Unfolding the history of the Panama Papers

Panama Papers leak has made its way to the headlines of almost every media platform. It reveals the off shore financial holdings of a number of big wigs including but not limited to politicians, sports personalities, celebrities, and businessmen. Read on as we explore the case of Panama Papers

BY SIRJAN KAUR KOHLI | 5 min read

Introduction

The Panama Papers are an unprecedented leak of 11.5m files from the database of the world’s fourth biggest law firm, Mossack Fonseca. It is a Panama-based law firm with services including incorporating companies in offshore jurisdictions such as the British Virgin Islands. It administers offshore firms for a yearly fee. Other services offered by the firm include wealth management.

The records were obtained from an anonymous source by the German newspaper Süddeutsche Zeitung, which sent them to the International Consortium of Investigative Journalists (ICIJ). The ICIJ then shared them with a large network of international newspaper institutions, including the Guardian and the BBC. The documents are an insight into how the rich people have access to secretive offshore tax regimes. Influential people including politicians and leaders along with their close ones have been using tax havens (a country or independent area where taxes are levied at a low rate) on their undisclosed incomes.

Stakeholders

A $2bn trail can be directly traced to Russian leader, Vladimir Putin. The Russian president’s best friend Sergei Roldugin is at the centre of a scheme in which money from Russian state banks is hidden offshore. Among national leaders with offshore wealth are Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Davíð Gunnlaugsson.

Reach

Mossack Fonseca's data relates to more than 200,000 companies for which the firm acted as a registered agent. Often used lawfully to anonymously hold property and bank accounts, the companies signed with the firm 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 involved with the firm.  

Effects

The leak has also revealed that more than 500 banks , including their subsidiaries and branches, registered nearly 15,600 shell companies with Mossack Fonseca. Lenders have denied allegations that they are helping clients to avoid tax by using complicated offshore arrangements. Although there are legitimate ways of using tax havens, most of the affairs that have been going on with Mossack Fonseca is about hiding the true owners of money, the origin of the money and avoiding paying tax on the money. Some of the main allegations centre on the creation of shell companies, that apparently appear like legitimate businesses, but are just empty shells for rich and influential people to launder money and save tax on them. They do nothing but hide money and do not allow the traceability of money back to their owners. In all, the details of 214,000 entities, including companies, trusts and foundations, were leaked. The information in the documents dates back to as early as 1977. Emails constitute the largest type of document leaked, but images of contracts and passports were also released.

Effect in India particularly

In the Indian context as well, Panama Papers affected a lot of people. From film stars like Amitabh Bachchan and Aishwarya Rai Bachchan to corporates including DLF owner K P Singh and nine members of his family, and the promoters of Apollo Tyres and Indiabulls to Gautam Adani’s elder brother Vinod Adani. India sent notices to authorities in tax havens, including the BVI and the Bahamas, seeking details of beneficial ownership and finances of a number of offshore companies managed by Mossack Fonseca. They include Kansu Corporation, Claire Consultants, Zerpin Holdings, Bragmar Equities and STI United Corporation.

Impact

• Whistleblowers who leak information to journalists, or reveal unlawful behaviour, got a step closer to improved legal protections across Europe.
• Prosecutors, police and tax inspectors in Germany raided the offices of dozens of banks, financial advisers and wealthy individuals as part of a criminal probe into Germans suspected of tax evasion after this revelation.
• The European Parliament committee found that seven member states facilitate aggressive tax planning, and recommended an EU financial police force be set up.
• There was an 800 percent spike in disclosure after the offshore secrecy investigation.

Twenty-three countries have already recovered at least US $1.2 billion in taxes, heads of government implicated in corruption or tax avoidance have resigned or faced prosecution and there have been investigations in at least 82 countries. Mossack Fonseca, the law firm at the centre of the story, has shut down and the Panama Papers have prompted high-level political debates and expedited policy reforms around the world.

After the Panama Papers revelations, 300 leading economists argued that tax havens serve no useful economic purpose and called for tax transparency in an open letter to governments at the 2016 Anti-Corruption Summit in London.

Spurred by the scandal, the Summit saw many high-level commitments from over 40 countries, including beneficial ownership transparency, although some governments were just repeating previous commitments made at other international forums, including the G20 and the Financial Action Task Force. Three years later, Transparency International UK’s pledge tracker shows that over half of those commitments are yet to be implemented.

An analysis compiled by the Reuters Institute for the Study of Journalism found that “16 countries or international bodies achieved at least one substantive reform related to the Panama Papers by March 2019.” Good news maybe, but despite the exposure, the key government players in the offshore industry – the British Overseas Territories, Panama, United States and others – have yet to reform their financial systems and close important loopholes that allow abuse. The Panama Papers case disclosed and opened up a lot of hidden secrets. Now it depends on the governments to take necessary and proper measures to ensure that unaccounted and undisclosed money is not laundered into offshore accounts in the name of tax havens.