It is not news that the world’s wealthiest individuals and companies use tax loopholes and haven countries to hide their wealth. But a massive leak of confidential documents from a Panamanian law firm designed to help such tax avoidance reveals more about the people involved and the ways in which they manage to skip out on taxes. Twelve current and former world leaders and 128 public officials (list here) are among those named in the 11.5 million documents obtained by the German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists (ICIJ).
For years, campaigns have tried to bring attention to the global issue of tax havens. There have been pledges to crack down and close loopholes – even U.K. Prime Minister David Cameron said he’d address the problem – but no action to actually stop the practice. This leak brings the issue to the forefront, showing just how politicians, businesspeople and celebrities are legally avoiding taxes.
The ‘Panama Papers’ encompass nearly 40 years of work by the law firm Mossack Fonseca. With dozens of branches across the world, from London to Miami to Beijing, the firm’s purpose is to help wealthy clients protect their wealth by setting up offshore accounts and shell companies. The documents alone include information on more than 200,000 offshore companies and clients in 200 countries and territories.
The sheer scale of #PanamaPapers. pic.twitter.com/HFtSfHxe2t
— ian bremmer (@ianbremmer) April 4, 2016
Some of the findings are scandalous. For example, the papers showed that Iceland’s Prime Minister Sigmundur Davíð Gunnlaugsson and his wife have holdings in a tax haven-based company, a fact he did not disclose when he was elected four years ago. Snap elections called for after the revelation may see him lose power. And much is being made of the roughly $2 billion held by Russian President Vladimir Putin and his cronies in offshore accounts.
Such deals allow money to be used for nefarious means. At least 33 people and companies blacklisted by the U.S. government are among the clients revealed in the leak. They include groups that do business with terrorist groups, Mexican drug lords and suppliers of fuel to the planes used by the Syrian government to bomb its own citizens. The law firm also helped out Ponzi schemes and scams, like one that bilked 3,500 people in Indonesia out of $150 million.
But the majority of the leaked papers show the inner-workings of a global system that allows wealthy individuals to take steps that prevent their money from going to taxes. Clients of the law firm include soccer star Lionel Messi and action movie star Jackie Chan. While Messi is in trouble with paying taxes in Spain, the catch about the activities documented in the papers is that they are perfectly legal. It allows for the hiding of trillions of dollars in wealth, amounting to billions in lost tax revenue. That hurts poor countries the most.
“We live in a world of plenty but wealthy individuals and international corporations are robbing billions of dollars in taxes from countries, including very poor ones, as they are able to abuse tax havens due to our weak international tax system,” said Susana Ruiz, Oxfam’s tax policy adviser, in a statement about the papers. “Every single year, poor countries lose $170 billion, while 400 million people don’t even have access to basic health care, due to tax dodging.”
A report from earlier this year by the U.K.-based NGO ActionAid showed that some of the more than 500 international tax treaties help companies reduce their taxes in low-income countries. Bangladesh loses out on $85 million in taxes each year because of a treaty preventing the ability to tax dividends. The research further shows how global rules and deals can benefit the rich at the expense of the world’s poor.
Banks are complicit in the creation of offshore accounts for clients, says the ICIJ report. The papers show more than 15,000 companies set up by banks on behalf of their clients to avoid taxes. A full list of the more than 200,000 offshore companies set up by the law firm will be released by ICIJ in early May. It took a year for a team more than 370 journalists around the world to analyze and report on the leaked documents.
