It’s been not much of a story as of yet, but the next breaking news story to hit the airwaves is going to be called “The Panama Papers.” It’s got all the fixing of a sordid affair; greed, money laundering, backstabbing, secret bank accounts and political corruption.
The “Panama Papers” are a set of documents that were leaked from a Panamanian law firm. At first glance, it may not seem like a big deal. However, this law firm has been fairly well known in the global finance market and many politically elite individuals have done business with them.
Also, the Panama Papers did not consist of a small leak of information. It was a rather large leak of 2.6 terabytes that included confidential papers. The leak was given to the International Consortium of Investigative Journalists and there are hundreds of journalists currently going through these documents.
The Panamanian law firm began in 1977 as a way for foreigners to set up Panamanian shell companies in order to hold financial assets and block the identities of the actual owners. Today, they do much more than that on an international level. They now operate in the Bahamas, the British Virgin Islands, and other tax havens all over the world.
Some of the information that has already been leaked includes Russian corruption acts and hints at scandalous happenings in developing nations. Some information may even prompt a political crisis in Iceland. One of the biggest issues, however, is the fact that this leak has proven that the wealthiest and most powerful nations have allowed some of the wealthiest members, even those in Western society, to hide their financial assets from taxation, divorce settlements, and bankruptcy settlements by using shell companies and tax havens.
Shell companies are not always used in a shady manner. Sometimes, they are used by companies who want to take on a project that is not yet ready to be disclosed publicly. Sometimes they are used in real estate transactions to hide the identity of a famous individual so that the information is not leaked to the press.
These are legitimate uses for shell companies but there are many illegitimate reasons and most of what is being found in the Panama Papers is of this variety. Some of these include hiding assets so that half of them cannot be seized during a divorce, hiding money that has been made illegally, and even using them as a way to hide assets so you do not have to pay taxes on them.
In the Panama Papers, many different things have been found that are quite shocking and experts believe that there are more shockers to come to light. You can read a full profile of political figures and their relatives in the information provided by the International Consortium of Investigative Journalists. They are compiling everything found in the Panama Papers for public consumption.
Some of the highlights include the fact that Vladimir Putin’s inner circle has approximately $2 billion of offshore assets, Pakistan’s prime minister’s family has millions of dollars in real estate in offshore accounts, the President of Ukraine, Petro Poroshenko, claimed to have sold all of his Ukrainian business interests during his campaign but he only transferred them to an offshore company in his control, and much more. Additionally, a partner of the firm, Mossack Fonseca, had a leaked memorandum that stated 95% of the work they do is selling vehicles to avoid taxes.
The question on many minds is how much money is actually being kept in offshore tax havens. It is difficult to know exactly how much but according to Gabriel Zucman, an econ professor at UC Berkley, there is at least $7.6 trillion. That number equates to approximately 8% of the world’s financial wealth, which is a lot of money that is hidden. Additionally, the amounts being hidden is growing pretty fast since it has increased by 25% in the past five years.
Another big question that many have is what is being done about this. Before the papers were leaked, things had already started to be explored and stop global money laundering. In fact, the war on drugs and the war on terror have forced a change in banking practices which limits these actions.
But this is not enough to stop the illegal movement of funds to offshore accounts. What makes the Panama Papers so significant now is not the information that they detail, because it is only drawing attention to things that many people already assumed to be true, but that the leak may allow the public to put pressure on the political influences who are allowing this to happen. That pressure may start the path of change for the corruption in this sector.
So far we’ve only seen the tip of the ice burg on this story. In the coming week more and more politicians and celebrities who have hidden money offshore will be revealed. So stay tuned and check your email for more Wealth Authority reports!
Regards,
Ethan Warrick
