The Panama Papers: Water in the Ants' Nest

The daily release of a mountain of classified information about the enchanting world of "tax havens" and "shell companies" by over a hundred media outlets in seventy-six countries, coordinated by the "International Consortium of Investigative Journalists," has created a storm across much of the world and raised sensitive and important questions for both governments and civil society. The discussion revolves around eleven million five hundred thousand files that have leaked from the archives of a massive law firm in Panama named "Mossack Fonseca." This is the largest volume of information that has been made available to the media and international public opinion without the permission of the original holder. Among this information, which has become known as the "Panama Papers," alongside the names of thousands of unknown individuals, there are prominent names belonging to figures in politics, famous billionaires, sports celebrities, and individuals who have been subject to international sanctions. All of these are accused of using the services of "Mossack Fonseca" to hide their assets or evade taxes in their countries. This law firm, which essentially resembles a large multinational corporation and is one of hundreds of similar companies worldwide, has registered an average of nine thousand "shell companies" annually over the past fifteen years. To clarify how "tax havens" and "shell companies" operate, we use the following hypothetical example: An English citizen receives one million dollars as a "commission" from brokering between a German arms factory and an African country. The broker does not want to transfer this amount to one of his country's banks because he does not want the source to be revealed or is unwilling to pay the taxes owed on this income to the British government. Not long ago, the objectives of this English individual could be easily met. For instance, he could ask the parties involved to transfer his money to an account in one of Switzerland's banks, as he was confident that this country was a very secure refuge for anyone who, for various reasons, wanted their bank accounts to be "ironclad" and pay very little tax on potential income from this account. In other words, sheltering such money was Switzerland's specialty, and hundreds of corrupt dictators and holders of "dirty money" utilized this expertise. The massive disclosure of the "Mossack Fonseca" archives has created serious troubles for a number of world celebrities whose names have surfaced, especially those living in democratic Western countries who must account for their actions. Among this latter group, the Prime Minister of Iceland has been forced to resign, and the Prime Minister of Britain is facing more or less serious difficulties. For about the past ten years, having such accounts in Swiss banks (or Luxembourg, Liechtenstein, Monaco, etc.) has been fraught with risk, partly because Switzerland, following treaties with the European Union, has committed to report information about the bank accounts of European citizens to their respective countries. Regarding non-European countries, Switzerland has fundamentally decided to abandon its old specialty as a refuge for "dirty money" in light of ongoing developments in international tax payment laws. In this situation, what should the English broker do? Instead of opening an account in Switzerland, he can refer to banks located in distant "tax havens" such as Panama, Dubai, or the Cayman Islands. The problem there is that these banks are not reliable. A more secure option is to keep the money in the Swiss bank, but change the account holder. Moreover, to ensure more security, it is better for the account holder to be a legal entity (a company) rather than a natural person (the English individual). With this calculation, the English broker visits a law firm specializing in financial matters, for example, in Paris, and through this office contacts the "Mossack Fonseca" firm in Panama. This firm establishes a "shell company" for him in Singapore and registers an account in a Swiss bank in the name of this company. To ensure further concealment, there are additional options that will not be discussed here to avoid making the matter lengthy and complex. The massive disclosure of the "Mossack Fonseca" archives has created serious troubles for a number of world celebrities whose names have surfaced, especially those living in democratic Western countries who must account for their actions. Among this latter group, the Prime Minister of Iceland has been forced to resign, and the Prime Minister of Britain is facing more or less serious difficulties. The aftershocks of this storm will not settle easily, especially considering the intense sensitivities that have arisen in civil societies of Western democracies regarding this issue. However, one must refrain from hasty judgments and condemnations without trial. Not all companies that exist "offshore" serve corrupt assets or tax evasion. A large number of Western companies established in Singapore utilize the vast financial, stock market, banking, and technical infrastructure of this dynamic country for commerce and investment. It is true that these companies have no relation to "shell companies," which primarily serve as a mailbox. On the other side of the world, citizens of some developing countries, as they are deprived of a normal business environment in their own lands, are forced to go abroad to establish companies in favorable territories for such activities. For instance, one can refer to hundreds of Iranian companies that have established themselves in Dubai. Regarding the "Panama Papers" and the thousands of names found within them, caution is warranted. Nevertheless, there is no doubt that this event should be viewed positively. Tax evasion has become a significant plague in democratic Western societies, and several prominent European and American companies have mastered this practice. In 2009, decisive decisions were made to combat this plague at the G20 summit held in London. More than thirty countries, including many European nations, will automatically exchange all banking data related to their citizens starting in 2018. Many "tax havens," from Switzerland to Singapore and Luxembourg, have committed to financial transparency. However, one should not expect miracles in this regard. The avenues for tax evasion will not be closed so easily. Engaging in legal assemblies to evade taxes is certainly a disgraceful act, but even more disgraceful is the billions of dollars of "dirty money" that corrupt politicians and mafia organizations keep in their names and those of their relatives using "shell companies." In recent days, in connection with the "Panama Papers," there has been much discussion about the oligarchs of Russia and close associates of Vladimir Putin, the President of Russia. It seems that the "Red Aristocracy" in the People's Republic of China and their offspring have also made extensive use of the services of "Mossack Fonseca." Among other clients of this Panamanian law firm, one can mention the owners of dictatorships in the Middle East and North Africa, from members of Bashar al-Assad's family to close associates of the former Libyan leader and the entourage of the King of Morocco. With the publication of the "Panama Papers," and the water spilled in the ants' nest, it is likely that more secrets will be revealed.