Before you begin to understand why the leak of the so-called Panama Papers is making news all over the planet or why the names of famous people are being cited in those papers, first you need to understand what exactly they are.
Luckily, the following guide will help you make sense of it all.
What are the Panama Papers?
Simply put, it is the biggest leak of documents in history. The German newspaper Süddeutsche Zeitung and the International Consortium of Investigative Journalists (ICIJ) have had access to secret documents from the Panamanian law firm Mossack Fonseca, considered the fourth largest provider of tax havens in the world.
The disclosure includes more than 11.5 million internal documents that reveal how thousands of people hide their assets in companies located in tax havens. The information comes to light 29 years after the activity of the firm began back in 1977. A team of 370 journalists from 76 countries worked for a year in the analysis of these documents, which they say, have been vetted by their team and law experts to make sure that they are properly dealt with.
What is Mossack Fonseca and how does it work?
Mossack Fonseca is the key name of the Panamaleaks. This firm of Panamanian origin acts in a global network to provide its corporate clients with ‘offshore’ companies that benefit from the lack of legislation that does not apply in tax havens like Switzerland, Cyprus, Singapore and the British Virgin Islands.
This fact allows its clients to evade taxes and in some cases use those offshore companies to hide irregularly acquired money. Mossack Fonseca has offices in 35 countries around the world, which has made the disclosure of its internal documents to have an unprecedented global impact.
Mossack Fonseca had been under scrutiny on other occasions. Süddeutsche Zeitung reporters had access to a confidential source of the firm a few months after the German courts quoted some secret documents in a series of trials that occurred early last year.
Why is the revelation of the Panama Papers so Important?
Neither Julian Assange with Wikileaks, nor Edward Snowden provided data in such a massive way. Although these are different matters, the Panama papers represent a milestone for investigative journalism and a harsh denunciation of tax havens and how they are used by hundreds of world personalities keep their money offshore.
The leaked documents, of a size of 2.6 terabytes, contain information on 214,488 companies connected to people from more than 200 countries and territories. Among them, there are about 2,000 based in Spain.
This revelation allows, for the first time ever, to see the innards of the global financial system, how its movements work and how it feeds into the world of organized crime. It is also the greatest journalistic collaboration in history, which has been produced in 25 different languages.
Important names with reputation at stake
Other aspects that gave the papers more prominence is the revelation of names on the list of clients who, through Mossack Fonseca, keep their monies offshore. Those names include first-world personalities ranging from the political to the cultural world to sports. Some of the names that have been made public include 12 heads of state among which are Russian President Vladimir Putin, Argentina’s Mauricio Macri, the current Ukrainian leader, Petro Poroshenko and King Salman bin Abdulaziz of Saudi Arabia.
The list also included names associated with upper echelons of power as Ian Cameron, father of British Prime Minister David Cameron, or Pilar de Borbon, the sister of Juan Carlos I, King of Spain.
The inclusion of celebrities also helps give more global echo to the scandal. The documents contain the names of figures like Argentine soccer player Leo Messi and filmmaker Pedro Almodovar among others.
Is it illegal to use tax havens?
No. The use of tax havens by individuals and companies is legal. There are legitimate reasons that may lead someone to keep their assets in a territory with greater tax benefits or with less interference in their jurisdiction. The points that must be given a lot of attention are where did they money come from, that is, did it originate from legal activities or not, and what is it being used for.
Mossack Fonseca has already ensured that they comply with legislation against money laundering but at the same time it says the company has no intention to assess whether any of its customers used its system for illegal purposes.
Despite that, in a globalized and interconnected world, tax havens also open the door to tax evasion, registration of economic activity of certain groups or individuals in places that do not really happen. This is done by using the services of the country (tax haven) to avoid regulation of funds that may have a suspicious origin. In sum, as explained by the former British minister Vince Cable, tax havens are “sunny places for shady people”.
What impact have the Panama Papers had?
Many big names are involved in this revelation of titanic proportions. According to various sports media, FC Barcelona striker Leo Messi will file a complaint against those responsible for the leak that accuse him of having created a Panamanian company to evade taxes.
Politically, the Kremlin has not given importance and has stated that the leaks are an attack on President Putin. Iceland Prime Minister Davíð Sigmundur Gunnlaugsson, one of the major players involved in the revelations, has been asked in an interview on Swedish television about his relationship with a company known as Wintris, to which he has been linked. The Icelandic leader has responded with a revealing picture that could precipitate calls for new elections in the Nordic island.
More details and names will be revealed
As former CIA analyst, Edward Snowden did, when revealing the massive spying system of the National Security Agency of the United States (NSA), those behind the publication of the Panama Papers will continue uncovering details about those involved until the end of May.
One important details about the Panama Papers is that the revelations about Mossack Fonseca is just a microcosm. This company is one among hundreds or thousands of other that offer similar services around the world.
The Panama Papers will offer an insight on the world of tax havens and how they benefit the financial system, but the truth is that, for the revelation to have a greater impact, it will be necessary to analyze the details on a case by case basis.
The reason why the Panama Papers are important is because it will allow everyone to learn about how the fraudulent financial system operates and how it benefits large corporations, billionaires and politicians who, until now, had no problem hiding their ill obtained riches.