Panama Papers – An international perspective

The leak of over 11 million documents reveals an astonishing list of the super-rich and super-famous who have been hiding their wealth with the German Panama-based company Mossack Fonseca.

With the use of off-shore firms, clients could launder money, avoid taxes and dodge sanctions. The firm was raided by police and officials from Panama’s organised crime unit. The discovery of the papers is causing clamour from the political elite to important officials in the FIFA association. The Prime Minister of Iceland was already forced to step down and further consequences are expected.

For the first time we are given a glimpse of the hidden and slightly dodgy world of the super-wealthy. Mossack Fonseca creates a link between personalities such as the Russian President Vladimir Putin, FIFA president Gianni Infantino and the President of the United Arab Emirates Al Nahyan. Of course, the first outpour of press coverage focused on the more well-known characters and especially leaders of some kind. Individuals in roles with a moral imperative will be the first ones forced to react. However, there are many anonymous rich individuals, whose names appear on the lists, that hold positions of extreme power in the world. Although the association with the firm does not necessarily imply illegal activity, it is embarrassing for those whose names appear in the documents. Mossack Fonseca, based in Panama, is the fourth largest provider of offshore services in the world but was generally unknown to the public until recently. Its slogan “Wealth management as you deserve it” is surprisingly candid and to the point of their business; helping the rich stay rich.

Shell companies are set up with the aim of hiding wealth from officials, governments or even angry ex-wives. They have the outward appearance of a regular business, but it is impossible to see inside and find out who really owns them. In 2013,  UK Prime Minister David Cameron started tackling the problem of tax secrecy by introducing a central register of offshore companies in the British tax havens. This was also a main point on the agenda of the G8 that year, hosted by Cameron. It emerged from the 11 million documents leak that Cameron himself was profiting from offshore holdings belonging to his late father. The files also contained links to the family of China’s top-leader Xi Jinping, who has vowed to fight “armies of corruption”. Despite their hypocrisy, these world leaders were right to worry about tax havens and offshore services, as the problem runs deeper than many would have imagined. US Economist Zucman, author of the exposure piece ‘The Hidden Wealth of Nations” estimates that 7%, a vast £5.3tn, of the world’s wealth are hidden in tax havens. This means a tax loss of $200bn per year that results from this. With exchequers all over the world scrambling for cash after the crisis, these losses are severe.

Another problem is that such secretive companies facilitate crime. Although the company stated that it checks identity and background of new clients as well as the source of their wealth, the papers reveal that the firm has often looked the other way with clients with criminal records. The files include at least 33 people black-listed by the US government, who have been found to be involved in business with Mexican drug lords, terrorist organisations such as Hezbollah or North Korea. For instance, one of the companies supplied fuel for the aircraft that the Syrian government used to bomb in air raids. With this information looming over their heads, governments need to take fierce measures and seek concrete sanctions against jurisdictions and institutions that condone offshore secrecy.

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