Top positive review
Comprehensive account of biggest data breach
Reviewed in India on 16 August 2020
One of the pain areas that the rich and the powerful have is about parking their excess money. It is more so if it’s procured in an illegal way. Such people might be having a compelling reason to camouflage their business dealings. They want to hide something from taxman, wife, business partner, business investor or prying eyes of the public. This something might be property, investments, shares, securities, bank account, or even paintings. They want to use their money without evoking any suspicion. They can bootstrap out from any predicament by making their dirty money clean and the means to do it through shell companies. There are thousands of them and their USP is anonymity. Though they have the outward appearance of being a legitimate business all they do is to manage money. They hide the true owners and origin of the money. The shell companies are part of a secretive industry where rich and the powerful hide their asset and set up companies in far-flung jurisdictions. They help their clients to operate behind the veil and secrecy. The clients are not only involved in tax evasion but also in bribery, arms deal, financial frauds, and drug trafficking.
On 3rd April 2016, we came to know about the biggest data breach in history. The repercussion of the scandal touched every corner of the globe. The existence of tax havens was already known but the astonishment factor was the sheer scale of revelations, which dwarfs even the data size released by WikiLeaks in 2010. The biggest data leak was known as Panama Papers. It created an overnight sensation and caused widespread anger. Eleven million documents held by the Panama-based law firm Mossack Fonseca was passed to the German newspaper Sueddeutsche Zeitung, which then shared it with the International Consortium of Investigative Journalists(ICIJ). It contains 2.6 terabytes of data. For a year, a team of 370 journalists accessed and researched the collection. The matter was completely kept secret by all journalists until they agreed-upon a date when a report of the leak’s existence was published for the first time. The documents revealed how the firm had assisted companies and individuals from more than 200 countries to hide their money in offshore accounts, tax havens, and shell companies. It disclosed how the superrich avails these means to conceal their wealth, escape public scrutiny, dodge sanctions, and avoid paying taxes. Even suspected criminals use it to launder illicit earnings. Who leaked the documents to the German journalists in the first place? Nobody knows who leaked the documents. The person is anonymous even to the German journalist.
Now, who all are mentioned in the papers? The names were revealed and related statistics made it not only interesting but staggering as well. Over 140+ politicians and family members of government officials from 33 countries were named in the leak. Some of the prominent names were Argentina President Mauricio Macri, Ukrainian President Petro Poroshenko, Iceland Prime Minister Sigmunder Gunnlaugsson and former Prime Minister of Pakistan Nawab Sharif. Other includes brother-in-law of China’s President Xi Jinping, son of former Egyptian President, former vice president of Iraq, associate and close friend of Vladimir Putin. Accomplices of African dictators, Central American drug barons and convicted sex offenders too figured in the list. The scandal also touches football’s governing body, FIFA. The list is endless. The list of famous people in this dirty and murkier world is so extensive that you are going to lose track.
The chief protagonist Mossack Fonseca was the 4th largest provider of offshore services. It has acted as a registered agent for more than two lakh companies. The firm has handled around 3 trillion-dollar worth of transactions, for their clients from more than 100 countries. The firm was based in Panama and it ran a worldwide operation. It operated in tax havens like Switzerland, Cyprus and the British Virgin Islands. It administered offshore firms for a yearly fee. Its other services included wealth management. The firm had vehemently denied it’s involvement in any wrong-doings. It had always maintained that and had never worked directly with any end clients but only with intermediaries like an asset manager, manager, accounts, lawyers, bank and trust companies. It defended its conduct and claimed to comply with anti-money laundering laws and carry out thorough due diligence on all its clients. It has been masquerading its identity and intent from the world.
What ensued after the leak? As expected, the aftermath was on the predicted line. The story attracted attention among the media and the public. It triggered far more responses from the political sphere. Tax evasion was considered a serious and pressing problem that needs to be tackled. The dedicated committee was set up for inquiry. Raids and investigations were carried out in several countries including Mossack Fonseca's headquarters in Panama. The banks were instructed to hand over all their data on business dealings with the firm. It besmirched the reputation of politicians and particularly people holding high positions in government came under tremendous pressure. The protesters hit the streets and there were demonstrations outside the government offices. Due to the Panama Paper leaks, around 6000 individuals and companies were under investigation worldwide. A large number of clients have fled Mossack Fonseca and switched to competitor offshore companies. The leak obviously had a deleterious effect on the company, who started it all. Due to the damage that is done to their finance and reputation, Mossack Fonseca closed down in 2018, after 41 years in the business.
The country which has been at the receiving end is Panama. There was a time when a huge proportion of drugs used to pass through it. It was notorious for the same reason and was called narcokleptocracy, a term coined by a former presidential candidate John Kerry. It has emerged out of the uncertain past but the dishonesty and illegal tag refuse to go. There has been an allegation that the country is filled with dishonest lawyers, dishonest bankers, dishonest company formation agents, and dishonest companies. It’s an attractive destination for money laundering and had become a hub for shenanigans.
It’s a neo-feudal concentration of wealth, where a small group of rich people is not only hiding their money and avoiding taxes but also evading the law. There are dozens of companies worldwide that specialize in selling shell companies. In the tax havens, you simply cannot set up shell companies yourself and would need a registered agent, who would prepare all the paperwork required by the local authorities and looks after the payment of the annual fee. As mentioned before, most of these companies do not directly interact with the intermediaries. At least, that’s what most of these companies claim but it’s not always the case. Usually, the official address of the shell companies is the same as that of the registered agent. When you have a shell company, you don’t want it in countries like London, New York or Paris. The authorities can easily find out who owns it if they really want to. Instead, you need a tax haven and usually, it’s based out in small countries with a great deal of banking secrecy and very low non-existent taxes on financial transactions. It’s the secrecy that makes them attractive to tax evaders and crooks the world over. Whether the leak has completely vanquished such activities are debatable. It’s just the tip of the iceberg and difficult to predict any downturn in such a secretive world. Using offshore structures is legal though. There are many legitimate reasons for doing so like protecting it from raids by criminals and get around hard currency restrictions. Other use can be for the reason of inheritance and estate planning.
It’s an exhaustive account of the dirty, unsavory, murkier and opaque world of offshore companies. Despite the leaks and countless articles that followed, it’s still a difficult subject to grasp initially. You need to have a fair bit of understanding and about the modus operandi of these companies. Otherwise, it’s extremely difficult to follow. If you had not studied about the leaks in detail before, then the revelation of some names is still going to surprise you. It breaks your trust too in the system. If you have a basic understanding of the subject matter, then you are going to find it well narrated. Kudos to the author. Beyond that, the German journalist Bastian Obermayer with whom the whistle-blower first connected deserves praise for his dexterity and deft handling of the matter. So is, ICIJ for gathering such a large team from different countries for the project, who followed the necessary protocol of secrecy. Any book that has come out on the subject is the result of piggybacking on the team’s work. The subject matter deviates from what you and I usually read. The content is the king, which makes this book highly recommended