The Panama Papers and How the World Games the System

About 11.5 million documents were leaked on Apr. 3 by an anonymous hacker that used the pseudonym John Doe. The Panama Papers are the largest leak in history and come from a large offshore law firm known as Mossack Fonseca. The leak shows heads of state and other wealthy figures have managed to avoid taxes as far back as the mid-1970’s and as recent as December 2015. The anonymous leak has shown that figures like Russian president Vladimir Putin and Syrian president Bashar al-Assad have their hands in the controversy.

Shell Companies

The scheme revolves around firms known as shell companies. Shell companies behave like corporations, yet, no product is being sold, nor are any assets aside from whatever the individuals committing this fraud decide to funnel into it. Using a shell company does not necessarily guarantee illegal activity – and not all of the 11.5 million documents equate to criminal wrongdoing – but they do generally lend themselves to that.

Mossack Fonseca fits into the shell company equation in that the firm helps people set up these schemes. Shell companies allow for the users and the amount of money being put away to remain hidden. This means that people can put as much money as they want into corporations that serve no other purpose than to funnel money into and not have to pay any taxes on the income or the property.

Presidential candidate Bernie Sanders argued in 2011 that a free trade deal with Panama (where Mossack Fonseca is based) would prove futile because the motive behind such a deal would rest entirely in Panama’s status as a tax haven and he thought U.S. citizens would eventually not need to pay the International Revenue Service (IRS) any income tax, which would presumably cause further consequences.

Motivations for Shell Companies

Tax evasion appears to be the main motivation behind funneling money and assets into the Panamanian firm. There still are other reasons behind using such a scheme and it requires a backpedal back to the topic of shell companies.

Shell companies have a lot of different uses; some legal, others not. Hollywood film companies have used shell companies in the past in situations, for example, that they foresee hotels will lower prices if they are informed they know the company plans to film in the area. Gulf States like Saudi Arabia – whose king was found guilty of putting money into Mossack Fonseca – put assets into the firm so that they can purchase extravagant things without attracting public outcry.

The latter example may show a lack of morality but is not unlawful. Moral decay does not mean anyone goes to jail. Some examples of criminal activity, though, include the funding of terror.

Groups like the Islamic State of Iraq and Syria (ISIS) can be funded by people in the West through shell companies. A private benefactor can send them money through this shell company, effectively funding the terror group anonymously. The action evades the notice of both government officials (because it is done through a private “company”) and the media (because they have no knowledge of the transaction).

Iceland and The United Kingdom

But this goes well beyond the scope of just pariah states like ISIS and North Korea (who has also seen quite a bit of Western funding) and into the realm of public corruption in Iceland and the United Kingdom.

Iceland, following the 2008 stock market crash in America, was also deeply hurt, as was most of Western Europe. The nation suffered greatly from a string of corrupt bankers that used similar tactics as seen in the Panama Papers but the Prime Minister quickly ended it by imprisoning them. He condemned their actions and the nation began to rebuild itself as the rest of the West did.

The Prime Minister, Sigmundur Davíð Gunnlaugsson, is mentioned in the Panama Papers. His hypocritical condemnation of the bankers have now come to light and he has taken an indefinite break from his position. He stresses that he will not resign, but his future in politics seems over.

Likewise, British Prime Minister David Cameron’s brother has been mentioned in the documents. This comes as a surprise to many as Cameron has condemned such actions in the past. He has also admitted that his father’s offshore money resulted in his personal profit. Many have rallied in England’s streets and called for his resignation.

The West

Hong Kong’s involvement in the scandal comes as no surprise to many. China has already censored any online discussions of the leak, as many politicians from the regime have been named in the documents. Other countries include Argentina, The United Arab Emirates, Qatar, Russia, Syria and the Ukraine. The Ukrainian president has already resigned.

Heavy United Kingdom involvement shows that this scandal does not limit itself to developing nations in oil-rich countries that sold crude oil tax-free through shell companies. It shows that the West has its hands deep in these sorts of money laundering schemes, which resulted in billions of tax dollars being hidden.

Mossack Fonseca is the world’s fourth-largest offshore law firm, meaning other firms might have similar practices. Switzerland’s opaque banking practices that do not report to the government have been under scrutiny for years but the Panama Papers may bring their practices to light.

The public has not yet been granted full access to the Panama Papers. Governments across the world have asked for the media to turn over the records so that they can handle the matters. Many world leaders will not be prosecuted for their involvement in the largest data leak in history.