A massive document leak has confirmed what many likely already knew: The world’s elite are hiding their wealth in tax havens. And just a few days after going live the news is already creating shakeups in international governments.
Over the weekend, the International Consortium of Investigative Journalists ripped the doors off of the global finance vault by leaking more than 11 million documents containing details about the financial portfolios of prominent politicians, celebrities, private business people and more. The data cache, called the Panama Papers, comes from the Panamanian law firm Mossack Fonseca, an international company that has been helping clients set up offshore accounts and manage their wealth … by hiding it in tax havens.
“The data provides rare insights into a world that can only exist in the shadows,” reports Süddeutsche Zeitung, the German newspaper that initially received the documents and then turned them over to the ICIJ. “It proves how a global industry led by major banks, legal firms, and asset management companies secretly manages the estates of the world’s rich and famous.”
Using tax havens to hide wealth is the kind of “open secret” that draws cheers from the public when a politician shouts “No more!” It’s the kind of practice usually attributed to sneaky corporate big wigs and Wall Street fat cats – you know, the obviously Evil People – and is an easy villain for everyone to collectively wag their fingers at. But the Panama Papers show that world leaders have been using these methods to keep their own wealth safe from taxes, suggesting that if you have the right amount of money you’re above paying your fair share. Even if you’ve been publicly elected to do your job.
Officials from around the world, including 12 current and former heads of state and about 140 other leaders from 50 countries, are implicated in the documents. So far, 3,500 people named in the Papers gave Mossack Fonseca a United States address, but it is yet to be confirmed how many of those are actual U.S. citizens. And while they have yet to find any influential American figures, the papers do name Syrian president Bashar al-Assad, Ukrainian president Petro Poroshenko, Pakistani Prime Minister Nawaz Sharif and a host of Saudi royalty. British prime minister David Cameron hasn’t been named, but his father is shown to have run an offshore investment fund that managed millions of pounds and never paid any U.K. tax on profits. And a close friend of Russian uber-leader Vladimir Putin has been connected to $2 billion worth of assets running through the Panamanian firm.
[quote position=”left” is_quote=”true”]The data proves how a global industry led by major banks, legal firms, and asset management companies secretly manages the estates of the world’s rich and famous.[/quote]
Governments around the world, including the U.S., are allegedly working to review the papers, while opposition politicians like Jeremy Corbyn in the U.K. have begun calling for transparency from those implicated. In the United States, probably unsurprisingly, Bernie Sanders has positioned himself on the right side of history, having opposed a 2011 free-trade agreement with Panama citing concerns that it would made this kind of offshore evasion easier. In Iceland, massive demonstrations aimed at forcing Prime Minister Sigmundur Gunnlaugsson to resign have drawn thousands into the streets. The Papers showed that Gunnlaugsson used an offshore firm to hide financial interest in the country’s collapsed banks, and news broke midday Tuesday that he will give in to protester demands for his resignation. He is the first casualty of the leaks.
But even if what Mossack has helped clients do is morally wrong, there’s no indication that the leaked activity is actually illegal, and until Tuesday that was Gunnlaugsson’s main defense. Despite being massively shady and publicly reviled, these kinds of shell corporations and offshore investments can be legal if done correctly. Going after these kinds of practices has generated major political capital in the wake of the global recession that many countries are still recovering from, but the question of whether politicians can actually pass changes that would make hiding wealth in tax havens at least close to impossible has always been up for debate. These papers cast even longer shadows on those promises while showing the extent to which the wealthy are able to dodge their civic financial obligations.
The fact is, these papers might not change any of these dubious practices. But the scandal does highlight what has become a lightning rod issue around the world: income and wealth disparity in the age of austerity. Think of these papers as a massive arrow pointing straight at the 1 percent and the totally separate world in which they operate. Pulling that world out of the wings and onto the public stage is a pretty significant step in getting rid of these kinds of practices, because we can’t fight what we don’t know even exists.
And more importantly, the Panama Papers could be just the tip of the iceberg. Mossack Fonseca is only the fourth largest firm handling these kinds of accounts, meaning there are at least three more with even longer client rosters hiding even larger sums of money. With increased scrutiny and public demand, data dumps like what we’re seeing in the Panama Papers give hope that the world of offshore finance need not remain opaque forever – that what’s done in the dark can be brought into the cleansing light of day.
