The Panama Papers have been in the news since March 2016 and consist of more than 11 million documents leaked from Panama-based legal company Mossack Fonseca. These confidential documents reveal some of the deepest financial secrets of the rich, famous and business world and are still in process of being analysed by journalists, tax authorities and legislators around the globe. It’s likely the Panama Papers meaning will continue to be discussed and extracted for some while to come, at this moment some of the developments resulting from the hacking of this data includes:
- resignation of the Prime Minister of Iceland, following publication of amounts of funding he and his wife hold in offshore accounts
- Prime Minister of the UK and various public figures publishing details of their tax returns due to criticisms of David Cameron’s offshore holdings passed to him by his late father
- signs of money laundering out of Russia by a close friend of Russian leader Vladimir Putin
- sequestration of an important work of art by Modigliani, following indications that the registered holders may have acquired the work in dubious circumstances
Details of how the rich and wealthy maintain their funds in offshore companies and accounts has always been suspected, but never revealed until the Panama Papers leaks. Two areas of particular interest in law are the companies maintaining shell company offshore status in order to avoid or evade taxes and the ways in which separating couples can hide their wealth and assets in order to avoid making full disclosure in the divorce courts. It seems billionaire Mossack Fonseca clients have placed a variety of assets in offshore shell companies in order to hide their true worth from lawyers and accountants working on behalf of their former spouse.
The authorities in Panama raided the premises of Mossack Fonseca on 13 April 2016, in order to obtain further information and it is anticipated that further premises belonging to the law firm will be raided in the near future. As these legal teams work on the mass of paperwork, evidence and computerised files taken from the company the ramifications and legal effects of the Panama Papers leaks are likely to cause greater ripples in global tax avoidance, money laundering and other criminal activity circles.
The main tools used by Mossack Fonseca clients and others are:
1. Shell companies
2. Offshore accounts in tax haven countries where little or no taxation is levied
Many of the clients using such tools revel in their anonymity and the abilities they have to route their funds through havens, such as Panama. It’s understood the scale of details and numbers of people or companies highlighted by the Panama Papers is phenomenal. Over 214,000 businesses in 21 offshore locations are named, while around 14,000 middlemen (banks and lawyers) are also listed.
Tax avoidance has been described as a “cancer of market economies” causing an unfair distribution of wealth and lack of opportunity to certain sectors of society. A number of plans are being put in place to limit the importance of tax havens and obtain greater cooperation and cohesion on these issues globally.
As investigations continue it will become more evident just how much criminal activity has been covered up out of this one Panama-based law firm, and also how many of the activities were above board. Some of the larger criminal users of Mossack Fonseca services appear to be drugs cartels, dictators and leaders in some of the world’s hotspots and money launderers, with potential terrorists also coming under suspicion. However, that is just the tip of the iceberg, although likely to hold the lion’s share of global news coverage. Smaller businesses, independently wealthy individuals and tax dodging trusts need to be looked at under a microscope to see whether or not illegal activities did take place. As Prime Minister Cameron seems to confirm, it’s not illegal to set up an international investment trust in the manner his father used to create Blairmore, whether or not individual shareholders paid tax on the profits in their country of residence is the point where illegal activities might be judged to have taken place.
The European Union has now jumped into the debate with plans to force major multinationals to report earnings and pay taxes within each member state of the bloc. In many ways Europe was heading in this direction for some time, but the Panama Papers have highlighted the ease with which some people can avoid taxes and the simplicity of setting up shell companies to hide property, wealth and possessions, for whatever reasons.
One thing is certain, the legal implications of the Panama Papers will reverberate for some while yet, as investigations commence and people come to terms with the contents of these confidential leaked documents.