[SPECIAL REPORT] Panama Papers: For Nation Shall Rise Against Nation, and Kingdom Against Kingdom

The Panama Papers are an unrivalled leak of more than 11 millions files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca based in Panama. This files were provided by an anonymous source to the German newspaper, Süddeutsche Zeitung; This newspaper shared the 2.6 terabytes of data with the International Consortium of Investigative Journalist (ICIJ). This non-profit organisation, along with reporters from about 100 news agencies around the world, including The Guardian, the McClatchy newspapers, Fusion and other channels.

ICIJ declare that the firm helped establish secret shell companies and offshore companies |accounts for global power players. Shell companies are corporations without any active business operations or significant assets. Shell corporations are often formed before commencing operations to obtain financing. Sometimes, they may be used as a front in tax evasion. Shell corporations however are legal entities in most countries, although they have been known to be used in black market activities; Offshore companies, unlike the shell corporations they are builded outside the residence country, in places where there are no taxes. The benefits of having these kind of companies are basically the anonymity and no questions asked and supposedly no personal records.

But this companies or trusts are not illegal, they can be set up in offshore locations for legitimate uses such as business finance, mergers and acquisitions and estate or tax planning, according to the global money laundering watchdog, the Financial Action Task Force.

But as well as being used to avoid tax, the secrecy they lend also makes them attractive to criminals and terrorist groups wishing to conceal the sources of their funds. The ICIJ says the files from Mossack Fonseca include information on 214,488 offshore entities linked to 14,153 clients in 200 countries and territories.

Mossack Fonseca

The Panamanian law firm offers the services of incorporate companies in offshore jurisdictions and wealth management. MF is based in Panama but it runs worldwide operations, employing approximately more than 600 employees working in 42 countries. 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.

Rather than dealing directly with company owners, MF mostly acted on instructions from intermediaries, usually accountants, lawyers, banks and trust companies. In Europe, these offshore facilitators are concentrated in Switzerland, Jersey, Luxembourg and the United Kingdom. Often, MF used lawfully to anonymously hold property and bank accounts, these companies were registered in a range of tax havens and this map shows the most popular locations among its clients. The British Virgin Islands held more than 100,000 companies.

Mossack Fonseca claims that their modus operandi 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.” Firm co-founder Ramon Fonseca Mora told CNN earlier that the information published is false and full of inaccuracies and that parties "in many of the circumstances" cited by the ICIJ "are not and have never been clients of Mossack Fonseca." The firm provided longer statements to ICIJ; Also, he confirmed for other media that the papers were authentic and had been obtained illegally by hackers. He said that most of the people being named in news reports were not the firm's direct clients, and that the accounts were mainly established by financial intermediaries. “We are not responsible for the actions of a corporation that we set up,” he added in a television interview, saying the firm did not engage or assist others in any wrongdoing.

The grievous allegations built by this leak

More than 140 politicians including 12 political leaders, their families and relatives are linked with this leak accused of using tax havens to shield vast wealth. Among those named were President Mauricio Macri of Argentina; President Petro O. Poroshenko of Ukraine; Mr. Gunnlaugsson, then the prime minister of Iceland; Prime Minister Nawaz Sharif of Pakistan; King Salman of Saudi Arabia; the former emir of Qatar, Hamad bin Khalifa al-Thani, and its former prime minister, Hamad bin Jassim bin Jaber al-Thani.

Gianni Infantino, president of FIFA was linked to the scandal. The Guardian reported that the leak showed the first ties between the Union of European Football Associations (U.E.F.A.), the governing body of European soccer, and an offshore company owned by a businessman involved in the corruption scandal that lead to the ouster of Sepp Blatter as FIFA chief last year. That link came in the form of a series of contracts between U.E.F.A. and the company, Cross Trading, that were signed by Mr. Infantino, who succeeded Mr. Blatter and served at the time as the director of legal services for U.E.F.A.

Enrique Peña Nieto, was also involved with the leak, which report that the Mexican president created “a complex offshore network” spread across nine corporate entities in New Zealand, the United Kingdom and the Netherlands to hold approximately $100 million. His contractor Juan Armando so-called “favourite contractor” was said to have created that financial arrangement shortly after he was embroiled in controversy over the sale of a $7 million house to Mexico’s first lady.

As reported by the ICIJ, the documents prove that at least $2 billion in offshore assets can be attributed to Russian President Vladimir Putin who, “secretly shuffled” the funds “through banks and shadow companies.” Kremlin spokesman Dmitry Peskov has denied the allegations, which he has labeled an “information attack,” saying, “There is nothing concrete, nothing new, no details about Putin. All the rest is built on arguments and speculations.”

This leak also call at least 33 companies and people blacklisted by the U.S. government, these names are also related with Mexican drug lords, terrorism organization and countries which U.S. government has imposed sanctions and also cut diplomatic ties.

Panama Papers; Leaking Crimes

Until now, it is not clear if Panama Papers is showing some evidence of any crime. Several countries began investigations into the leaked data on Monday, including the United States, France, Germany, Australia, Austria, Sweden and the Netherlands. Holding money in an offshore company is generally not illegal, although such financial arrangements can be used in illegal ways. For example, to facilitate tax evasion or money laundering.

Although, the U.S. Justice Department said that starting on April fourth, they will start reviewing documents published by international media outlets to see if the papers constitute evidence of corruption that could be prosecuted in the U.S. Also, French prosecutors opened an investigation into whether French nationals or financial institutions have used Panama to evade taxes.

What Arises Next?

The leak has aroused investigations by police and tax authorities around the world, as well as audit of global banks including HSBC, UBS, Credit Suisse, Deutsche Bank and others known to have worked with Mossack Fonseca. All banks said they would co-operate with any investigation.

Juan Carlos Varela, the President of Panama, issued a statement saying his government would co-operate “vigorously” with any judicial investigation arising from the leak of the law firm's documents.

Despite of the efforts of the authorities, the first major persecution already occurred in Iceland. In Chile, the president of the country’s branch of Transparency International, an anti-corruption group, quit after the Panama Papers linked him to at least five offshore companies. Many of the other figures named in the leaks have denied any crime. A spokesman for the Kremlin, Dmitri Peskov, called the Panama Papers a case of “Putinophobia” and a plot to destabilize the country.

Conclusion

On March 10th, the major leak of information was release, removing the curtain of the secrets financial dealings of the world’s rich, powerful and, in some cases, supposedly corrupt. But this is not the first time someone tries to expose this impunity, some media channels like The Wall Street Journal have investigated over the years the sources and distribution of the wealth of some of the individuals and families mentioned in these reports. But this leak is unique, it offers a rare, exhaustive view and could yield new insights into global financial flows.

The media jumps into conclusions and many of these media channels are basically focusing on tax avoidance. “The claim is that these leaks show how easily wealthy individuals have been able to use Panamanian bank-secrecy laws—long a target of global tax campaigners—to “conceal” their wealth.”

Governments have to enforce their tax laws. But it’s hard to see how the big question in this story is whether everyone with a company in Panama paid the correct amount of tax. The far more important question is how so many public officials in so many governments managed to accumulate so much money.

It’s not shocking that the world’s undemocratic and nontransparent administration figure conspicuously in the Panama Papers. The leak offers new judgment into how the powerful few enriched by such regimes use their cash. It will be a huge mistake if we lessen the focus precipitately on tax avoidance which is the hook of this political battle.

References

“Qué es una offshore y para que sirve. O como evadir impuestos” vía Inspiraction https://www.inspiraction.org/justicia-economica/empresas-offshore

“Shell Corporations” via Investopedia http://www.investopedia.com/terms/s/shellcorporation.asp

“The Panama Papers 7 things to know” via CNN http://edition.cnn.com/2016/04/04/world/panama-papers-explainer/

“What are the Panama Papers: A guide to history’s biggest data leak via The Guardian http://www.theguardian.com/news/2016/apr/03/what-you-need-to-know-about-the-panama-papers

“The Panama Papers: Here’s What We Know” via The New York Times http://www.nytimes.com/2016/04/05/world/panama-papers-explainer.html?_r=0

International Consortium of Investigative Journalists https://www.icij.org/

“What Are The Panama Papers” via Forbes http://www.forbes.com/sites/kellyphillipserb/2016/04/04/what-are-the-panama-papers/#684e4ae87508

“U.S., France Probe Panama Documents for Potencial Evidence of Crime” via The Wall Street Journal http://www.wsj.com/articles/justice-department-reviewing-panama-documents-for-potential-evidence-of-corruption-1459791029

“Panama Papers: What are they, who is involve and why are they important? via The Independent http://www.independent.co.uk/news/world/politics/panama-papers-what-are-they-who-is-involved-and-why-are-they-important-illegal-legal-tax-avoidance-a6967176.html