Panama Papers: An Industry of Money Evasion

By Samantha Alsina on April 15, 2016

On April 3rd about 2.6 terabytes of information was leaked to the public about the Panama based law firm, Mossack Fonseca. With about 11.5 million files leaked, the Panama Papers reveal an array of information alleging corruption with the use of anonymous shell companies.

What is an anonymous shell company?

Unlike a regular company that hires employees and sells services or goods, a shell company is an off shore company that enacts financing manoeuvres.

Mossack Fonseca helps their clients create off shore companies that usually either move or hide money. Shell companies are set up in places like the Virgin Islands because privacy laws there allow anonymity, a major incentive.

It is not necessarily illegal to create a shell company. There are legal reasons such as gathering money from investors of various countries in order to protect trade secrets. However, shell companies have a downside.

Because shell companies are anonymous and many countries do not require to name the “beneficial owner” (which is not always necessarily the registered holder of a company), they have been used for bribery payments, arms-dealing, drug trafficking, financing terrorism, avoiding sanctions, money laundering, and tax evasions.

In simple terms, they hide money. The wealthy use shell companies to hide money under the company’s name to avoid detection. As of now, trillions of dollars are hidden in companies in places like Bermuda, Panama and more.

Mossack Fonseca is the fourth largest firm in the creation of anonymous shell companies. They have denied claims of wrong doing and refuse to speak on behalf of the allegations put against the law firm.

What did the Panama Papers say?

Already, many notable world leaders have been named for hiding money using these shell companies. Clients of the law firm Mossack Fonseca range from politicians, presidents, oligarchs, kings, and even celebrities. According to The Economist, the vast majority of the Panama Papers are emails, database formats, and PDFs.

Within the documents, The Economist counted 12 world leaders, 128 public officials and 29 Billionaires on the Forbes List which totals to about 202 countries being implicated. They also reported that the vast majority of shell companies were located on the Virgin Islands followed by Panama and the Bahamas.

Notably, Vladimir Putin has been named for hiding about 2 million dollars under the names of close acquaintances. Communist Party leaders in China, like Xi Jinping, have also been bought to attention for holding accounts through family members or associates.

In addition, the Minister of Iceland has also been named although he claims he has disclosed his off shore money to the country’s government beforehand. As of now, not many American figures have been named although that may change in the next following weeks.

Australia has started investigations into two major banks on allegations of money laundering. Sweden too has opened investigations following the release of documents.

What’s a solution?

It has been estimated that about 2.1 trillion American dollars is hidden in off shore accounts. The implications of this are that there is less money for the funding of infrastructure, healthcare, education, federal programs and more.

In the past like the Snowden files, rarely has there been legal accountability. Instead, many whistle blowers have been persecuted at the hands of the 1% wealthy. Tax evasions by the wealthy have gone rampant and left untreated by the government.

As of now, there is little to none regulation of anonymous shell companies or off shore accounts. Not that anyone has ever tried.

Bills have been introduced then rejected that have aimed in penalizing those who are using offshore accounts to evade taxes. Others prompted for a global registry that necessitated the “beneficial” owner of a company to sign their name.

In this way, anonymity is stripped and legal accountability can then be enforced when highly illegal activity (like tax evasion) does occur. However, little has been done leaving many to speculate on the self-interest of politicians in their use of shell companies and off shore accounts.

Did the bills not pass because the very same politicians who voted on the bill were the very same individuals involved in off shore accounts? It remains likely and one can only hope that a new bill may be re-introduced whether in the United States or on a more global scale.

The Panama Papers reveal the extent of an industry based on hiding money and how one goes about doing it. Now, it is up to the public to put pressure on world governments to do something about it.

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