The recent surfacing of the Panama Papers has been called the biggest information leak in history. Even Edward Snowden, a former CIA and NSA employee who divulged NSA secrets in 2013, dubbed the scandal “the biggest leak in the history of journalism” via Twitter.
Specifically, the Panama papers refer to over 11.5 million documents whose contents disclose information on over 214,000 offshore companies, their shareholders, and directors associated with the Panamanian law firm Mossack Fonseca.
Traditionally, offshore companies have been subject to criticism and scrutiny due to reputations of having shady, underhanded business practices.
Offshore business is not illegal so long as it is carried out in jurisdictions where the company is registered. Individuals and companies may possess a variety of legitimate reasoning for having offshore accounts.
However, offshore financial centers, which are defined as jurisdictions that provide services to businesses and individuals that are not resident to that region, often exist where the ruling regime imposes low taxation, and requires companies to disclose financial information.
Yet, this policy of non-disclosure has fueled the skepticism about the occurrence of underhanded business practices.
The Panamanian position of refusal to comply with international transparency initiatives has create a virtual smokescreen that allows companies to carry out illegal practices without fear of being scrutinized.
Indeed, the recently released Panama Papers show that these doubts have been justified. The papers reveal how wealthy individuals, including public officials, have manipulated the financial system in order to hide their money to avoid paying taxes.
The Panama Papers reveal that one vehicle for tax evasion has been the usage of offshore companies called shell companies, which are inactive businesses that can be kept dormant until they are needed in order to carry out various financial dealings.
Shell companies have often been implicated in large-scale money laundering activities, such as the transfer of bribe money by corrupt leaders.
Often, law firms like Mossak Fonseca play a large role in overseeing the activities of these shell companies. As part of their administration over tax havens, the law firm created a complex web of company structures.
While such structures are legal, they allow for companies to secretly carry out illegal operations out of the public eye. The details of the Panama papers document the workings of such structures.
Mossack Fonseca is an “industry leader” in managing offshore financial companies. The U.S. Tax Justice Network has pointed out the country of Panama itself, where the law firm is based, is one of the oldest and most infamous tax havens in the Western Hemisphere.
The firm has represented and acted for over 300,000 companies internationally. The bulk of their clientele is made up of companies with registered financial centers in British overseas territories. Furthermore, Mossack Fonseca is associated with some of the most prevalent financial institutions in the world, including Deutsche Bank, Credit Suisse, and the Société Générale.
The Panama papers also bring to light the law firm’s involvement in other illicit activities. Mossack Fonseca has received money from shell companies for illegal purposes, including fraud, drug trafficking, and tax evasion.
While the revelations within the Panama papers have brought on shock and surprise, their publication was by no means out of the blue.
More than a year before their first publication in early April, a German newspaper, purportedly was offered the large store of information from Mossack Fonseca spanning from the 1970s to late 2015 from an anonymous source that identified himself as “John Doe.”
The unknown whistleblower brought the documents to the attention of the German newspaper Süddeutsche Zeitung.
Because of the vast scale of the millions of documents at its displosal, the newspaper enlised assistance from the Consortium of Investigative Journalists.
The culmination of their year’s work and analysis is the promise to publish a full list of the companies involved in tax havens overseen by Mossack Fonseca by May of this year.
The first news reports that were published over the past week were based on 149 of the documents.
Thus far in the first news reports, the Panama Papers have implicated at least twelve current or former heads of state in participating in subversive financial activities through the law firm. This includes leaders from Argentina, Iceland, Saudi Arabia, Ukraine and the United Arab Emirates. The documents also hint at associations between Mossack Fonseca and government officials and close associates, friends, and relatives of various heads of government from 40 other countries worldwide.
World leaders that have been mentioned include the brother-in-law of Chinese President Xi Jinping, Ukrainian President Petro Poroshenko, Argentinian President Mauricio Macri, the late father of U.K. Prime Minister David Cameron, three out of four of Pakistani Prime Minister Nawaz Sharif’s children, and Russian President Vladimir Putin.
The shadow of the scandal has even been cast over FIFA, the world governing body for the sport of football. Some of the documents that have been published indicate involvement from a member of the ethics committee, Uruguayan lawyer Juan Pedro Damiani.
The papers show that Damiani and his firm provided legal assistance to at least seven offshore companies linked to Alfredo Hawit and Juan Angel Napout. Hawit and Naput are the former vice presidents of FIFA. They were arrested last month as part of an inquiry into corruption surrounding U.S. football.
There have already been ramifications for some of the accused. The scandal has resulted in the resignation by the Prime Minister of Iceland, Sigmundur David Gunnlaugsun. He has been accused of hiding millions of dollars in a company in the British Virgin Islands that had powerful influence over the health of Iceland’s banks.
Gunnlaugsun maintains that he pays all of his taxes in Iceland and denies any accusations of financial malfeasance. However with Iceland in the throes of a banking crisis, he was forced to resign.
While retribution is coming for the guilty parties involved in the Panama papers scandal, other countries have already had to suffer the consequences.
The International Monetary Fund (IMF) researches estimated in July 2015 that profit shifting by multinational companies has cost developing countries around $213 billion dollars, which comprises 2 percent of their national income a year.
Despite all of the revelations that have been brought to light, the secrets held within the entirety of the Panama papers has yet to be revealed.
Only a small percent of the documents have been released. In the coming weeks, as more of these documents are published, the number of accusations against powerful wealthy individuals and public officials will only increase.