The Panama Papers are an unprecedented release of 2.6 terabytes of information (11.5 million files) from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca. The records were gradually obtained from an anonymous source by the German newspaper, Süddeutsche Zeitung, and shared by the International Consortium of Investigative Journalists (ICIJ) with a large network of international partners, including the Guardian and the BBC.
According to the official records, Mossack Fonseca aided its clients in structuring offshore entities and maintaining bank accounts in order to hide their ownership of assets and minimize or avoid taxes. The data primarily comprises e-mails, spreadsheets, pdf files, photo files, excerpts and other records and text documents of an internal Mossack Fonseca’s database. Over 200,000 companies and 14,000 clients were involved in the leak, covering a period spanning from the 1970s throughout the spring of 2016.
Mossack Fonseca is a Panama-based law firm which provides incorporating companies in offshore jurisdictions such as the British Virgin Islands. It has franchises around the world, where separately owned affiliates sign up new customers and have exclusive rights to use its brand. Mossack Fonseca 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.
Generally speaking, owning an offshore company is not illegal in itself. In fact, establishing an offshore company can be seen as a logical step for a broad range of business transactions.
However, a look through the Panama Papers very quickly reveals that the primary aims were concealing the identities of the true company owners, hiding assets or avoiding paying taxes. The providers of offshore companies – among them, banks, lawyers, and investment advisors – often keep their clients’ names secret and use proxies. In turn, the proxies’ tracks then lead to heads of state, important officials, and millionaires.
While it is not illegal to have an offshore bank account or hold interests in an offshore entity, it is illegal to have an account for the specific purpose of hiding assets or avoiding paying taxes. The Republic of Panama has long been identified as a “tax haven” and individuals engaging in improper offshore financial dealings may be investigated and prosecuted for a myriad of federal crimes, including tax evasion, structuring, money laundering, and mail or wire fraud.
With respect to the Panama Papers, governments and financial institutions have responded. A few examples include:
• Governmental agencies in Australia, Austria, Bangladesh, France, Germany, Italy, India, New Zealand, Panama, Thailand, Tunisia, Sweden and the Netherlands announced investigations based on information contained in the Panama Papers.
• The Royal Bank of Canada announced that they have launched an investigation going back 40 years for any link to Mossack Fonseca.
• The National Directorate of Taxes and Customs of Columbia launched an official investigation into Mossack Fonseca Columbia, a subsidiary of Mossack Fonseca.
• The Swedish Government announced that they have started an investigation into the involvement of Nordea, one of the largest financial institutions in the country, as well as the banks Handelsbanken, SEB and Swedbank.
The Panama Papers should serve as a wake-up call to fight against abusive use of shell companies by creating comprehensive registries which record the beneficial owners of U.S. real estate and financial securities, and also to finally change the long outdated rules and regulations that shape international financial transactions. This would be a powerful way to promote financial transparency, fight money laundering, terrorism financing and tax evasion.