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 Any material borrowed from published and unpublished sources has been appropriately referenced.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.
Aditya Soni, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur
What is now known as the ‘Panama Leaks’ is a cache of 11.5 million records that expose a global industry of law firms and big banks selling financial secrecy to politicians and criminals, as well as billionaires, celebrities, and film stars. These include about 130 major politicians, and the leak has claimed its first political victim with the resignation of the Prime Minister of Iceland.
The leaked records come from a powerful law firm based in Panama, Mossack Fonseca, that has branches in more than 35 places around the globe. It is one of the world’s top creators of ‘shell companies’ – corporate structures used to hide ownership of wealth. For the most part, shell companies do not employ people or produce anything; they are created merely to hide the assets of the very rich.
One of the reasons why this happens legally is the fact that there is no global register of corporations and the real owner of a company is not required by law to disclose his or her identity. The President of America, Barrack Obama, rightly noted that this is not technically illegal, but he also suggested that it is worse: because it shows that lawmakers and politicians have knowingly allowed the very rich to get away with hiding their wealth and evading taxes. This is also a system that allows hidden money – required, for instance, in drugs and arms trafficking, without which things like ‘Islamist terror’ would be seriously crippled – to operate outside public scrutiny.
And if you think all this is just a socialist reaction to extreme wealth, bear in mind that it is problematic even in capitalist terms. Because the money that is hidden away – estimated at 25 trillion dollars – falls out of the working global economy. Apart from the taxes avoided, this means that a large chunk of global capital is dead. Shell companies are not just fake companies: they are empty companies, and hence a dead-weight from both socialist and capitalist perspectives.
If we just had a global register of corporations and required company owners to disclose their identities, much of the problem would be solved.