On Sunday, April 3, the largest documentation leak in history left governments around the world looking for answers.
A set of confidential papers held by Panamanian law firm Mossack Fonseca totaling 2.6 terabytes of information, commonly referred to as the “Panama Papers,” was anonymously revealed to the German newspaper Süddeutsche Zeitung (SZ). SZ then shared them with the International Consortium of Investigative Journalists (ICIJ), an organization which consists of roughly 400 journalists from across the globe. The ICIJ are working to interpret and report the findings of these documents.
The first question to be answered: What are the Panama Papers?
These papers reveal ways the rich can and have been involved in tax evasion and other forms of corruption. Mossack Fonseca reportedly specializes in helping people set up shell companies to protect their financial assets.
The next question for many: What is a shell company?
According to USA Today, the term “shell company” is referred to an organization that is “used as a vehicle for various financial transactions without having significant assets or operations.” It is important to note that shell companies, as an entity, are not technically illegal. These offshore companies are created and often used for legal reasons such as assisting in currency restrictions, estate planning, and more. Unfortunately, many shell companies turn into tax havens, and are used for fraudulent purposes.
Tax havens are countries, or even states, where taxes are levied at a low rate, meaning the amount of money needed to “break even” is low. These types of places are common throughout the world, with some sources even declaring Delaware and Wyoming tax havens.
Perhaps the main issue is how high up the chain of command the papers seem to lead. The Panama Papers are revealing information that shows numerous public officials as participants in fraudulent activities. These public officials include Vladimir Putin, the president of Russia; Nawaz Sharif, the prime minister of Pakistan; Xi Jinping, the president of China; Petro Poroshenko, the president of Ukraine; and Sigmundur David Gunnlaugsson, former prime minister of Iceland, who resigned from the post shortly after the documents were made public, among others.
Mossack Fonseca claims no wrongdoing in the leak, and defends its compliance with anti-money laundering laws.
All of this begs two questions: How do we fix it, and where does America fall into the picture?
The first question is invalid, because there isn’t a situation to be fixed. The entirety of the Panama Papers situation is a security leak, a breach of secrecy. The selling point for tax havens, according to CNN, is the secrecy. Because the Panama Papers have become the central focus of the news media right now, that secrecy has been blown. However, rather than ending tax havens, experts say that the breach will more than likely simply give committers of fraud more loopholes to exploit.
As for the second question, the Panama Papers have yet to reveal a direct tie to the United States; however, because there are shell corporations in America, Congress may consider passing legislature to make shell corporation ownership information more accessible. There are other straightforward solutions to try to encourage honesty in the nation’s shell corporations, and in light of the Panama Papers incident, the United States may attempt to move forward with such solutions.
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