By Matthew Barbari
On April 3, The International Consortium of Investigative Journalists (ICIJ) published a report on leaked financial documents related to offshore tax havens, shedding light on a large network of corruption and embezzlement that involves 12 current or former world leaders and some 130 politicians from around the globe. This leak, now known as the Panama Papers, has already led to one resignation and has opened investigations into powerful global leaders who have used offshore tax havens to hide money.
The leak was first reported by German news agency Süddeutsche Zeitung, who acquired the information from an anonymous source. The source has shared more than 11 million files, taking up around 2.6 terabytes of data, which were hacked from Panamanian legal firm Mossack Fonseca. The amount of files and documents acquired makes the Panama Papers the largest leak of information ever. Süddeutsche Zeitung shared the information with the ICIJ, who published the report.
Mossack Fonseca, the Panama-based firm at the heart of the controversy, is responsible for managing offshore investment funds for many of the world’s wealthiest leaders and politicians. Among those connected to the leak are Russian president Valdimir Putin, Great Britain prime minister David Cameron, Iceland prime minister Sigmundur David Gunnlaugsson, and Pakistan’s prime minister Nawaz Sharif. While many of the leaders have disputed the claims made by the leaks, Prime Minister Gunnlaugsson of Iceland has already resigned due to the growing controversy.
Mossack Fonseca has denied any wrongdoing, saying the leaked information was obtained illegally. The firm claims to have done everything in its power to comply with laws that prevent the use of tax havens for money laundering. Most offshore tax havens are used in order to prevent paying taxes on income towards the home country of the account owner.
While the use of tax havens and offshore banking is not illegal, the system does have loopholes that can be exploited to allow some wealthy people to “cheat the system” and prevent paying taxes. This has become a growing trend over recent years as more and more equities are being held in offshore accounts.
Many of these tax havens are present within the Panama Papers controversy. Tax havens such as the Cayman Islands, British Virgin Islands, Switzerland, and Luxemburg are used to hide away taxable wealth in places where there are banking systems designed for the very purpose of providing a tax sanctuary. Grey areas arise when account holders use intermediaries and banks to hide the capital within bogus companies, effectively hiding both the money and the account owners’ identities. Although the simple use of offshore accounts is not illegal, the fraudulent abuse of loopholes has led public opinion to perceive any corporation or individual who has an offshore account to be corrupt.
While many leaders and corporations have called the accusations ludicrous and a violation on their rights to put their wealth in whatever institution they see fit, the growing controversy, as well as the proof via the leak, may see many more world leaders have to answer to corruption charges in the near future. As investigations from the United States, France, Sweden and other countries begin, prosecutions will need time to analyze the 11.5 million documents to determine any connections to more global powers who have placed embezzled money with Mossack Fonseca. Denials will soon be replaced by apologies and there is no telling how deep the Panama Papers network runs.