Impact of Panama Papers Investigation

By Naveed Qazi| Editor, Globe Upfront

It has been just one year, since April 2016, when Panama Papers were leaked to the public.  Some 11.5 million digital records exposed dark deeds of the corporates running away from tax evasion, international sanctions, kleptocracy and from fraud.

Panama Papers (also known as Mossack Fonseca papers) burst the scene by shaking  governments, and triggering scores of investigations around the world. Even till now, the papers are giving rise to new controversies.

The impact of Panama Papers has been widespread with investigations launched in 80 countries, questioning political leaders, business oligarchs, and others. About 400 journalists collaborated and analysed the leaks.

It is perhaps the biggest data journalists have worked with. This leak has been bigger than the US diplomatic cables released in 2010 and the secret documents given to Edward Snowden in 2013.

An anonymous whistleblower, John Doe, leaked documents from the Panamanian Law Firm, Mossack Fonseca to a German reporter, Bastian Obermayer working for the newspaper Suddeutsche Zeitung. His motives for exposing the papers were financial corruption and income inequality around the world.

After that, Washington DC-based International Consortium of Investigative Journalists (ICIJ) published the full document on their website, for which they were awarded a Pulitzer Prize in explanatory reporting.

Perhaps, the biggest achievement of these papers is that it has put attention into shell corporations and tax haven countries including Panama itself, which had a notorious reputation since many decades in this matter.

Tax haven practices in Panama started in 1919 when American oil giant companies used to register their ships in Panama to escape US taxes and regulations. According to a Norwegian research journal, Wall Street helped Panama introduce tax - free laws, to let entrepreneurs start doing business in the country. Since then, the country passed strong laws dealing with corporate and financial secrecy.

These laws attracted many mafia groups, dictators and greedy businessmen to hide their stolen loot. Ever since the rise of international financial activities in the recent past, usage of tax havens and contentions against it have dominated the financial press and the debate surrounding it. The case of Panama papers can be cited as a major example.

The law firm, accused, has maintained that they have been victims of a computer hack and that their company data has been misinterpreted. However, the scandal has exposed billions of offshore dollars being flown into property markets, soaring up real estate market prices in places such as London, for example. The papers also exposed dealings of wealthy celebrities,  and personalities in sports and its governing bodies like the FIFA.

The documents reveal that 143 politicians and their close associates around the world used tax havens. Among the prominent national leaders with offshore wealth are Russian President, Vladimir Putin, Pakistan Prime Minister, Nawaz Sharif, Ayyad Allawi, Vice President of Iraq, Petro Poroshenko, President of Ukraine, Alaa Mubarak, son of Egypt’s former president, and Prime Minister of Iceland, Sigmundur David Gunnlaugsson. Quite recently, Maltese Prime Minister has been summoned on the issue.

According to several leading economists, tax havens don’t give any positives to a global economy. They believe that the curse actually lies in the money flow. Trillions of illicit dollars flow out of these countries. The outflow is much more than the foreign aids these client tax havens receive to develop their economies.

The economists further believe that countries that are tax haven suddenly become liable for outside people and detrimental to people who live there. This whole process undermines domestic institutions and social cohesion. As a result, the domestic government becomes suddenly liable to international elites. We can actually relate these economic realities with tax havens in our world today.

The scandal also prompted the European Commission to set up an enquiry group comprising of 65 members. The law firm had its offices closed down in several countries and it had to fire a large number of employees. At one point in time, the Panamanian media reported that the firm was down to only forty employees from six hundred people a year before. Its owners were arrested and their accounts had been frozen.

Mossack Fonseca had acted as a registered agent for more than 200,000 companies. 

The accused Panamanese law firm acted on instructions from third-party intermediaries usually accountants, lawyers, banks and trust companies. These facilitators were mostly concentrated in Switzerland, Luxembourg, United Kingdom, Hong Kong and UAE.

A recent poll done by Reuters shows that the level of transparency regarding shareholders and directors hasn’t improved a year after the Panama Papers leak when general perception of a tax clean up by the wealthy was expected to soar.