The Panama Papers and the industry that threatens global development

May 30, 2016 3 min read

By Connor Connolly, Future Alumnus of The Young Investment Banker Programme 2016

April 2016 saw Mossack Fonseca go from a sizeable yet relatively unexceptional law firm, to one of the most talked-about companies in the world. They were brought to media attention by anonymous source John Doe's leak of the 'Panama Papers' to German newspaper SZ. What began with another seemingly inconsequential insight into the dodgy dealings of the TNC underworld has transpired into the biggest data leak of all time; 11.5 million documents and over 2.6 terabytes detailing how the firm helped the uber-wealthy hide their money in offshore tax havens for almost forty years. 

The leak implicated over 140 politicians including the British and Icelandic Prime Ministers, and Russian President Vladimir Putin, who is purported to have hidden up to $2 billion. FIFA's top brass are unsurprisingly mentioned too, with members of the organisation's ethics committee revealed to have had financial dealings with its former senior officials, many of whom are now serving jail sentences for corruption and bribery. Even celebrities are making use of tax havens, with Emma Watson and Lionel Messi surprising mentions (although the latter is on trial in Spain, along with his father, for alleged tax evasion). Mossack Fonseca have incorporated almost a quarter of a million offshore companies in their efforts to help the world's elite hide their wealth. John Doe claimed he was motivated, "simply because I understood enough about their contents to realise the scale of the injustices they described", stating he wanted to "make these crimes public".

Doe, like many others, was frustrated at the growing inequality society faces today. And understandably so. Recent figures have suggested that the world's wealthiest 62 billionaires will own more wealth than the poorest half of the population of the world combined. One American economist used the findings to estimate that around 8% of the world's financial wealth is 'hidden'. But the latter figure is misleading - for Europe, Asia and North America, it is around 6%. For Africa however, almost one third of its financial wealth is held offshore, representing $50 billion a year of illegal outflows from the continent. Corrupt officials and manipulative corporations have therefore denied the least-developed nations from being able to afford to deliver essential services like healthcare and education to their citizens. The Middle East has also been victim to a similar pitfall, although to a lesser extent, with almost a trillion dollars of Gulf finances thought to be held offshore. The former emir of Qatar, the president of the UAE and even the King of Saudi Arabia, were all recorded as owning several complexly-structured offshore shells. Now, there are legitimate uses for shell companies - many of the affluent grow paranoid and want the utmost security and privacy of their finances. However, it is the combination with personal and corporate tax strategies and convoluted ownership frameworks that give away the nature of the game; that is, avoid as much tax as is (barely) legally possible. 

The leak is however a step in the right direction. Whistle-blowers take enormous risk in what they do, especially when putting billions of dollars on the line, and the support received for this particular case from the ICIJ and other media outlets could signal a new era of cooperation as governments seek to end kleptocracy and work towards global development.


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