The International Consortium of Investigative Journalists (“ICIJ”), recently began publishing a series of articles known as “The Panama Papers,” which consists of millions of leaked financial documents, a trove of information much larger than anything obtained by either Wikileaks or Edward Snowden in their prior disclosures.
Hundreds of reporters and media organizations in over 70 countries spent over one year working secretly and collaborating with the ICIJ, a Project of the Center for Public Integrity, based in Washington D.C.
THE ICIJ report revealed that after a yearlong investigation the secretive, elite Panama Law Firm, Mossack Fonseca (“MF”) established over 240,000 “shell companies” over the last 40 years for wealthy global clients to launder money, dodge sanctions and evade taxes.
MF clients include: politicians, celebrities, criminals, and heads of state. MF services appear to involve bribery, corruption, and rampant money laundering. In response MF was defiant, as their Managing Partner in a Financial Times interview stated: “I guarantee there is more money laundering in New York, London, and Miami than in Panama.”
Allegations include the role played by major international banks that provided investment advisory services, and banking services to the MF clients including HSBC (who in 2012 paid the US a $1.92B fine for laundering Mexican drug money) and Credit Suisse (who in 2014 paid a $2.5B fine for helping rich Americans to evade taxes).
The ICIJ reviewed over 11m documents (leaked by an anonymous party from MF) which showed that MF established over 240,000 shell companies worldwide with the primary jurisdictions: BVI (113,648), Bahamas (15,915), and Panama (48,360). Anonymity was preserved by MF for their clients. For example, MF set up 14,086 companies in Seychelles (Tax haven in Indian archipelago) but only knew the identity of 204 companies’ real owners.
Major political figures that have been implicated include:
1) Russian President Putin’s cohorts;
2) Iceland Prime Minister Gunnlaugsson (See LA Times 4/5/16 article, ‘Panama Papers’ revelations cost Iceland prime minister his job.)
3) Ukrainian President Poroshenko
4) Ian Cameron deceased father of UK Prime Minister David Cameron
5) FIFA ethics committee attorney (Uruguay) Pedro Damiani
6) Argentina President Macri.
Celebrities include: film star Jackie Chan, soccer star Lionel Messi and British golfer, Nick Falco.
So far, the names have revealed 12 current or former world leaders, 128 other politicians and public officials. More names will apparently be disclosed in May 2016 when the ICIJ releases them to the public.
MF apparently represented and set up shell companies for 33 individuals or companies who have been under sanctions by the US Treasury Dept. including companies based in: Iran, North Korea and Zimbabwe. MF registered these companies as offshore entities and kept the real owners out of the public documents making them hard to trace.
The World Bank/IMF and UN estimates that Tax Havens worldwide, of which Panama is a major player, holds between $21-32 Trillion in assets whose value has grown substantially since the 2008 world wide financial crisis. MF, and others like them, set up companies in small tax haven countries (e.g. Caribbean, Cook Islands, et al) and facilitated the laundering of money and its “disappearance” for the super-wealthy into untraceable accounts hidden behind anonymous shell companies.
MF did not invent offshore tax evasion which has been going on in Switzerland for hundreds of years. Switzerland’s oldest bank, Wegelin Bank, established in 1741, plead guilty in NY Federal Court to tax evasion and closed their doors after their Managing Director stated in open court that the Swiss banking system “profits from tax evasion.” (See my ABA/Practical Tax Lawyer Article: Why Tax Evasion is a Bad Idea: UBS & Wegelin Bank).
Due to the 2008 worldwide financial crisis, world governments are hungry for tax revenue and are taking aim at their wealthy citizens who cheat on their taxes by hiding assets offshore. In response World Governments have implemented financial transparency programs like the US (FATCA) and the EU (Common Reporting Standards).
Separate investigations are now proceeding worldwide in response to the Panama Papers in the following countries: Australia (investigating 800 individuals named), Israel (600 Israeli company and 850 Israeli shareholders), France (close aide to Marine Le Pen used MF to transfer funds out of France to Hong Kong, Singapore, BVI and Panama to get money out of France thru shell companies/false invoices and evade French anti-money laundering laws).
As best expressed by Jeremy Corbyn, Head of UK Labor Party: “David Cameron, UK Prime Minister, must “stop pussyfooting around” and take action on “tax dodgers”… more and more people feel that there is one rule for the rich and another for everyone else…It is time to get tough on tax havens, Britain has a huge responsibility since many of these tax havens are British overseas territories or crown dependencies… tax havens have become honey pots of international corruption, tax avoidance and evasion… fueling inequality… shortchanging public services for our people.”
Shell companies have legitimate uses if properly disclosed and taxes are paid including: protecting trade secrets, avoid kidnapping, resist price gouging. However, they also are used illegally to hide assets from a future ex-spouse, to go bankrupt and stay rich, to evade taxes, to bribe officials, to manipulate markets, to cover fraud, to deal drugs or arms, to finance terrorism.
US taxpayers appear not to yet be identified in the Panama Papers but it is too early to tell. US taxpayers who set up offshore accounts and do not disclose the accounts annually (on their tax filings) or pay taxes on the income earned from the accounts face multiple felonies for their tax crimes: willful evasion of tax (IRC 7201; 5-year felony); obstruct/impede tax collection (IRC 7212; 3-year felony); conspiracy to commit tax evasion (18 USC 371; 3-year felony); failure to disclose foreign bank account by filing Fincen Form 114 (FBAR); 10-year felony for each year not filed. In addition separate 20-year felonies for related sister crimes: wire fraud, mail fraud, and money laundering.
Many US taxpayers do not understand that FATCA passed as legislation in March 2010, implemented in 2015, and now has over 100,000 foreign financial institutions in over 80 countries passing their tax information to the IRS. To these taxpayers I say, “Time to wake up, you are facing a grave danger.”