What is the Panama Papers leak and why is it important?

File photo of Panama City bay. Picture: AFP/Getty Images

File photo of Panama City bay. Picture: AFP/Getty Images

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ON SUNDAY evening, a massive leak of private documents revealed how the world’s elite use tax havens to hide their money.

More than 11 million documents from Panamanian law firm Mossack Fonseca were leaked, showing how the firm has helped its clients launder money, evade tax and avoid sanctions.

Mossack Fonseca, established in 1977, are based in Panama City hence the 'Panama Papers' term. Picture: AFP/Getty Images

Mossack Fonseca, established in 1977, are based in Panama City hence the 'Panama Papers' term. Picture: AFP/Getty Images

But what does the leak mean and why is it so important?

1. What is Mossack Fonseca?

Mossack Fonseca is a Panama law firm, founded in 1977 by German-born lawyer Jurgen Mossack and Panamanian lawyer and novellist Ramon Fonseca. Its services include incorporating clients in offshore jurisidictions such as the British Virgin Islands, as well as wealth management, investor advisory and commercial law.

2. What does the leak tell us?

In simple terms, the leak reveals how the world’s wealthiest people, including prominent politicians and world leaders and their associates, hide their money in shell companies

3. Is the leak big?

The leak is one of the largest ever, dwarfing WikiLeaks’ US diplomatic cables leak in 2010, and Edward Snowden’s 2013 leak of secret intelligence documents. There are more than 11 million documents included and 2.6 terabytes of information taken from Mossack Fonseca’s internal files, not to mention links to 72 current or former heads of state.

4. What is included in the leak?

The data includes emails, financial spreadsheets, passport details and corporate accounts for more than 214,000 offshore companies linked to people in over 200 countries and territories worldwide. The leaked documents reveal the secret owners of bank accounts and companies hosted in more than 20 offshore jurisdictions including Nevada, Hong Kong and the BVI.

5. What is a shell corporation and are they illegal?

A shell corporation, or company is effectively a non-trading company which allows for business transactions without having any significant assets or operations of its own. Shell companies are not illegal themselves and they are used for legitimate purposes, but they can facilitate a whole range of illegal financial activities and are sometimes used for tax evasion or tax avoidance purposes.

6. Who are named in the documents?

The documents contain information on a suspected billion-dollar money laundering scheme run by a Russian bank and involving close associates of president Vladimir Putin. Additionally, David Cameron’s father Ian Cameron, who died in 2010, is named in the documents. According to the files, Mr Cameron Sr. used Mossack Fonseca to effectively hide his investment fund Blairmore Holdings Ltd.

Other figures named in the documents include former Northern Ireland minister Michael Mates; former Conservative Party donor and MP Lord Ashcroft; Iceland’s Prime Minister Sigmundur Davíð Gunnlaugsson; Ukrainian president Petro Poroshenko; Argentinian President Mauricio Macri and King Salman bin Abdulaziz of Saudi Arabia.

7. Have the people named done anything wrong?

The International Consortium of Investigative Journalists (ICIJ), which co-ordinated research into the secret documents, said there was no suggestion that the individuals named in the Panama Papers had done anything illegal.

The ICIJ added that ‘most of the services of the offshore industry are legal if used by the law abiding’. However, the documents also reveal that banks, law firms and other organisations often failed to heed legal requirements set up to ensure clients are not mixed up with criminal enterprises, tax dodging or political corruption.

A statement issued by Mossack Fonseca’s Public Relations director Carlos Sousa said that the company ‘does not foster or promote unlawful acts’.

A further extract read: “For 40 years Mossack Fonseca has operated beyond reproach in our home country and in other jurisdictions where we have operations.

“Our firm has never been accused or charged in connection with criminal wrongdoing.

“We are responsible members of the global financial and business community.

“We conduct thorough due diligence on all new and prospective clients that often exceeds in stringency the existing rules and standards to which we and others are bound.

“Over the last 18 months, we have reinforced our compliance department by hiring an additional 26 professionals to comply with new regulations as well as to conduct retroactive due diligence on all existing clients.”

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