What is the fallout from the leaked Mossack Fonseca documents?
Many individuals and businesses seek to minimize their tax liabilities by establishing legitimate offshore holdings. Now, as has widely been reported, a massive leak of documents from Panama-based Mossack Fonseca, an international law firm, has revealed the offshore holdings of an array of politicians and other elite public figures around the world.
Panama Papers Leak at a Glance
The documents were originally obtained by a German newspaper, Suddeutsche Zeitung, from an “anonymous source” over a year ago, and then shared with the International Consortium of Investigative Journalists. Since then, over 100 media organizations collaborated on an investigation and agreed to release their findings simultaneously. The 11 million leaked documents include the records of more than 140 public officials and others detailing their involvement in more than 200 thousand offshore entities over a 40 year period.
While Mossack Fonseca may not be a household name, the firm is widely known in international business circles for its role in creating offshore tax havens. The leak of confidential corporate data, financial filings and other information has revealed how many political leaders and other international figures have utilized shell companies to conceal assets and evade taxes. The leak includes information about prominent public figures such as Iceland’s Prime Minister Gunnlaugsson, Ukraine’s President Poroshenko, British Prime Minister Cameron, and Russian President Putin, among others.
While it is unclear what the long-term ramifications will be, the scandal has already claimed its first victim as Iceland’s Prime Minister has resigned. There was a public outcry after the leak showed that his wife owned an offshore company with claims in collapsed banks in the country. Britain’s Cameron is also under fire by those who claim the rich were allowed to dodge taxes under his watch.
These arrangements are not illegal if properly executed. Offshore shell companies, however, have been used as a conduit to launder money or to conduct business with blacklisted individuals and businesses with ties to Mexican drug lords and terrorist organizations. Even more alarming is the potential involvement of hundreds of major banks such as HSBC, UBS, and Société Générale in creating these offshore havens.
For its part Mossack Fonseca has defended its practices, reportedly saying that there are legitimate reasons for creating offshore entities, including conducting cross-border mergers and acquisitions and restructuring investment capital. Moreover, the firm casts doubt on the accuracy of purloined documents and believes it is been the victim of data theft.
As this scandal has only recently come to light, it is unclear whether any of these havens were involved in illegal activities. The moral of the story, however, is that individuals looking to establish legitimate offshore holdings should proceed with caution and engage the services of an attorney with expertise in international tax law.
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