The release of the Panama Papers represents the single largest journalistic leak and, perhaps, achievement of investigative journalism in the digital age. The papers give a rare glimpse into the world of offshore shell corporations, and the many ways that they can be used nefariously, due to the lack of oversight that accompanies them. Because news is still coming out about the Panama Papers every single day, it can be difficult to keep track of what exactly this latest revelation means. To help in that understanding, here is a 3-part series that explains the Panama Papers and what we can expect to see from here…
The Panamanian firm that was the subject of the Panama Papers was Mossack Fonseca, a Panama-based law firm that has an advanced network of locations and employees around the world to help set up international shell corporations. The firm currently has over 40 offices around the globe, each designed to help individuals and businesses set up trust services and international business structures. Mossack Fonseca has insisted that it had done nothing wrong in its services, and that it was entirely legal with its business dealings. However, as discovered in the Panama Papers, an internal memo in the company stated that 95% of the company’s business was setting structures that exist to avoid taxes.
Where did this leak come from?
In early 2015, an anonymous source offered to deliver batches of classified documents regarding the financial dealings of the law firm Mossack Fonseca to the German news source, Suddeutsche Zeitung. This anonymous source referred to himself as John Doe, and refused to meet in person, stating that his life would be in danger if anyone were to discover these actions. Altogether, this source was able to leak 2.6 terabytes of information, which covered the activities of over 214,000 offshore entities that were created by Mossack Fonseca. Together, with the assistance of a network of over 400 journalists to categorize and break down the documents, the journalistic world finally released initial reports on April 3rd, 2016.
How offshore tax havens hurt economies
There are many nefarious purposes that an offshore business structure, often referred to as a shell company, can be used for. The one that happens the most, however, is as a vehicle for tax evasion. Many of the world’s wealthiest businesses and individuals are able to hide their assets from taxation by setting up shell corporations in areas with little oversight, such as Panama or the British Virgin Isles. Currently, although the numbers are hard to calculate, it is estimated the nearly half a trillion dollars are lost by governments, due to tax evasion. Although this isn’t as detrimental to wealthier countries, it can be absolutely devastating for poorer ones. An example in the Panama Papers shows how the Heritage Oil and Gas Company, which had made a considerable amount of money on the Ugandan oil fields. However, by moving the headquarters of the company to the island of Mauritius, the company was able to avoid paying $404 million in tax dollars.