The Panama Papers: Explained

4th April 2016 By ,   0 Comments

It’s being described as the biggest leak of data in history, bigger than both Wikileaks in 2010 and Edward Snowden’s big leak in 2013, so what’s the biggie with the so called Panama Papers?


What exactly are the Panama Papers?


11.5 million confidential documents and 2.6 terabytes of information (1 terabyte is equal to 1024 gigabytes, the largest iphone you can get is 128 gigabytes) were leaked from a super secretive Panamanian law-firm called Mossack Fonseca by an anonymous source to German newspaper Süddeutsche Zeitung.


370 reporters from 100 media organisations have spent the last year analysing and verifying the documents. Called the Panama Papers, the documents reveal how the world’s filthy rich hide their money offshore. Forget stashes of cash sealed in boxes at the bottom of the ocean and instead think networks of  absurdly well-connected people, tropical places and in some circumstances cellists to launder money, dodge sanctions and evade tax (more on those later).


Panama Papers: Whodunnit?


Mossack Fonseca is the fourth largest offshore law firm and operates in tax havens including Switzerland, Cyprus and the British Virgin Islands as well as Guernsey, Jersey and the Isle of Man, safe to say it’s a global operation.


Offshore law firms are firms set up in tax havens, these are countries or areas with little tax and weak or low tax regulation. These law firms, like Mossack Fonseca, give legal advice to super rich people (from countries with high tax) on how best to take advantage of tax havens. Tax havens do not require that an individual or company has to operate out of the place where the haven is situated in order to benefit from it’s low tax. This is a completely legal practice.



This is also why we can see Mossack Fonseca strongly defending its conduct, stating it has operated without criticism for 40 years and that it’s never been accused or charged with criminal wrong-doing. The law firm has said it won’t discuss specific cases of suspected wrongdoing and that it complies with anti-money-laundering laws.


What’s the big deal with the Panama Papers?


Mossack Fonseca has been accused of helping some of its clients break the law through laundering money; making money that was illegitimately obtained seem like it was legitimately obtained.

Dodging sanctions; some of the documents released are said to show how clients of Mossack Fonseca included 23 individuals with sanctions imposed on them for for supporting the regimes of North Korea, Syria, Iran, Zimbabwe and Russia. Mossack Fonseca is accused of assisting said individuals to dodge these sanctions. Evading tax; a person or a company underpaying their tax or hiding their income. If you’re discovered evading tax you’ll probably be faced with criminal charges, that’s how seriously people take it. Tax evasion is different to tax avoidance which is completely legal and occurs when big companies or wealthy individuals use legal tax loopholes to reduce how much tax they pay.



Mossack Fonseca doesn’t deal with just anyone, their clients are some of the richest, most famous and well connected people and politicians in the world. They include 72 current or former heads of state and incorporates connections to controversial leaders including Libya’s Muammar Gaddafi, Egypt’s Hosni Mubarak and Syria’s Bahir al-Assad.


The documents mentioned six members of the UK’s House of Lords, three Conservative MPs and a fair few big donors to UK political parties.


Russian President, Vladimir Putin has been suspected of money laundering in connection with the Panama Papers.

Perhaps the biggest fish to be caught in the Panama Papers’ web is Russian President, Vladimir Putin. A $2 billion trail leads all the way to Putin through a number of his very close associates. His close friend Sergei Roldugin (a very talented cellist) was found at the centre of a scheme in which money from Russia’s state banks were hidden offshore. The files don’t directly name Putin but it’s suspected that Putin is part of a billion dollar money laundering ring.


Are using tax havens legal?


The release of the Panama Papers raise big questions about tax avoidance and tax evasion.


One side says; if it’s legal to use offshore structures, which it is, then people should be able to use them for the many legitimate reasons. For example, business people in countries like Russia who put their assets offshore to protect them from criminals and in another instance, people using offshore law firms for advice on how to reduce paying too much tax on inheritance and estate planning (which is managing the transfer of the real estate, assets, personal belongings and debts after a person’s death).


The other side calls for more transparency and reform when it comes to tax avoidance. Many argue this system is open to abuse. Not everyone who uses them are so honest or nice for that matter. Such havens are perfect for corrupt criminals and money launderers. They take advantage of the privacy laws which are often very strict and the anonymous company structure which makes weaving an intricate money trail that’s hard to follow, quite easy to do.


As information from the leak continues to be unveiled and it’s revealed further how some of the most powerful and wealthy people in the world handle their millions, calls for system change are likely.

Subscribe to our weekly explainer The Week: Decoded, like us on Facebook and follow @scenesofreason on Twitter.

No comments yet

Leave a Reply