A huge confidential documents leak has showed how powerful and rich people make use of tax havens for hiding their wealth.
A massive investigation was conducted and 100s of journalists scrolled through around 11.5 million documents from Mossack Fonseca, a law firm’s secret files, for revealing some biggest names of the world who have set up offshore entitles all across the globe.
panama papers
Panama Papers has been in trend on social media and has hit headlines of major newspapers. However, for some people, the information is just too difficult to be understood and we have explained it in a simple way. Have a look:
A massive investigation was conducted and 100s of journalists scrolled through around 11.5 million documents from Mossack Fonseca, a law firm’s secret files, for revealing some biggest names of the world who have set up offshore entitles all across the globe.
panama papers
Panama Papers has been in trend on social media and has hit headlines of major newspapers. However, for some people, the information is just too difficult to be understood and we have explained it in a simple way. Have a look:
Panama Papers explained in simple way!
A kid gets some money and puts it in piggy bank, which is on the closet’s shelf. His mom is aware of this and keeps a check on it daily, to see how much is there and how much is spent. Now, one day, the kid decides that he doesn’t want mom to look at his money and so he goes to his friends home with an extra piggy bank for keeping it in his room. He writes his name on it and keeps it in his closet. Since his friend’s mom is always busy, there would be no one to check it and would be kept as a secret. Looking at the kid, others too decide to do the same. Now, his friend’s closet is filled with piggy banks but one fine day, his mom comes and sees all the piggy banks and calls everyone’s parents for informing them about the same.
But now, not everyone was doing this for a bad reason. Some were doing it for saving some extra money for buying presents for their parents, while some were keeping it safe, because their siblings often stole money. This is what these big people have done by hiding their piggy banks at Johny’s house in Panama. Now, the secret is revealed but we don’t know who did it for which reason
What's a shell company? Why would someone want one?
Sometimes a person or a well-known company or institution wants to buy things or own assets in a way that obscures who the real buyer is.
The typical reason for this is a kind of routine corporate secrecy. Apple, for example, appears to have created a shell company called SixtyEight Research that journalists believe to be a front for its interest in building a car. Since Apple happens to be the most covered company on the planet, this hasn't been incredible effective — and when SixtyEight Research staff showed up at an auto industry conference, everybody noticed.
But in general, companies don't like to tip their hand to what they are doing, and the use of shell companies to undertake not-ready-for-public-announcement projects can be a useful tool.
Shell companies are often used for simple privacy reasons. Real estate transactions, for example, are generally a matter of public record. So an athlete, actor, or other celebrity who wants to buy a house without his name and address ending up in the papers might want to pay a lawyer to set up a shell company to do the purchasing.
Okay, but how about the shady stuff?
As is generally the case in life, secrecy can have illegitimate purposes as well. This is particularly true for shell companies set up in international centers of banking secrecy that offer a level of anonymity and obscurity that goes beyond simply making it hard to look up the real owner's name online.
Your soon-to-be-ex-wife cannot seize half of the money in an account that she and her lawyers don't know exists and can't prove that you own, for example. Nor can your creditors seize such an account in a bankruptcy proceeding. Nor can the government levy estate taxes on it when you die and pass it on to your kids. In all those circumstances, a Panamanian company that you secretly control and that holds stocks, bonds, and other financial assets on your behalf could be the ideal vehicle.
By the same token, if you have made a bunch of money illegally (taking bribes, trafficking drugs, etc.) you need to do something with the money that won't attract the attention of the authorities or the media. A secret offshore shell company is perfect. Not only does it help you avoid scrutiny in real time, but if you are found out its assets can't be taken from you if you have to flee the jurisdiction or even serve jail time.
But even though various criminal money-laundering schemes are the sexiest possible use of shell companies, the day-to-day tax dodging is what really pays the bills. As a manager of offshore bank accounts told me years ago, "People think of banking secrecy as all about terrorists and drug smugglers, but the truth is there are a lot of rich people who don't want to pay taxes." And the system persists because there are a lot of politicians in the West who don't particularly want to make them.
What do the Panama Papers show?
As you would imagine, there is quite a lot in the 2.6 terabytes. Here are a few of the highlights the team found, with links to the full stories where you can read the details:
Vladimir Putin's inner circle appears to control about $2 billion worth of offshore assets.
The prime minister of Iceland secretly owned the debt of failed Icelandic banks while he was involved in political negotiations over their fate.
The family of Pakistan's prime minister owns millions of dollars' worth of real estate via offshore accounts.
Ukrainian President Petro Poroshenko pledged to sell his Ukrainian business interests during his campaign, but appears instead to have transferred them to an offshore company he controls.
The International Consortium of Investigative Journalists has a full profile of political figures and their relatives named in the Panama Papers for your reading pleasure.
But though political corruption is fun and newsy, the document dump also features a leaked memorandum from a Mossack Fonseca partner revealing the more boring truth that "[n]inety-five per cent of our work coincidentally consists in selling vehicles to avoid taxes."
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How much money is there in offshore tax havens?
A big part of the idea, of course, is to make it hard for anyone to know for sure.
But Gabriel Zucman, an economics professor at UC Berkley, has made the most detailed study of the question for his book The Hidden Wealth of Nations, and estimates that it totals at least $7.6 trillion. That's upward of 8 percent of all the world's financial wealth, and it's growing fast. Zucman estimates that offshore wealth has surged about 25 percent over the past five years.
Much of that reflects "new money" from China and other developing nations whose citizens to an extent have legitimate fears about political stability and the rule of law.
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