The explosive Pulitzer Prize-winning global media project known as the ‘Panama Papers’ turned three years old this week, and there are many reasons to celebrate. Twenty-three countries have already recovered at least US$1.2 billion in taxes, heads of government implicated in corruption or tax avoidance have resigned or faced prosecution and there have been investigations in at least 82 countries. Mossack Fonseca, the law firm at the centre of the story, has shut down and the Panama Papers have prompted high-level political debates and expedited policy reforms around the world.
The secrecy industry
At the centre of it all was a Panamanian law firm and corporate service provider, Mossack Fonseca. An anonymous whistleblower shared documents from the firm with the German newspaper Süddeutsche Zeitung. For nearly a year, the newspaper analysed the leaked documents together with the International Consortium of Investigative Journalists – a journey depicted in a new documentary film.
In its forty years of existence, Mossack Fonseca created 214,000 shell companies. Documents show that the firm registered most of these companies in other tax havens – most notably in the British Virgin Islands – making their real owners untraceable through public records. These offshore companies held accounts in European banks – a popular model in the financial secrecy industry, as more recent journalistic investigations have also shown.
Why go through the trouble? A common claim by users of offshore companies is that they do so out of privacy concerns. But, as the Panama Papers and subsequent investigations have demonstrated, these parallel structures all too often deliberately service the needs of those who wish to conceal conflicts of interest, pay bribes, avoid sanctions, cheat tax collectors and launder money.
Behind the shell companies set up by Mossack Fonseca hid at least 140 politicians and public officials, including 12 government leaders, former or at the time. There were also 33 individuals or companies who had been blacklisted and sanctioned by the US government for money laundering, trafficking, terrorism and fraud.
The company’s founders had used an analogy to justify their business model: just as a car manufacturer cannot be held liable if their product is used to commit robberies, Mossack Fonseca was not accountable for the possible crimes committed using the financial vehicles it provided to individuals and corporations.
That was not entirely true, however. While offshore company formation is a legal business, leaked emails seen by the investigative journalists exposed how the company dealt with known criminals, backdated documents and obscured evidence.
The second leak of the Mossack Fonseca documents in August 2018 showed just how much the company scrambled to cover up violations of beneficial ownership transparency rules in the immediate aftermath of the scandal, Ukraine’s president Petro Poroshenko among them.
While the initial investigations into Mossack Fonseca by Panamanian authorities did not go far, in 2017 the firm’s two founders were arrested in Panama in connection to the Lava Jato corruption scandal, as part of an ongoing joint investigation with Brazilian prosecutors. In December 2018, the US authorities also charged four former employees of the firm.
European banks, who moved the dirty money of companies set up by Mossack Fonseca, are also increasingly being held liable for violating national and international anti-money laundering rules. Germany’s biggest bank, Deutsche Bank, which held accounts of shell companies owned by the convicted former Prime Minister of Pakistan Nawaz Sharif and his daughter, was raided in November 2018.
Just a week ago, investigative reporters alleged that Swedbank may have misled US authorities in their Panama Papers investigation, which is likely to prompt another probe. The bank has come under fire after Swedish investigative journalists revealed it had in fact dealt with suspicious Danske Bank clients, contrary to what the bank had repeatedly claimed.
These unfolding developments suggest that the full breadth of all crimes committed have yet to be revealed. As investigations into the Panama Papers continue across the world and more authorities examine the evidence contained in the Panama Papers, we can expect to see more investigations, more arrests and more accountability in the years to come.
New transparency norms in creation
In the wake of the Panama Papers revelations, 300 leading economists argued that tax havens serve no useful economic purpose and called for tax transparency in an open letter to governments preparing for the 2016 Anti-Corruption Summit in London.
Spurred by the scandal, the Summit saw many high-level commitments from over 40 countries, including on beneficial ownership transparency, although some governments were just repeating previous commitments made at other international fora, including the G20 and the Financial Action Task Force. Three years later, Transparency International UK’s pledge tracker shows that over half of those commitments have yet to be implemented.
An analysis compiled by the Reuters Institute for the Study of Journalism found that “16 countries or international bodies achieved at least one substantive reform related to the Panama Papers by March 2019.” Good news maybe, but despite the exposure, the key government players in the offshore industry – the British Overseas Territories, Panama, United States and others – have yet to reform their financial systems and close important loopholes that allow abuse.
The leaks also helped drive home the important role of whistleblowers who reveal corporate wrongdoing, and contributed to a shift in priorities that will culminate in the EU directive on whistleblower protection.
Despite these wins, there is a long way to go before we can be confident that governments and international authorities are effectively detecting and preventing cross-border corruption and financial crime. Local and international civil society, including Transparency International, are helping advance much-needed reforms.
Citizens on the ground have an ever more important role in demanding that governments adopt and enforce laws that would prevent such abuse from happening again. Only with the widespread consensus in our societies will these efforts translate into a long-term change in attitudes and behaviours.
This weekend, whistleblowers, investigative journalists, researchers, academics and artists are coming together in Berlin to discuss the ‘dark havens’ within the global financial system. Join us if you’re in Berlin or watch live!