Yesterday, it was all anyone was talking about: the Panama Papers. And then the names spilled out: Messi. Ulloa. Putin. Cameron. It seemed that the Panama Papers were connected with a staggering number of high-profile names.
But what, exactly, are the Panama Papers? Here’s what you need to know.
The Panama Papers are documents which were leaked from Mossack Fonseca, a Panama-based law firm which, according to its website, offers “comprehensive legal and trust services.” The website goes on to say that the firm offers “research, advice and services for the following jurisdictions: Belize, The Netherlands, Costa Rica, United Kingdom, Malta, Hong Kong, Cyprus, British Virgin Islands, Bahamas, Panama, British Anguilla, Seychelles, Samoa, Nevada, and Wyoming (USA).” Some of those jurisdictions have been labeled tax havens – including Panama.
The number of documents involved in the leak is staggering: 11.5 million confidential documents, constituting financial and legal records. It is thought to be one of the largest such leaks ever: even bigger than the info shared by Edward Snowden. The documents take up 2.6 terabytes in computer storage. For context, 1 terabyte of data could be stored on about 1400 CD-ROMs or 220 DVDs.
The files date back nearly 40 years, to 1977, when Mossack Fonseca was formed. About a year ago, an anonymous source contacted Süddeutsche Zeitung, a well-known German newspaper, with an offer to turn over the documents – with no compensation in return. Rather, the source said, the reason was simply, “I want to make these crimes public.”
The data was transferred to Süddeutsche Zeitung over the course of a few months. It consisted of e-mails, photos and other documents taken from an internal Mossack Fonseca database. Süddeutsche Zeitung, in turn, shared the records with the International Consortium of Investigative Journalists (ICIJ). The ICIJ and hundreds of other journalists from a variety of news outlets researched the documents.
The result? The names that you’ve seen on Twitter and in various news sources. Those became associated with the papers when the news first went public. At first, there was a partial release of information on April 3, 2016; more data is expected to be made public next month. The data includes the names of the leaders of Argentina (Mauricio Macri, President); Iceland (Sigmundur Davíð Gunnlaugsson, Prime Minister); Pakistan (Nawaz Sharif, Prime Minister); Saudi Arabia (Salman bin Abdulaziz bin Abdulrahman Al Saud, King); Ukraine (Petro Poroshenko, President); and the United Arab Emirates (Khalifa bin Zayed bin Sultan Al Nahyan, President). Additionally, information was uncovered linking family members of heads of states in at least 40 other countries including Ian Donald Cameron (father, now deceased, of the Prime Minister of the UK), Alaa Mubarak, (son of the former President of Egypt) and the children of Xi Jinping (President, China).
Author’s update: After this article was published, Sigmundur Davíð Gunnlaugsson, the Prime Minister of Iceland resigned in response to the scandal.
(For a full list of political players on the list, click here to be taken to the ICIJ website.)
According to the ICIJ, the documents prove that at least $2 billion in offshore assets can be attributed to Russian President Vladimir Putin who, the ICIJ says, “secretly shuffled” the funds “through banks and shadow companies.” Kremlin spokesman Dmitry Peskov has denied the allegations, which he has labeled an “information attack,” saying, “There is nothing concrete, nothing new, no details about Putin. All the rest is built on arguments and speculations.”
The ICIJ notes that the documents also name at least 33 people and companies “blacklisted by the U.S. government.” Those names include those that do business with Mexican drug lords, terrorist organizations and countries with which the U.S. government has imposed sanctions, such as North Korea and Iran.
Sports figures aren’t immune to the scandal either. Offshore companies named in the papers have been linked to several persons closely involved in the massive FIFA corruption charges. Also finding their names on the infamous list? Arguably the best soccer player in the world, Lionel Messi, who is already facing a trial date on charges of tax evasion in Spain, and fellow Argentine Leonardo Ulloa, forward for Leicester City (sitting comfortably atop the English Premier League).
If any of those names look familiar, you’ve definitely seen them before: the files are said to include 29 billionaires featured in Forbes Magazine’s list of the world’s 500 richest people.
Author’s update: After this article was published, some additional names were made public, including several Americans. Look for more information in a future post (I’ll link here when it’s published).
That said, it’s important to remember that owning an offshore company or creating an offshore trust isn’t illegal. In fact, it’s perfectly legal in most countries, including in the United States. What is illegal, however, is using offshore trusts to hide assets from known creditors or for evading taxation: failure to disclose offshore assets and report offshore income once again made the Internal Revenue Service’s infamous Dirty Dozen this year.
When advisors like lawyers, accountants, and financial advisors work to establish offshore accounts, there’s a lot of due diligence that has to happen to ensure that money isn’t being transferred for illegal purposes such as tax evasion, money laundering or to avoid existing creditors (including soon to be ex-spouses or victorious plaintiffs). When done properly, there’s no harm, no foul: I’ve worked to establish offshore accounts for clients who had legitimate concerns about asset protection or estate planning. But moving money out of a jurisdiction – like the U.S. – doesn’t erase the compliance obligations for the owners who may still live in (or, in the case of the U.S., be citizens of) the country. In the U.S., for example, you must still report the existence of the accounts on tax returns (and in other circumstances, including for child support and other court proceedings) as well as income generated from the accounts. Failure to do the right thing can land not only the account owners – but the lawyers, accountants and financial advisors who facilitated the opening of the accounts – in hot water.
For its part, Mossack Fonseca says that it regrets “any misuse of our services and actively take steps to prevent it.” The firm has indicated its disappointment with media reports, taking to its website to say:
Recent media reports have portrayed an inaccurate view of the services that we provide and, despite our efforts to correct the record, misrepresented the nature of our work and its role in global financial markets.
The firm even went so far as to release a lengthy statement, defending its services and offering clarification about its role. You can read the firm’s entire statement here (downloads as a pdf).
More documents – and possibly more big names – will be revealed in the weeks to come. What that means for global financial and tax transparency – as well as the markets – is not certain. Stay tuned: the fallout from the leaks is bound to be felt from London to Beijing.