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The Panama Papers - Uncovers the Way Wealthy Persons Hide Their Money

By Edited Apr 22, 2016 1 9

Background

On April 6, 2016 and April 7, 2016, The Buffalo News had stories about the Panama Papers which explained this unusual circumstance which has been exposed in recent days.

It was revealed that vast wealth has been hidden by politicians and powerful persons globally, leading to criminal investigation on two continents.  Types of malfeasance from money laundering to tax evasion have been alleged.  The prime minister of Iceland, for one, has been pressured to step down. He and his wife had set up a shell company in the Virgin Islands through a Panama law firm. The prime minister of Pakistan has also been asked to resign.

                                                    

One Dollar Bill

                                                                   Dollar - Wikimedia

Introduction

Files that contain 11.5 million documents which date back four decades, now known as the Panama Papers, have been leaked to the public from the database of the law firm in Panama known as Mossack Fonseca, the world’s fourth biggest offshore law firm, which was founded in 1977.  The law firm claims that it was the victim of a data breach.  One of its major services is to incorporate companies in offshore jurisdictions for wealthy clients who want to hide their money in secretive shell companies and offshore tax shelters.  Mossack Fonseca has provided these services to more than 300,000 companies.

An Anonymous Source

A German newspaper reporter, Bastian Obermayer, was the recipient of the 11.5 million documents from an anonymous source who did not ask for financial compensation.  The source claimed that his life would be in danger if it ever became known that he was the source of the material since so many powerful people are being exposed.  Obermayer then shared the documents with the International Consortium of Investigative Journalists (ICIJ).  The Consortium coordinated a team of 370 journalists in 70 countries.  The effort, known internally as Project Prometheus, required an unusual amount of cooperation among usually competitive news organizations.  They were bound to secrecy and had to promise not to publish anything until the appointed date.  Meetings were held in Washington, Munich and Johannesburg in 2015.    

                              

Vladimir Putin

                                          President Vladimir Putin of Russia - Wikimedia

The Panama Papers

The Panama Papers include emails, financial spreadsheets, passports and corporate records revealing the secret owners of bank accounts and companies that are based offshore.  The documents indicate that the firm’s customers have included Ponzi conspirators, drug kingpins, tax evaders and at least one jailed sex offender.

Politicians are Involved

It was revealed that British Prime Minister David Cameron’s deceased father, Ian, a stock broker and investment manager, had undisclosed wealth in a tax haven in another country.  President Vladimir Putin of Russia has also been named in the documents.  Officials in Russia have stated that the allegations are an unsubstantiated political attack on Putin in this election year.

Well-known figures in China, West Africa, South Korea, Iraq, the Ukraine, Egypt, and Latin America have been exposed.  A prominent politician in Chile was listed as an agent for an offshore company in the Bahamas.  Other offshore companies exist in the Seychelles, the British Virgin Islands, Panama, Samoa, and other jurisdictions.  A recent audit revealed that Mossack Fonseca knew the identities of the real owners of only 204 of 14,086 companies it had incorporated in the Seychelles.  So far, none of the leaks have mentioned any U. S. officials being named in the documents, nor is there any evidence of crime involved.

                                             

David Cameron

                                                 British P.M. David Cameron - Wikimedia

Americans are not Listed in the Panama Papers

The lack of the names of American citizens in the reports doesn't mean that U. S. citizens are more law abiding than their counterparts around the world.  There are many reasons why they are absent in this leakage.  It is possible that Americans use another company than Mossack Fonseca for their offshore dealings, which are not illegal as long as the clients are not attempting to hide criminal proceeds or evade tax collectors.

In the United States, the jurisdictions of Delaware and Nevada, as well as the U.S. Virgin Islands, are known for loose regulations and low taxes, making them attractive for people to hide their activities and assets behind a shell company.

The Tip of the Iceberg

A professor at the University of California in Berkeley stated that the law firm in Panama represents a small fraction of the riches that are obscured from public scrutiny, and added that 8 percent of the world’s financial wealth is held in tax havens.

                              

Pres. Barack Obama

                                     President Barack Obama Suggests More Oversight                                                                                                                        Wikimedia

Legal but Raises Ethical Questions

At the time of the mass release of the story, twelve national leaders were included among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.  Although there is nothing unlawful about using offshore companies, the files raise fundamental questions about the ethics of such tax havens.  President Obama, while not commenting directly on the leaked documents, stated that the United States and other countries should lead by example in closing some of the loopholes and provisions regarding offshore tax havens.  Many persons use offshore tax havens legally for reasons of inheritance and estate planning.  And yet, criminals and money launderers take advantage of anonymous company structures to hide their illegal, criminal activities.

The Biggest Leak in History

The Panama Papers is now considered to be the biggest leak in history, dwarfing the U. S. diplomatic cables released by WikiLeaks in 2010, and the secret intelligence documents given to journalists by Edward Snowden in 2013.

More Oversight is Needed

The documents reveal that banks, law firms and other offshore companies have often failed to make certain that their clients are not involved in criminal activities, tax dodging or political corruption.  The files have brought to light that offshore middlemen have protected themselves and their clients by concealing suspect transactions or manipulating official records.

Major Banks Create Paper Companies

It is clear from the documents that major banks are the biggest creators of paper companies that they set up for clients who want to keep their finances under wraps.  Secrecy is the biggest selling point of offshore tax havens.  When governments try to crack down, they come up with new ways to get around the obstacles and continue to remain legal.

The U. S. is a Popular Tax Haven

A "Financial Secrecy Index" published in Britain lists the United States third, behind Switzerland and Hong Kong, as a popular tax haven.  Panama is ranked at 13.  Taxes for Americans are not high compared to other developed countries which are forced to look for loopholes.  The International Consortium of Investigative Journalists (ICIJ) plans to release the full list of companies and people linked to them in a matter of weeks.

We will undoubtedly hear more about this current problem with personal and corporate financial affairs.  Expect to hear new laws enacted promoting transparency in the assets of the wealthy.  I doubt that we will ever learn the anonymous source who released these 11.5 million documents to the public.

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Comments

Apr 8, 2016 12:12am
HLesley
Another timely article, Pat. It's no secret that the wealthy have been using tax havens for years, but they have always done it in the shadows. The Panama Papers throw a great deal of light into these shadows.
Apr 8, 2016 7:09am
kellapat
Yes, I believe we haven't heard the last of this.
Apr 8, 2016 5:03pm
LeighGoessl
Good article. I suspect you are right
Apr 22, 2016 8:35pm
jibran2014
nice article . it really shows the real face of our politicians
Apr 22, 2016 10:38pm
kellapat
Thank you for stopping by.
Apr 23, 2016 12:52am
HLesley
Jibran - not just politicians. Banks, lawyers and corporations are also involved in these dodges.
May 21, 2016 3:04pm
kellapat
Illdeclare, this is not the platform for hawking your wares. Please desist.
May 21, 2016 5:22pm
pestcontrolpro
Great article!
May 21, 2016 6:20pm
kellapat
Thank you!
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Bibliography

  1. Steven Erlanger, Stephen Castle, and Rick Gladstone "Tax Haven Report Spurs Global Reaction." The Buffalo News. 6/04/2016.
  2. Paul Farhi "How Panama Papers Unfolded is Riveting Journalism." The Buffalo News. 7/04/2016.
  3. "Panama Papers." The Guardian. 8/04/2016. 8/04/2016 <Web >
  4. "The Panama Papers: 7 Things to Know." cnn.com. 8/04/2016. 8/04/2016 <Web >
  5. "Why are Americans not Included in the Panama Papers?." NBC News. 8/04/2016. 8/04/2016 <Web >
  6. "The Panama Papers." OCCRP. 8/04/2016. 8/04/2016 <Web >
  7. "What to Know About the ‘Panama Papers’ Leak." time.com. 8/04/2016. 8/04/2016 <Web >

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