Panama Papers

Millions of leaked documents dubbed the Panama Papers have revealed how tax havens have helped hide wealth across the globe. The unprecedented leak of 11.5m files show how clients of Mossack Fonseca, the worlds fourth largest offshore law firm, located in panama, laundered money, dodged sanctions and avoided tax. So what does all this mean, and will it change anything? It began when the leaked documents were handed to German Newspaper Suddeutsche Zeitung, who in turn shared them with the international consortium of investigative journalists, which includes newspapers such as The Guardian and the BBC. Over the last year the documents have been broken down and analysed, and were publicised recently, revealing links to twelve current or former heads of states, causing a fallout that has had a major impact on the political powers around the world. Iceland Prime Minister, Sigmundur Gunnlaugsson, has already walked out of an interview on the subject and after accusation around his involvement. He has faced widespread calls for his resignation and has since asked to dissolve parliament. Elsewhere, the documents seem to point to the fact that Russian President, Vladimir Putin is at the centre of a billion-dollar money laundering ring. While most pressingly in the UK, the late father of UK Prime Minister David Cameron is said to have availed of the tax haven. It’s a huge story, one of the biggest scandals imaginable, with several intriguing spin-offs concerning some of the biggest politicians in the world – yet it isn’t really a shock. For many it won’t be seen as a surprise at all, but proof of what they expected all along: of underhand and illegal financial manoeuvres from those in lofty and well off positions. There are a few keys terms that can help explain these misgivings that the papers point to, including one example of how you might explain off shore companies to a five year old which has been bouncing around the internet:
You put your pocket money in a piggy bank in your wardrobe, but one day you decide that you don’t like that your mum checks on it every now and then, so you go over to Johnny’s house with an extra piggy bank which you will keep in his room. Johnny’s Mum never checks his piggy bank so it will remain a secret. When the other kids find out about this they all decide to do the same. Then one day Johnny’s Mum looks in the wardrobe and finds all the piggy banks. She is very angry and calls everyone’s parents, and even though some of the kids were innocently trying to find a safe place for their money, or saving in secret so they could buy their Mum a present, everyone gets in trouble because some of the some kids were using the piggy banks to hide the lunch money they were stealing, or hide the fact that they were buying sweets they weren’t allowed. Other terms, such as Shell companies, which are companies set up to simply store money and hide who owns it, and money laundering, which – it’s in the name – is the process of cleaning ‘dirty money’ so it can be used without rousing suspicion, have been passed around in the wake of the Panama files. Although not everyone mentioned in the files is guilty, it is these actions that will cause the interest and controversy, and until everything is cleared one way or another, this what everyone involved will be suspected of. As a location Panama almost guaranteed secrecy in which people could set up foundations to hide and disguise their ownership and control of assets, and although their reasons for doing this varied, the worst will be feared of most of those involved. In terms of how this might affect us, thousands of UK properties are owned by offshore companies, which might eventually effect buyers here; but the major issue is how the whole thing has undermined the UK’s laws and regulations that are in place to stop this sort of activity. As a result the major repercussion is likely to be the loss of trust – or at least a further loss of whatever level of trust there was before – in those involved. Extreme measures could eventually follow, with some suggesting that a complete shutdown of tax havens is the only way that governments will ever be able to guarantee a fair and universal tax law for everyone.