonseca has declared that the document leak is an illegal breach. The firm has stated it intends to see that those who leaked the information be brought to justice.

Who’s Who of Mossack Fonseca Clients: The list of Mossack Fonseca clients reads like a Who’s Who of the world’s most wealthy. ICIJ states that the data documents 214,000 offshore companies connected to people in 200 countries and territories. The documents make reference to 12 current or former world leaders, as well as 128 politicians and public officials. Perhaps more troubling, “they also include at least 33 people and companies blacklisted by the U.S. government because of evidence that they’d been involved in wrongdoing, such as doing business with Mexican drug lords, terrorist organizations like Hezbollah or rogue nations such as North Korea and Iran” (ICIJ, 2016). One of those 33 companies even supplied the fuel for Syrian aircrafts that were used to bomb and kill thousands of Syrians.

The most prominent individuals implicated in the leak are President Vladimir Putin of Russia; Prime Minister Sigmundur Gunnlaugsson of Iceland; President Mauricio Macri of Argentina; President Petro Poroshenko of the Ukraine; former Prime Minister Bidzina Ivanishvili of Georgia; Prime Minister Nawaz Sharif of Pakistan; family members of top leaders in Azerbaijan, the family of David Cameron in the United Kingdom, Xi Jinping of China, and Bashar al-Assad in Syria; FIFA officials; and celebrities such as Lionel Messi and Marianna Olszewski (ICIJ, 2016 and Chan, 2016).

In one of the biggest data leaks of all time, Mossack Fonseca has been exposed as helping hundreds of the world’s wealthiest hide their assets. While it is unclear if Mossack Fonseca and its clients committed anything illegal, they are certainly being found guilty in the court of public opinion.


References:

“About This Project.” International Consortium of Investigative Journalists.3 Apr. 2016. https://panamapapers.icij.org/about.html

Chan, Melissa. “Here Are The International Figures Tied to the Panama Papers Leak.” Time Magazine.4 Apr. 2016. http://time.com/4280413/world-leaders-panama-papers/

“Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption.” International Consortium of Investigative Journalists. 3 Apr. 2016. https://panamapapers.icij.org/20160403-panama-papers-global-overview.html

Golshan, Tara. “The 8 Most Important Things to Read to Understand the Panama Papers Document Leak.” Vox.4 Apr. 2016.. http://www.vox.com/2016/4/4/11360290/panama-papers-findings-document-leak-explained

Hamilton, Martha. “Panamanian Law Firm Is Gatekeeper To Vast Flow of Murky Offshore Secrets.” 3 Apr. 2016. https://panamapapers.icij.org/20160403-mossack-fonseca-offshore-secrets.html

Mullen, Jethro. “The Panama Papers: 7 Things to Know.” CNN.4 Apr. 2016. http://www.cnn.com/2016/04/04/world/panama-papers-explainer/

“Panama Papers: Huge Leak Alleges Elites Hiding Money.” Al Jazeera. 4 Apr. 2016. http://www.aljazeera.com/news/2016/04/data-leak-reveals-world-wealthy-hide-money-160403192018665.html

"Panama: The Making of a Tax Haven and Rogue State." Tax Justice Network. 30 Mar. 2013. http://www.taxjustice.net/2016/03/30/panama-the-making-of-a-tax-haven-an...

Pires, Armando Jose Garcia. “The Business Model of The British Virgin Islands and Panama.” Sept. 2013. http://www.snf.no/Files/Filer/Publications/A31_13.pdf

About Author(s)

Hilary Heath
Hilary Heath is a second year candidate for a Master of International Development at the Graduate School of Public and International Affairs at Pitt where she is studying Human Security. She currently works as a graduate student intern for Panoramas and is obtaining a certificate at the Center for Latin American Studies.