The murky world of offshore wealth and power is getting some unwelcome sunshine on Monday after newspapers around the world received 11.5 million leaked records from a Panama-based law firm that specializes in creating and connecting shell corporations in tax haven countries.
The firm Mossack Fonseca is the fourth-largest of its kind worldwide. Early analysis of the leaked documents reveals many prominent clients with ties to on-paper corporate entities in the British Virgin Islands, the Bahamas, and numerous other small nations with notoriously lax tax laws.
Arrangements through such havens are typically legal. Wealthy people have paid agents in one country deliver careful instructions to firms like Mossack Fonseca in another, which in turn create paper-only companies legally able to hold and transfer various assets on behalf of their distant, secret owners.
The offshore networks exploit seams in international tax law and, if done correctly, avoid legal liability for all involved. Fines are exceedingly rare, and criminal penalties even more so.
The documents reflect transactions as far back as the late 1970s and detail over 214,000 separate offshore shell companies, the International Consortium of Investigative Journalists (ICIJ) notes.
Mossack Fonseca is more of a functionary in international financial conspiracies than a mastermind of them. The records show major world banks like HSBC and Societe Generale created over 15,000 of the offshore firms reflected in the document cache.
Indeed, the Panamanian firm’s response to the ICIJ’s inquiries portrays itself as nothing more than a turn-key. “[F]iling legal paperwork to help incorporate a company is a very different thing from establishing a business link with or directing in any way the companies so formed,” the firm wrote in a statement. “We only incorporate companies, which just about everyone acknowledges is important, and something that’s critical in ensuring the global economy functions efficiently.”
Such a long-running history of offshore wealth maneuvering will bring real scrutiny to a powerful class of clients who, in many cases, are not already public figures. Investigators in Australia and New Zealand are already looking into potential tax law violations based on the leaked documents, Reuters reports.
But others in the trove are prominent public figures.
Some 140 government officials and politicians from around the globe appear as clients in the Mossack Fonseca documents, according to the ICIJ. A dozen of those are heads of state, ranging from former Iraqi vice president Ayad Allawi to current leaders like Vladimir Putin, Pakistani prime minister Nawaz Sharif, and Icelandic prime minister Sigmundur Davio Gunnlaugsson.
The records also indicate that King Salman of Saudi Arabia, a key U.S. ally, has routed some of his real estate holdings through offshore firms incorporated by Mossack Fonseca.
Putin is receiving particular scrutiny among the press that have been privy to the Panama papers. The former KGB man and near-unilateral head of the Russian government has kept his own name off of the network of shell companies, reports indicate, but some $2 billion in transactions from the documents are believed to trace the movements of his personal fortune.
The firms and accounts link to close Putin associates like the cellist who is godfather to Putin’s children and businessmen who have known the Russian leader for decades. The Putin-linked transactions also tie back to a deposit institution called Bank Rossiya, “which the U.S. government has identified as Putin’s personal cashbox.”
Similar indirect lines of custody implicate Chinese president Xi Jinping, embattled South African president Jacob Zuma, and British prime minister David Cameron.
It’s not immediately clear if any of these heads of state have used their access to the elite wealth-shifting world to avoid tax payments in their own countries. Such out-and-out cheating would likely be illegal.
But for the most part, the dealings Mossack Fonseca facilitates are carefully tailored to stay in-bounds. The accountants, lawyers, and business managers who instruct the Panamanian firm in how to create shell companies and connections on behalf of their employers are usually able to create structures that sidestep the relevant national laws.
The fallout, then, will be political and not criminal.
The Icelandic parliament is expected to hold a no-confidence vote in Prime Minister Gunnlaugsson this week, after he walked out of a TV interview when the leaks came up. The Kremlin has issued angry denials of any wrongdoing by Putin and his associates, and called the leak and subsequent reports an effort to destabilize Russia. The Pakistani government has officially denied any wrongdoing by Prime Minister Sharif’s family.
The unprecedented size and scope of the leaked documents, and the complexity of the corporate and financial transactions involved in any one client’s network, will mean it takes months or even years to fully unravel the connections. Previous official dives into the elaborate, James Bond-like business practices of Swiss bankers, for example, have taken multiple years to process far smaller troves of data.