Over the weekend, a major leak of documents from a Panamanian legal consultancy firm, Mossack Fonseca, took place. Nearly 11 million documents relating to the firm's services rendered to many government leaders, wealthy individuals and their friends and family was disclosed late Sunday. The leak appears to originate with their transmission of the various materials to the German newspaper The Süddeutsche Zeitun (SZ). Apparently, The SZ sat on the documents for over a year. In their initial article, The SZ says: "Over a year ago, an anonymous source contacted the Süddeutsche Zeitung (SZ) and submitted encrypted internal documents from Mossack Fonseca, a Panamanian law firm that sells anonymous offshore companies around the world. These shell firms enable their owners to cover up their business dealings, no matter how shady."
The SZ goes on to point out that over 2.5 terabytes of data was ultimately given to them and that no financial compensation was given to the source. Initial news stories name many shadowy figures that used the firm to hide some of their funds. The Libyan dictator Moammar Gadhafi is joined by other infamous dictators such as Hosni Mubarak of Egypt and Bashar Assad of Syria. They, in turn, are joined by several not-so-infamous world leaders and their families.
Icelandic Prime Minister Sigmundur Gunnlaugsson and his wife make an appearance in the documents for purchasing what appears to be a shell company. At some point, the Gunnlaugsson sold the company to his wife for $1. Late Sunday calls for his resignation have already reverberated throughout the island's political establishment.
British Prime Minister David Cameron also makes an appearance in the Panama Papers via his late father Ian Cameron. Ian Cameron apparently used the firm which the U.K.'s own BBC describes as "a business that has helped people from around the world break the law." Asked to comment on his father's investment activities, Cameron denied comment with his spokesperson only saying "that [it] is a private matter."
Many of the transactions that Mossack Fonseca helped execute appear to have used firms incorporated in the British Virgin Islands. All of this news breaks only weeks before Prime Minister Cameron himself will lead a summit whose intent is to crackdown on foreign tax havens that help the wealthy evade taxes.
As the documents continue to be sifted through, surely many more individuals will be implicated. Whether or not any of the documents uncovers illegal activities, however, is yet to be seen. Is it possible that British Prime Minister Cameron and his family were within the bounds of U.K. law and were not necessarily evading taxes but merely avoiding them? Of course it is. It is best not to jump to conclusions until we have all the facts.
What will this leak mean for global finance? Well, one of the major centers for tax evasion, Panama, will no longer enjoy its previously held lofty position. The name of the British Virgin Islands as well may be soiled for the near future. However, to predict tax evaders will be deterred from this leak of documents would be naïve at best. As long as there is money to be made in hiding the wealth of other individuals and companies, their will surely be firms willing to do so. The immediate impact of this release, however, will be to shine a spotlight on not only the usual suspects, such as Middle Eastern dictators, but also on those that have propped them up for many decades.
Another important question has also arisen in the wake of these documents. What happened to the billions of dollars hidden by Gadhafi and other now-deceased dictators? Obviously no good samaritan returned these funds to the countries from which they were stolen. So, who is sitting on billions of petrodollars stolen from improvised countries? What steps need to be taken to return these funds? Another important question is why did The SZ sit on these documents for over a year? What government agencies were informed in the interim? Why not break the story then, publish the documents to the public and let local law enforcement officials in respective countries take the necessary steps?
In the coming weeks, the Panama Papers will certainly uncover some of the hidden world of offshore tax havens. What is less certain, however, is if there is any political will to plug the loopholes through which many politicians have also "avoided" taxes.