ON THE 10th May 2016, the The International Consortium of Investigative Journalists (the ICIJ) released a searchable database of those individuals and companies whose details were leaked as a part of the Panama Papers.
The Panama Papers have been in the news a lot lately, but unless you have been following the news fairly closely you may not know much about them. So, because they have become such a huge story we present this quick and easy primer on exactly what the Panama Papers are and why everyone is talking about them.
What are they?
The Panama Papers is the name used to refer to a collection of 11.5 million leaked documents from a database belonging to the Panama based law firm Mossack Fonseca. These documents, which contain 2.6 terrabytes of data, were originally leaked to German newspaper Süddeutsche Zeitung, and later analysed by The Guardian, in the period between February and December 2015 by an unknown informant referred to only as John Doe.
What is Mossack Fonseca and what does it do?
Mossack Fonseca is a law firm, founded in 1986, specialising in company law and intellectual property. While it is based in Panama it has over 40 offices worldwide. It has been under investigation by a number of governments for money laundering and financial misconduct related offences since 2014.
The Panama Papers deal with the corporate services part of Mossack Fonseca’s opperations, in particular their incorporation services. Incorporation services essentially means that Mossack Fonseca would, for a price, help a person, group or company create a new company in the legal jurisdiction of their choice. These companies are usually just legal constructs, they have no offices or employees, just the address necessary for incorporation. This is usually just a mailbox maintained by a company that charges other companies a fee to have their corporate address in that building. One example, not connected to the Panama papers is Ugland House, which is the registered address of 18,000 companies.
Why would they do that?
While no one can say for certain why any individual or company chooses to create a company in such a way, there are a number of possible reasons. One possible reason is privacy. As explored in this episode of NPR’s Planet Money Podcast. Financial services providers, like Mossack Fonseca, often provide services in addition to helping a person set up a company. These services can sometimes include providing, for a fee, people to sit on the board of the company and to be its executives. Again these people do not actually do anything, they merely run the company on paper. This allows those setting up the company to avoid appearing on the paperwork, which allows a person to have a company that receives money, but which is not readily traceable to them.
There are a number of other possible reasons to set up such a company. People living in dictatorships may use it to protect their money, or companies in places like China may use these companies to raise capital from overseas in situations or jurisdictions where it may be illegal.
But when it comes to the Panama Papers, the big reason people are concerned about is tax evasion. Companies often choose to incorporate in this way so as to pick the jurisdiction they are incorporated in, and thus pick what taxes they pay. As such, places like the Cayman Islands are often a popular choice.
So this is all about taxes?
Kind of, yes, but it’s also about broader issues. Not only can it be seen as unfair when some people and companies can get out of paying taxes, but for some people it can raise broader issues of inequality. Also, a number of those involved were major political figures, including David Cameron, who, on the 7th of April, admitted to having profited from an offshore trust run by his father. Not only were a number of political figures and world leaders involved, but so were many companies we conduct business with in our day to day lives, companies like: Microsoft, Starbucks, Pepsico and Facebook. Fundamentally, the Panama Papers raise concerns about systems which allow wealthy people and multinational companies to play by fundamentally different rules to everyday people.