By David Huter
On 3 April 2016, the German newspaper Süddeutsche Zeitung announced that 11.5 million confidential documents had been leaked from the firm to journalists.[1] This is the biggest information leak, ever.[2] To give an idea of how big this is, if you add up all the major leaks in the past 5 years, then it won’t even equal a quarter of the information that was released in the panama papers.[3] Wiki-leaks/cable-gate was 1.7 Gigabytes, Swiss-leaks/ICIJ was 3.3 Gigabytes, Luxemburg leaks/ICIJ was 4 Gigabytes, and the next closest was the Offshore-leaks at 260 Gigabytes.[4] By comparison the Panama Papers is equal to 2600 Gigabytes, or 2.6 Terabytes of data dating back to the 1970s.[5]
What is said in the Panama Papers?[6] It shows how many people have hidden their income and participated in tax evasion for decades.[7] “Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.”[8] A distinction is to be made between what a tax shelter and a tax haven is.[9] “Tax havens are locations around the globe known for having lax or nonexistent tax laws that allow individuals or companies to vastly reduce their tax liabilities by holding their assets offshore. Tax shelters are simply investment accounts, securities, investment and tax-planning strategies that minimize tax liability within your own country’s tax system.”[10] Both are legal to an extent, but what the Panama papers reveal are processes of many individuals who have committed tax evasion to utilize tax havens and avoid paying taxes at all cost to the US government and many other countries around the world.[11]
Bradley Birkenfeld, a Swiss banker and American citizen, is who is thought to be the mastermind behind the leak.[12] He denies these allegations, although he was the whistleblower and received compensation for it (as well as prison time), and actually believes this is the work of the CIA.[13] The idea is reinforced by the fact that no American politicians’ names are included in the information.[14] Regardless Birkenfeld explains that there was a process or “maze” that banks and lawyers would go through to hide the earnings of their clients; and that process almost always included the law firm Mossack Fonseca.[15]
Mossack Fonseca is a panama Based Law firm who began legally providing its trust services in 1993.[16] It has 44 law offices all over the world, including nine in China.[17] The firm has publically denied allegations against it and said that the papers have “misrepresented” their work.[18] They further state that even if their clients have participated in tax evasion it is because their clients have “misused” their services; and that they try to prevent this by taking active precautionary steps.[19]
Regardless of Mossack Fonseca’s statements denying media allegations, and questions behind the mastermind of the leak this is a colossal exposure to tax evaders all over the world. Information like this is what many countries have been looking for to fix their tax codes. Many tax codes, including the United States Code Title 26, will likely be updated. Furthermore, many countries will be able to pursue the evaded taxes as far back as the statute of limitations for their countries may go.
[1] Frederik Obermaier et al., Süddeutsche Zeitung, Das sind die Panama Papers, Süddeutsche Zeitung (Apr. 3, 2016 7:50 PM), http://panamapapers.sueddeutsche.de/articles/56ff9a28a1bb8d3c3495ae13/ (last visited Apr. 15, 2016).
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] Luke Harding, What are the Panama Papers? A guide to history’s biggest data leak, theguardian (Apr. 5, 2016, 5:42 AM), http://www.theguardian.com/news/2016/apr/03/what-you-need-to-know-about-the-panama-papers.
[7] Id.
[8] Id.
[9] Claire Boyte-White, Tax Haven Vs. Tax Shelters: Is There a Difference?, Investopedia, http://www.investopedia.com/articles/personal-finance/093015/tax-haven-vs-tax-shelters-there-difference.asp (last visited Apr. 15, 2016).
[10] Id.
[11] Jeff Gray, ‘Panama Papers’ reveal offshore tax evasion, money laundering among global elite, The Globe and Mail (Apr. 3, 2016, 9:02 PM), http://www.theglobeandmail.com/news/world/leaked-data-from-panamanian-law-firm-point-to-prominent-figures/article29507129/ (last updated Apr. 4, 2016, 6:23 AM).
[12] Eamon Javers, Swiss banker whistleblower: CIA behind Panama Papers, CNBC (Apr. 12, 2016, 12:11 PM), http://www.cnbc.com/2016/04/12/swiss-banker-whistleblower-cia-behind-panama-papers.html.
[13] Id.
[14] Id.
[15] Id.
[16] Mossack Fonseca & Co., The Legal 500, http://www.legal500.com/firms/51479-mossack-fonseca-co/offices/54418-panama-/profile (last visited Apr. 15,2016).
[17] Matt Herring, Shells and shelves, The Economist (Apr. 7, 2016), http://www.economist.com/node/21552196.
[18] Statement Regarding Recent Media Coverage, Mossack Fonseca, http://mossfonmedia.com/wp-content/uploads/2016/04/Statement-Regarding-Recent-Media-Coverage_4-1-2016.pdf (last visited Apr. 15, 2016).
[19] Id.