Countries with politicians, leaders and public officials associated with the Panama Papers
“For what does it profit a man that he should gain the whole world and lose his soul.” Mark (8:36)
TIM LAM
It has been described as the biggest data leak in history. An estimated 11.5 million files were leaked from the database of Mossack Fonseca, a little-known law firm in Panama. The Panama Papers, as they are popularly known, offer a glimpse into the practices used by individuals and corporations to set up shell companies in offshore tax havens.
Crosslight attempts to explain the importance of the findings of the Panama Papers.
Mossack Fonseca
Mossack Fonseca is a Panama-based law firm and the fourth biggest provider of offshore services in the world. It registers shell companies in tax havens on an industrial scale. In a statement released in response to the Panama Papers, Mossack Fonseca stated they are “responsible members of the global financial and business community” and “conduct thorough due diligence on all new and prospective clients”.
Shell companies
Shell companies exist only on paper, with no office or employees. Many clients use these offshore structures to keep their identities confidential. Though legal, the anonymity provided by this system is open to abuse by criminals and businesses that wish to avoid paying tax. The team of global journalists who investigated the Panama Papers said some of the offshore companies were used to facilitate large-scale money laundering, tax avoidance, bribery, fraud, drug trafficking and arms dealing.
According to the documents, more than half of the companies incorporated by Mossack Fonseca are registered in the British Virgin Islands. The Caribbean territory’s lax disclosure requirements make it an ideal destination for companies that seek to operate behind a wall of secrecy.
Mossack Fonseca’s clients
More than 214,000 offshore companies were listed in the Panama Papers. These accounts were linked to politicians, billionaires, celebrities, sports stars and people associated with organised crime.
Twelve current and former heads-of-states have been named in the papers, including Icelandic Prime Minister Sigmundur Gunnlaugsson. Mr Gunnlaugsson resigned following revelations that he did not disclose an offshore company owned by him and his wife.
Other clients include relatives of world leaders. Many of these leaders have publicly declared their support for greater financial transparency. The files revealed offshore companies linked to the family of Chinese President Xi Jinping and the late father of British Prime Minister David Cameron.
The Australian Tax Office is currently investigating more than 800 Australian clients of Mossack Fonseca. Wilson Security, the company subcontracted to run security for Australia’s offshore detention regime, has also been mentioned in the documents.
The human impact
The human impact of tax avoidance is substantial. A company selling a prospective oil field in Uganda is believed to have used Mossack Fonseca’s services to avoid paying $400 million in taxes – more than Uganda’s annual health budget. The lives of millions of people are made more difficult when money is siphoned away from essential services they rely on.
The Uniting Church has actively campaigned for a more transparent and equitable global tax system through the Tax Justice Network.
The Tax Justice Network estimates more than $30 trillion is invested in offshore tax havens. This directs money that could be used for poverty alleviation, education, climate change and health services into the offshore accounts of wealthy elites. Research shows that developing countries lose more money through tax avoidance every year than they gain through aid.
Dr Mark Zirnsak is director of the synod’s Justice and International Mission (JIM) unit and spokesperson for Tax Justice Network Australia.
“Our government has known for a long time that shell companies with concealed ownership are used to assist wealthy people and criminals in tax evasion and avoidance, money laundering, fraud, and the illicit arms trade,” Dr Zirnsak said.
A key step towards increasing transparency is to require companies to disclose their real owners in a public register. The absence of a public register makes it virtually impossible to determine who is in control of, or benefiting from, anonymous shell companies.
At the 2014 G20 Summit in Brisbane, the Australian government pledged to introduce legislation that requires companies to publicly disclose their owners. However, a Transparency International report last year found Australia had complied with only one of the 10 principles they agreed to at the summit.
Tax avoidance has been on the federal government’s agenda and the Panama Papers is likely to increase pressure on the Turnbull government to clamp down on corporate tax avoidance. Assistant treasurer Kelly O’Dwyer has indicated the Coalition government’s intention to create a public register ahead of an international tax avoidance and evasion summit in May.
Dr Mark Zirnsak said implementing the G20 pledges should be Australia’s immediate response to the Panama Papers.
“It is time the Australian government required the ultimate owners and controllers of companies to be made public,” he said.
A coalition of Australian organisations, including UnitingJustice Australia and the Tax Justice Network, signed an open letter to Prime Minister Malcolm Turnbull, urging him to take action on tax dodging. The signatories called on Mr Turnbull to outlaw the use of shell companies with concealed ownership and tighten regulations around corporate transparency.
“By allowing corporations and wealthy people to set up shell companies and shift profits offshore, our politicians are giving the mega rich the tools they need to hide public money through tax dodging,” the letter said.
“All we are asking is that there is one set of rules for everyone. Not one set of rules for the mega rich and another set of rules for everyone else.”
Rev Elenie Poulos, national director of UnitingJustice Australia, said taxation is a profoundly moral issue.
“A fair tax system is one of the most important tools we have for achieving a society where all people can flourish,” she said.
“The revenue being lost to the government by tax avoidance directly affects the quality of life in our country and the quality of life of our neighbours in some of the most impoverished communities around the globe.
“It is time for the government to act so that we have a tax system that benefits those who need it most.”
The revelations from the Panama Papers are just the tip of the iceberg in a much larger world of opaque offshore dealings. When individuals and companies exploit legal loopholes to avoid paying their fair share of tax, it is disadvantaged and marginalised people who suffer the most.
- More than 2.6 terabytes of data were leaked from the accounts of Mossack Fonseca. This is 2,000 times larger than the WikiLeaks files.
- The data spans from 1977 to December 2015.
- 12 current and former heads of states were named in the papers, including Iceland Prime Minister Sigmundur Gunnlaugsson, relatives of Syria’s President Bashar al-Assad, friends of Russian President Vladimir Putin and members of China’s Communist Party elite.
- Twenty-nine Forbes-listed billionaires were listed in the documents.
- More than 300 journalists from 107 media organisations in 76 countries investigated the papers.
- The International Monetary Fund estimates that developing countries lose approximately $200 billion each year due to multinational tax dodging. Developing countries receive an estimated $140 billion in aid.
The Panama Papers and the Uniting Church
The Panama Papers has exposed a world where some law firms and accountants are happy to set up shell companies with concealed ownership. The secret ownership means the company can be used to facilitate all sorts of harm, including tax evasion, tax avoidance, human trafficking, money laundering, financing terrorism, commercial online child sexual abuse, illicit arms trading, fraud, embezzlement and bribery.
For the Christian community, we should respond by asking our government to take steps to combat the formation of shell companies with concealed ownership. Responding to Jesus’ call to love our neighbours means we need to seek a community and a world where people are not easily able to establish companies for the purpose of harming others.
Shell companies sometimes serve legitimate business purposes, such as ensuring a company name cannot be used by others. But there is never a legitimate reason to hide the ownership of such companies.
The problem has been around for some time. The Australian Taxation Office previously stated: “Over a hundred Australians have already been identified involving tens of millions of dollars in suspected tax evasion through the use of ‘shell companies’ and ‘trusts’ around the world.” In October 2013, the Australian Federal Police charged three men with tax and money laundering offences involving $30 million. It is alleged they used a complicated network of offshore companies to conduct business in Australia while hiding the profits offshore, untaxed. The profits were then transferred back to Australian companies controlled by the offenders and disguised as loans so the interest could be claimed as a tax deduction. The level of alleged criminal benefit was estimated at $4.9 million.
When wealthy people hide their wealth offshore and avoid paying tax, we all suffer: our schools are forced to rely on the charity of parents to buy the equipment they need to teach our kids, our hospitals have to turn away people in need of beds, while others are left sleeping rough on the streets. The impact for people living in developing countries, where government funded services often mean the difference between life and death, are even worse.
Back in 2013 US, authorities sought to seize assets worth nearly $37 million held in three Westpac accounts by Technocash Ltd, an Australian registered company. The funds were allegedly connected to shell companies owned by the same people that ran Liberty Reserve, an online bank operating out of Costa Rica. This bank was set up by criminals, for criminals. From 2006 to May 2013, Liberty Reserve had about one million such criminals as customers, processed an estimated 55 million financial transactions and is believed to have laundered more than $7 billion from the proceeds of crime.
The World Bank and United Nations Office on Drugs and Crime (UNODC) have previously conducted research showing how shell companies with concealed ownership are used to facilitate a range of criminal activity. They published a report, Puppet Masters, reviewing some 150 cases of corruption involving laundered money. In half the cases where a company was used to hide the proceeds of corruption, the company was a shell company.
In 2006, the Howard government introduced the first comprehensive round of laws to curb money laundering. Lawyers, accountants and corporate service providers (companies that set up companies for others) were to be brought under the anti-money laundering laws at a later time. In early 2015, the Financial Action Task Force, the international standards body, reminded the Australian government of this commitment when it reviewed the nation’s anti-money laundering laws.
When implemented, this reform would mean lawyers, accountants and corporate service providers in Australia could not set up companies with concealed ownership or act on behalf of such companies, including when they are set up offshore. They would be required to report suspicious activity that might be criminal to law enforcement authorities.
It needs to be illegal for Australian residents to sell themselves as front people for shell companies where the real owners are concealed.
Back in 2010, at a G20 meeting, the government agreed to provide legal protection for whistleblowers in the public service and in private business. It restated this commitment in 2012. While we now have laws that protect whistleblowers in the public service, whistleblowers in the private sector who expose tax evasion, tax avoidance and other wrong-doing have almost no protection. More than 18 months ago, the Senate Economics Committee recommended protecting private sector whistleblowers.
The Australian Securities and Investment Commission publicly admitted it has inadequate powers to protect whistleblowers. But whistleblowers play a vital role. It is most likely a whistleblower connected to Mossack Fonseca who helped leak the Panama Papers.
The Abbott and Turnbull governments have done some worthwhile things to take on the problem of offshore tax dodging. The Australian Tax Office is now part of a global system that automatically shares information with tax authorities around the world, making it harder for the wealthy to hide untaxed income. The government has also joined the global system of forcing large multinationals to report their financial affairs on a country-by-country basis. Tax authorities will thus be able to see if the country where businesses are reporting their profits is actually where they are conducting their business. The system will help expose the methods corporations use to sneak profits to places where they do no real business and where shady governments cut them special tax deals.
The Panama Papers are a timely reminder for the government of the checklist of things that remain to be ticked off in regards to tackling evasion, tax avoidance and other cross-border wrongdoing.
Dr Mark Zirnsak,
Justice and International Mission
Uniting Church Synod of Victoria and Tasmania
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