The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post
Sukalyan Talukdar, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur
The 2.6 TB of the Panama Papers is the largest amount of leaked data till date. Around 143 politicians, their families and close associates including 12 national leaders from around the world are among the people whose names have appeared in the leaked papers. The Russian president Vladimir Putin’s best friend – a cellist called Sergei Roldugin; Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Davíð Gunnlaugsson are among national leaders with offshore wealth. Famous film stars Amitabh Bachchan and Aishwarya Rai Bachchan to corporates including DLF owner K P Singh and nine members of his family, and the promoters of Apollo Tyres and Indiabulls to Gautam Adani’s elder brother Vinod Adani, politicians like Shishir Bajoria from West Bengal and Anurag Kejriwal, the former chief of the Delhi unit of Loksatta Party are among over 500 Indians who appeared on the leaked documents. The first news stories based on the Panama Papers were published on 3 April 2016, along with 149 of the documents themselves. The data concerned the operations and workings of some 214,000 shell companies listed by the Panamanian corporate service provider Mossack Fonseca, including the identities of shareholders and directors of the companies.
An anonymous source using the pseudonym “John Doe” made the documents available in batches to German newspaper Süddeutsche Zeitung beginning in early 2015. The information from documents’ transactions are as far back as the 1970s. Given the scale of the leak, the newspaper enlisted the help of the International Consortium of Investigative Journalists (ICIJ), which distributed the documents for investigation and analysis to some 400 journalists at 107 media organizations in 76 countries. The ICIJ promises to publish a full list of companies involved in early May 2016.
Law firms generally play a central role in offshore financial operations. Mossack Fonseca, the Panamanian law firm whose work product was leaked in the Panama papers affair, is one of the biggest in the business. Its services to its clients include incorporating and operating shell companies in friendly jurisdictions on their behalf. They can include creating “complex shell company structures” that, while legal, also allow the firm’s clients “to operate behind an often impenetrable wall of secrecy”. The leaked papers detail some of their intricate, multi-level and multi-national corporate structures.
The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation that strictly regulates the country’s offshore jurisdiction and financial services.
Offshore companies incorporated in Panama, and the owners of the companies, are exempted from any corporate taxes, withholding taxes, income tax, capital gains tax, local taxes, and estate or inheritance taxes, including gift taxes. Panama offers an additional benefit not available in many offshore tax havens: being able to conduct business within the offshore jurisdiction. However, any business conducted within the jurisdiction is subject to local taxes.
There are extensive laws in Panama to protect corporate and individual financial privacy. The names of corporate shareholders are not required to be publicly registered. Panama also has very strict banking secrecy laws. Panamanian banks are prohibited from sharing any information about offshore bank accounts or account holders. The only exception is a specific Panamanian court order in conjunction with a criminal investigation.
Panama has no tax treaties with other countries, further protecting the financial privacy of offshore banking clients who are citizens of other nations. Panama also offers the benefit of having no exchange controls. This means that for individual clients of Panama’s offshore banking, as well as for offshore business entities incorporated in Panama, there are no limits or reporting requirements on money transfers into or out of the country.
But there’s a big difference between tax evasion — illegally refusing to pay taxes, and then taking advantage of secret accounts to try to hide the money and get away with it — and tax avoidance, which is hiring clever people to find and exploit legal loopholes to minimize your tax bill. For instance, the name of Ian Cameron, the late father of British Prime Minister David Cameron, shows up in the Panama Papers. Mossack Fonseca helped him set up his investment company Blairmore Holdings (named after his family’s ancestral country estate) in the British Virgin Islands, where, marketing material assured investors, the company “will not be subject to United Kingdom corporation tax or income tax on its profits.”
This particular kind of move is perfectly legal and doesn’t even involve any secrecy. Since investment companies like Blairmore Holdings don’t own much in the way of physical assets, they can be officially located anywhere in the world and naturally choose to locate in jurisdictions where they won’t need to pay taxes.
The issue is when people uses Tax havens for money laundering by corrupt politicians of developing nations, drug lords of Latin America etc.
This leak has again raised questions over malpractices in International Tax Havens and Business ethics related to them.