Edward Snowden said it well when he tweeted, the “Biggest leak in the history of data journalism just went live, and it’s about corruption.”
The Panama Papers is a global investigation into the sprawling, secretive industry of offshore that the world’s rich and powerful use to hide assets and skirt rules by setting up front companies in far-flung jurisdictions. The offenders include Politicians, Mafia, Terrorists, Celebrities, Sportsmen, etc.
So, how it all started and why is it named Panama Papers?
You must have heard the name of Panama for its Panama canal. Even from a distance, the view of Panama City is impressive. The most cosmopolitan capital in Central America, Panama City is both vibrant metropolis and gateway to tropical escapes. Many worlds coexist here. Welcoming both east and west, Panama is a regional hub of trade and immigration.
Over a year ago, an anonymous source contacted the Süddeutsche Zeitung (German Newspaper) and submitted encrypted internal documents from Mossack Fonseca, a Panama based firm.
Founded in 1977, Mossack Fonseca is the world’s fourth biggest provider of offshore services. The Panamanian law firm has not only helped prime ministers, kings and presidents hide their money. It has also provided services to dictators, drug cartels, Mafia clans, fraudsters, weapons dealers, and notorious countries. The firm is into selling of anonymous bogus companies for almost 40 years.
11 million documents of approx 2.6 terabytes of data held by the Mossack Fonseca have been leaked to German Newspaper, which then shared them with the International Consortium of Investigative Journalists, consisting 107 media organisations in 78 countries. In the past 12 months, around 400 journalists have taken part in the investigation. In India, Indian Express is the partner media organisation.
An extensive investigation follows and the result is surprising. They show how the company has helped clients launder money, dodge sanctions and evade tax through 2,14,000 shell companies.
Mossack Fonseca’s business model is based on a simple principle: clients can have a shell company set up for as little as 1000 dollars. For an extra fee, the firm provides a sham director for the company, thus hiding its true owner.
Apart from the President of Iceland, the Panama Papers reveal offshore accounts and companies of British Prime Minister David Cameron’s late father, several Tory MPs, Russian Vladimir Putin (transactions worth $2 billon, albeit through a childhood friend Sergei Roldugin), links to China’s powerful Politburo members, President Xi Jinping and former Premier Li Peng through their kin, the Presidents of Pakistan, Argentina and Ukraine, the President and Prime Minister of Azerbaijan and the King of Saudi Arabia.
It is not illegal to create or use offshore companies – and the Panama Papers show some banks were doing it on an industrial scale. HSBC used Mossack Fonseca to create about 2,000 offshore companies. So did Coutts with 500 companies and 300 companies by Barclays.
The law firm started from humble beginnings. After graduating from law at Panama University, Fonseca spent six years working for the UN in Geneva. When he returned to Panama City, Fonseca launched his own legal business, with just one secretary, in 1977. Later the same year, he joined forces with another ambitious German-Panamanian lawyer, Jürgen Mossack.
At the time, offshore companies were entering a golden age. Growth in global trade, increased international financial transactions and the dissolution of empire all contributed to this giddy boom. Countries signed double taxation treaties with each other: if a company paid tax in one jurisdiction it was unreasonable to expect it to pay again in a second territory. This swiftly led to what is called transfer pricing: with profits booked in low-tax territories and losses shifted to high-tax jurisdictions.
Ultimately, it also led to double non-taxation, with companies shifting all of their profits offshore. Thus, the concept of tax haven was coined.
A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. Individuals and businesses that do not reside a tax haven can take advantage of these countries’ tax regimes to avoid paying taxes in their home countries.
The Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Belize, Luxembourg, Hong Kong, the Isle of Man, Mauritius, Monaco, Panama, Switzerland are all considered tax havens.
So, What is wrong with it?
Suppose, If a company makes one million, but spends 500,000 on investing in new technology or infrastructure for their product or something like that, they’re only taxed from the remaining 500,000 because that’s all of their “profit.
Companies could “invest” million of dollars and then it wouldn’t be taxed, because according to legal documents it isn’t profit, it’s an “investment,” which is untaxable, and then they would get their money back from the fake business.
Once the money is disguised as the assets of this enterprise—which would typically be set up by a trusted lawyer or crony in an offshore secrecy haven to further obscure ownership—you can spend it or use it for new nefarious purposes. This is the very definition of money laundering—taking dirty money and making it clean—and shell companies make it possible.
Panama Papers and What They Mean to India
As per Indian Express Report, Aishwarya Rai, her father Kotedadi Ramana Rai Krishna Rai, mother Vrinda Krishna Raj Rai and brother Aditya Rai were appointed on May 14, 2005, as directors of Amic Partners Limited — with an initial authorised capital of $50,000.
It was also verified that four companies, in which Amitabh Bachchan was appointed director, were registered in tax havens — one in the British Virgin Islands and three in the Bahamas in November 1993.
In Amitabh’s case the references are to the 1990s when Indians were not allowed to take any money out. The rules have changed over the years and post-2004, individuals can invest abroad within limits. Others involved are Lawyer Harish Salve, DLF promoter, Chairman & MD of Apollo Tyres, Cyrus S. Poonawalla, etc.
Some biggies are not named in Panama Papers Revealation. What will worry them, though, is that the Panama Papers may just be the beginning of a new trend—of hacking and leaking information available with top tax lawyers. The big message from Wikileaks, Edward Snowden’s disclosures and the Panama Papers, to politicians and the super-rich is that nothing is secret anymore; every database can be hacked sometime and the disclosures can ruin the culprits.
