Many people took to the streets in Iceland to demand the resignation of Prime Minister, Sigmundur David Gunnlaugsson. After widespread calls for his resignation, the Prime Minister stepped down, as an apparent casualty of the Panama Papers leaks.
Using offshore accounts in tax havens with deliberately poor disclosure and transparency has already become something common for the rich and powerfull when they want to hide their wealth.
The Panama Papers case where more than 11 million files were leaked from the law firm Mossack Fonseca, points out that this habit of hiding your wealth is actually performed at an industrial scale.
The Panama Papers show how secretive offshore tax packages were created for world leaders, their associates, politicians and celebrities. Thus billions of euros were hidden from the authorities responsible for the payment of corresponding taxes.
Of course, it is not illegal to own an offshore account or to use an offshore company and Mossack Fonseca insists that its activities are within the legal framework.
But from an ethical standpoint, there are questions of great importance in connection with the practices highlighted in the books that were sent through a anonymous channel to the German newspaper ‘Süddeutsche Zeitung’, that have been shared with other news organizations through the International Consortium of Investigative Journalists (ICIJ).
Mossack’s specialty is to set up offshore companies that are hard to follow. Customers are people from around the world and everything is being done in a confidential and secret setting. At the same time, these systems can be abused and the motives behind the actions of those involved in such practices raise important questions.
International tax experts are in a quite morally dubious world and this is precisely why the idea of paying your taxes as one should, is rarely brought into the discussion.
An example of the sharp practice used by the law firm can be observed by the fact that it uses bearer shares that question who is actually the owner of the companies and their properties. This type of certificate provides owership on a company to whoever physically possesses it, while ensuring that their name does not appear in any share register.
The OECD has actively sought to eliminate the use of such certificates. However, when the British Virgin Islands cracked down on bearer shares in 2005, Mossack Fonseca did nothing else but to move to Panama all of its customers that use this kind of share.
Below you have the opinion of tax specialist, Jolyon Maugham:
How much do all the schemes implemented by the company fit into the legal framework will remain to be seen when the tax authorities from different countries will have access to the Panama Papers documents. Some of them have already started investigations in this regard and asked to have access to the data.
One of the messages that the ICIJ investigation would like to convey is that, most often, there are quite complex consequences for the rest of the people, as a result of the fact that the rich hide their wealth.
One of the most obvious examples is Uganda, where a company wanted to sell an oil field and paid Mossack Fonseca to help them avoid paying taxes worth $400m. The method used is really simple: it moved the company’s address from one tax heaven to another.
The problem that arises here is that the sum of $400m which would be paid as a tax is higher than the annual health budget of Uganda. Instead of money being invested in services that are very much needed, the Ugandan government was led a merry dance in court while it unsuccessfully tried to have the tax paid. Meanwhile, hospitals that are around the oil field, lack the appropriate equipment and infant mortality is high.
It seems that Mossack Fonseca does not seem to be bothered by the morals of its customers, even though 23 of them were punished for supporting the regime in North Korea, Zimbabwe, Russia, Iran and Syria. The firm also denies the claim that it helped companies that were accused of offering fuel for planes from Syria to continue operating, even if they were blacklisted.
If these rumors are true, who knows how many people have died in the bombings as a result of questionable financial deals?