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The Panama Papers

When 11.5m files are leaked from the database of a law firm specialising in setting up offshore companies, you can expect to unearth something interesting, and the Mossack Fonseca documents have not disappointed. But the blitz of names, relationships and alleged criminal wrongdoings has clouded the story. The leak has unveiled the offshore holdings of more than 140 officials and politicians, including 12 current and former monarchs, prime ministers and presidents, as well as the holdings of at least 33 companies and people blacklisted by the United States for alleged business relationships with rogue states, terrorists or drug lords.

Who’s Involved?

Sigmundur Gunnlaugsson, the Prime Minister of Iceland, a country with a population of 323,000 – less than half that of Amsterdam – stepped down after the leaks revealed that he owned an offshore company with his wife that he didn’t declare when entering parliament. Gunnlaugson denied having breached the rules, saying that his offshore company was simply a holding company, as opposed to a commercial activity, and therefore didn’t have to be declared.

UK Prime Minister David Cameron has been under pressure over his now-sold shares in a Bahamas-based offshore trust fund set up by his late father. There are no allegations that he has done anything wrong – he paid income tax on the profit he made – however, questions have been raised over whether the £300,000 he inherited from his father benefited from tax haven status.

Sergei Roldugin, an old friend of Russian President Vladimir Putin, has been linked to a company behind $2bn in tax-free funds, with the evidence suggesting Rodulgin is a proxy for Bank Rossiya, which has been designated a “crony bank” for top Kremlin bigwigs by the US. Putin has dismissed the reports, claiming that Rodulgin earned his money importing musical instruments.

In China, eight former or current members of the Politburo Standing Committee have been found to have set up offshore companies, while the brother-in-law of Chinese President Xi Jinping has also been mentioned in the leak.

Other key figures linked to the documents include Ukraininan President Petro Poroshenko, FIFA ethics committee member Pedro Damiani, and perhaps the world’s greatest football player, Lionel Messi, to name just a few. Indeed, the list of notable individuals named in the Panama Papers is long enough to warrant its own Wikipedia page.

What to Make of This?

Naturally, the details are as murky as the tax affairs they describe. An allegation here, an accusation there. The vast majority of stories on the affair don’t allege criminality, they merely allude to it. Of course, not all of the business conducted through Mossack Fonseca is related to criminality – much of it is related to simple tax avoidance, which is perfectly legal (in contrast to tax evasion). But for the public figures linked to the leak, it looks bad. Many of the politicians and world leaders implicated can brush off the revelations, not having to rely on popular support for their power, but for leaders such as Sigmundur Gunnlaugsson and David Cameron, the news has had major consequences, even if the accusations are relatively minor. The public wants to see heads roll and the media, as well as opposition politicians, are feeding off this atmosphere. In the UK, calls have been made for cabinet ministers to publish their tax statements, which could herald the beginning of a climate in which voters expect to have a right to know where their representatives made their money. It will also be interesting to see if David Cameron is pressured into taking action against Britain’s secretive offshore industry, given that half of the companies exposed in the leaks were incorporated in the British Virgin Islands – a British Overseas Territory.

Perhaps the biggest casualty in the Panama Papers affair is public trust. None of the Panama Papers revelations so far are surprising at all, however, they serve as a reminder that there is a group of powerful people who are effectively able to operate to different rules from regular folk. And without any way of measuring the significance of the claims made in the leak, it is hard to develop a nuanced opinion on how damaging these kinds of tax arrangements are. The evidence linking various people to offshore companies is clear but not damning. Nevertheless, while the detail is thin on the ground, the story is likely to evolve as law enforcement agencies around the world launch investigations in response to the revelations.


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