2016 was full of massive news stories, many of them sombre and leaving much of the world deeply uncertain about the future. One hardly needs to be reminded of the political unrest that spread to the borders of Europe, or the election of controversial heads of state in the Philippines and the United States – to put it mildly.
Those events won´t be covered here. Rather, this is about a story that has had as profound an effect on the world economy as much as any election, yet received far less coverage: the Panama Papers.
In early April of last year, some 11 million files (2.6 terabytes of data) were released by German newspaper Süddeutsche Zeitung. The leak included emails, financial spreadsheets, client records, passports and corporate registries. It was the result of investigations by the newspapers, together with 400 journalists in over 80 countries as part of the International Consortium of Investigative Journalists, or ICIJ.
They revealed over 40 years of dealings from legal firm Mossack Fonseca. The Panama City-based firm, which at one point employed 600 people in 42 countries, offered a particular service – one which stood at the centre of this extensive investigation.
Shell companies – offshore entities held by those who have acquired vast sums of wealth in life – in this case, politicians, celebrities and criminals. It takes just US$900 to set up a “regular Panama corporation”, while the anonymous version costs $1,200 with an additional $650 annual administration fee, and it comes with three “nominee directors.”
The Mossfon website once read, “this type of corporation is a good choice if your objective is to save taxes or protect your assets. The actual owner of this corporation is not registered in any public records.” The website also emphasised that “strict secrecy laws” guarantee that key personnel “cannot be revealed and is protected by law bearing criminal consequences for the bank officials if they attempt to release private information.” Today, their website reads, “Mossfon helps companies incorporate and provides registered “agent” services for our clients (e.g. lawyers, banks, trusts etc.)”
There are legitimate uses for these companies. For example, when wealthy individuals in Latin America to hide their assets so as to avoid being targeted by kidnappers, or when a yacht is being held through a shell company to “avoid time-consuming bureaucracy.” While not illegal per se, even these more ‘valid’ reasons still sound like 1%, top-of-the-pyramid type speak.
The main purpose for shell companies, however, is for said politicians, celebrities and criminals to hide their wealth for tax evasion, money laundering and shady activities. The leaks exposed the prime ministers of Pakistan and Iceland, close friends of Mexican President Enrique Peña Nieto and Russian leader Vladimir Putin and companies linked to the family of Chinese President Xi Jinping.
It was found that an associate of Putin shifted over $2 billion of wealth during his dealings with Mossfon. It also led to the resignation of the prime minister of Iceland, brought about investigations into suspected tax evaders in five continents and put pressure on international bodies, like the OECD, to crackdown on offshore tax havens. There are also at least 33 people or companies blacklisted by the US government because of evidence they´ve been involved in wrongdoing, such as doing business with Mexican drug lords, terrorist organisations like Hezbollah, or rouge nations like North Korea and Iran.
The leak took place while a trend of spending being scaled down takes place. Government spending as a percentage of GDP has fallen in the US, the UK and Australia, while central governments in several European countries have gone through tough times. The outlook given by these governments show that we have been inadvertently coerced into tightening our belts. Actions by some of the politicians mentioned in the leak go against austerity measures being implemented by their governments.
Has the leak garnered the attention that it deserves? One look at Google Trends shows that searches for “Panama Papers” showed the issue died down in May – merely weeks after the leaks were made public. It can be argued that the coverage didn´t reflect the gravity of the issue, but can the corporate owned news media hold the corporate world to account? The chairperson of the BBC trust Rona Fairhead has been a director of HSBC and PepsiCo, while Rupert Murdoch has 136 subsidiaries, including an arm of Fox that is based in Panama.
More importantly, has there been justice in all of this? In November, the firm was found to have breached eight separate laws for failing to properly vet its customers, collect identification documents and monitor transactions. They were fined US$440,000 by the British Virgin Islands protectorate´s Financial Services Commission. It is the largest fine ever issued for any financial misdemeanours in the small Caribbean isle.
Some quick mental arithmetic paints a different story. If Mossfon held over 450,000 entities in the BVI, where the majority of shell companies uncovered through the Panama Papers story are registered, and each of them paid the $1,200 fee for an anonymous company, the fine given by the FSC was merely a slap on the wrist.
One thing is clear – coverage the issue has received compared to the magnitude of its implications on governments, and the moral fabric of greater society has been negligible at best. It briefly gave attention to the issue of unscrupulous wealth by the world’s powerful and influential. A few months later, American voters elected a multi-billionaire to become the leader of the free world.
Fred Johnston is a freelance writer from Central Australia who loves writing about topics he can add value to. Say hello to him on Twitter at @FreddyKuma.