Business

Following The Money: Lessons From The Panama Papers, Part 1: Tip Of The Iceberg

Following The Money: Lessons From The Panama Papers, Part 1: Tip Of The Iceberg

Lawrence J. Trautman
American University; Oklahoma City University – School of Law; George Washington University

May 23, 2016

Abstract:

Widely known as the “Panama Papers,” the world’s largest whistleblower case to date consists of 11.5 million documents and involves a year-long effort by the International Consortium of Investigative Journalists to expose a global pattern of crime and corruption where millions of documents capture heads of state, criminals and celebrities using secret hideaways in tax havens. Involving the scrutiny by over 400 journalists worldwide, these documents reveal the offshore holdings of at least several hundred politicians and public officials, including the prime ministers of Iceland and Pakistan, the president of Ukraine, and the King of Saudi Arabia. More than 214,000 offshore entities appear in the leak, connected to people in more than 200 countries and territories.

Since these disclosures became public, national security implications already include abrupt regime change, and probable future political instability. It appears likely that important revelations obtained from these data will continue to be forthcoming for years to come. Presented here is Part 1 of what may ultimately constitute numerous-installment coverage of this important inquiry into the illicit wealth derived from bribery, corruption, and tax evasion. This article proceeds as follows. First, disclosures regarding the treasure trove of documents from the Panama-based law firm, Mossack Fonseca are reviewed. Second, is a discussion of the impact and cost of bribery and corruption to the global community. Third, I define and briefly explore issues surrounding “tax evasion.” Fourth, the impact of social media and technological change on transparency is discussed. Next, a few thoughts about implications for future research are offered.

Following The Money: Lessons From The Panama Papers, Part 1: Tip Of The Iceberg – Introduction

Widely known as the “panama papers,” the world’s largest whistleblower case to date consists of 11.5 million documents and involves a year-long effort by the International Consortium of Investigative Journalists to expose “a global array of crime and corruption [where] millions of documents show heads of state, criminals and celebrities using secret hideaways in tax havens.” Involving the scrutiny by over 400 journalists worldwide, these “files reveal the offshore holdings of 140 politicians and public officials… include prime ministers of Iceland and Pakistan, the president of Ukraine, and the King of Saudi Arabia… More than 214,000 offshore entities appear in the leak, connected to people in more than 200 countries and territories.”

Since these disclosures became public, national security implications already include abrupt regime change, and probable future political instability. It appears highly likely that important revelations obtained from these data will continue to be forthcoming for years to come. Presented here is Part 1 of what may ultimately constitute numerous-installment coverage of this important inquiry into the illicit wealth derived from bribery, corruption, and tax evasion. This article proceeds as follows. First, disclosures regarding the treasure trove of documents from the Panama-based law firm, Mossack Fonseca are reviewed. Second, is a discussion of the impact and cost of bribery and corruption to the global community. Third, I define and explore issues surrounding “tax evasion.” Fourth, the impact of social media and technological change on transparency is discussed. Next, a few thoughts about implications for future research are offered. This modest paper adds to the scholarship about bribery, corruption, money laundering, tax evasion, terrorist finance, and increased transparency by reviewing information provided by the Panama Papers to date; and explores resulting implications for world poverty and global political instability.

Initial Disclosures

Perhaps the largest whistleblower case ever, the “Panama papers,” at 11.5 million records, is the single largest ever disclosure of intended-secret documents, and “shows how a global industry of law firms and big banks sells financial secrecy to politicians, fraudsters and drug traffickers as well as billionaires, celebrities and sports stars.”4 Exhibit 1 depicts the nearly 40 years of data leaked from Panama-based law firm Mossack Fonseca, including information from 21 offshore jurisdictions about 210,000 companies.

Panama Papers

The Panama Papers “implicate a wide range of firms, politicians, and other individuals around the globe to have used secret offshore vehicles. Allegations include tax evasion, financing corruption, money laundering, violation of sanctions, and hiding other activities.”6 The 10 most popular tax havens disclosed by the Panama Papers are shown by Exhibit 2, revealing that about half (130,000+) of the legal entities were incorporated in the British Virgin Islands, with Panama the second most favorite venue.7

Panama Papers

Bombshell: The Initial Disclosures

The April 2016 release of stories based on the Panama Papers “exposes the offshore holdings of 12 current and former world leaders and… provides details of the hidden financial dealings of 128 more politicians and public officials around the world.”8 Some of these first stories appearing most significant include revelations about: the Prime Minister of Iceland, Sigmundur David Gunnlaugsson; Great Britain Prime Minister David Cameron; President Mauricio Macri of Argentina; high-ranking Chinese government officials; and Russian President Vladimir V. Putin.9

1. Prime Minister of Iceland, Sigmundur David Gunnlaugsson

Repercussions from release of the Panama papers appeared immediate in the case of the Prime Minister of Iceland, Sigmundur David Gunnlaugsson. “Confronted by demands for his resignation after documents revealing that he and his wealthy wife had set up a company in the British irgin Islands led to accusations of a conflict of interest,”10 Prime Minister Gunnlaugsson resigned just hours after the news story was published. According to news accounts derived from the leaked documents, the company set-up with his wife, “Wintris, Inc., lost millions of dollars as a result of the 2008 financial crash, which crippled Iceland, and the company is claiming about $4.2 million from three failed Icelandic banks. As prime minster since 2013, Mr. Gunnlaugsson was involved in reaching a deal for the banks’ claimants…”

2. Great Britain Prime Minister David Cameron

British Prime Minister David Cameron “faced calls for a government inquiry and accusations of bald hypocrisy by championing financial transparency when the leaks showed that his family held undisclosed wealth in tax havens offshore.”12 Jeremy Corbyn, leader of Britain’s opposition Labor Party, “called for an independent investigation into the tax affairs of all Britons linked to the Panama revelations including Mr. Cameron’s family and for Britain to impose direct rule on its overseas territories and dependencies, if necessary, to get them to comply with British tax law.”13 In his January 2013 speech before the World Economic Forum in Davos, Switzerland, Prime Minister Cameron stated that he is committed to “drive a more serious debate on tax evasion and tax avoidance… After years of abuse people across the planet are rightly calling for more action, and most importantly there is gathering political will to actually do something about it.”14 Now, following release of the Panama Papers, in an attempt “belatedly to try to defuse a furor over his finances,” The New York Times reports that Prime Minister Cameron admits “that he had made a mess of responding to uestions about his inheritance from his father, who had an investment company offshore… [and released]… his tax returns for the past six years.”15 News source Time reports that “The revelation that Cameron’s own family had benefited from a similar loophole not only makes him seem like a hypocrite, it also contributes to a sense that he and his governing Conservative Party live in a different world to ordinary British taxpayers.”16 Transparency International reports that “the release of the Panama Papers has confirmed the UK’s role as a safe haven for corrupt individuals and their stolen wealth.”17 Rachel Davies, Head of UK Advocacy and Research, Transparency International UK, says

Last year, the Prime Minister made a personal commitment to end the UK’s role as safe haven for corrupt funds. Now is the real test of how serious that rhetoric is… If corrupt individuals are allowed to continue to buy up luxury property and enjoy life in the UK, then the Government risks its credibility in leading efforts to tackle corruption on the global stage.

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