Panama Papers - What You Need to Know

Panama Papers - What You Need to Know

The biggest leak journalists ever worked for included 2.6 terabytes of data, or more than 11 million documents

More than 400 journalists, 100 organizations and 12 months of research work resulted in what is now known as the Panama Papers, or “The Secrets of Dirty Money”. It all started more than a year ago, when an anonymous source contacted the German newspaper “Süddeutsche Zeitung”, offering encrypted internal documents from a Panamanian law firm selling offshore companies around the world and allowing rich people get richer. The firm in question is Mossack Fonseca.

At the end, the newspaper acquired more than 2.6 terabytes of data, which is the biggest leak journalists ever worked for. The leak tops even the documents that Julian Assange once leaked. The only thing that the source asked was security measures and promise that the newspaper will keep his anonymity. And with that, the Panama Papers became known to the world. Here are some questions linked with Panama Papers and answers to them.

Are offshore companies legal?

Let’s start with the basic question, are offshore companies legal, and are all people investing in offshore companies criminals? The answer to the first one is YES, while the answer to the latter is NO. The misconception is that offshore companies and business serve as a way to evade taxes and hide money from the government. While that is true, and happens in half the cases, offshore companies actually offer much more. There is a way to restructure your business overseas in 100% legal and legitimate way. British Virgin Islands, Hong Kong, Singapore, all of these countries offer fully legal tax benefits for companies.

The tax advantage from offshore companies doesn’t come by evading taxes or tax savings, it comes from tax deferment. Let’s explain what tax deferment is. It is a legal way to use the money for taxes, and invest them in your company.



In a way, you are postponing paying taxes for some time into the future. Instead of paying taxes on profits, you are reinvesting the same capital into your own company for 30 years, every year. You will have to pay taxes if you decide to sell the company.

However, while tax deferent is completely legal way for business to increase their profit, it is also the way for money laundry. Criminals use this tool to invest their dirty money into offshore companies, making their money legal.

To summarize, not all people using offshore companies are crooks. Business people sometimes use them for protecting their assets from raids by criminals, and for getting around currency restrictions.

Here is a quick video by The Guardian how to make $1 billion using offshore companies.

Who is Involved?

There are 12 current or former world leaders mentioned in the documents, including Vladimir Putin, the Russian President. There are 12 other politicians and officials mentioned. Putin is not mentioned directly in the papers, but there are links of companies and businessmen supporting Putin that are mentioned. Icelandic Prime Minister David Gunnlaugsson was mentioned as someone who had ties with offshore companies through his wife. He resigned shortly after the scandal broke out. Argentina’s President Mauricio Macri is also mentioned. FIFA, the world’s soccer organization was also mentioned.


Other notable leaders include the Pakistan Prime Minister Nawaz Sharif, President of Ukraina Petro Poroshenko, the son of former Egypt’s president Alaa Mubarak. So far, US, Britain, France, Mexico and Australia have vowed to start an investigation. FIFA conducted an internal investigation.

You can read for every major player individually at the Süddeutsche Zeitung official website.

How the wealth is transferred?

The Panama law firm acted as registered agent for all the companies in the papers. In most cases, the company held anonymous bank accounts and property. The companies were registered in tax heavens such as British Virgin Islands (more than 100,000 companies), Bahamas, Panama, Seychelles, Samoa, and Niue.

But the company never dealt directly with company owners, which is one of the ways to keep secrecy alive. In fact, the company used “intermediaries”, or accountants and trust companies that served as someone linking Mossack Fonseca and the company that wanted to open an offshore account. Most of the intermediaries in Europe were stationed in Switzerland, followed by the United Kingdom and Luxemburg. In other parts of the world, Mossack had intermediaries in Hong Kong, China, Panama, United States and Uruguay.


While a common assumption would be that most of the secret owners came from Europe and the United States, in reality, most of them came from China, Hong Kong and Russia. Those three countries lead all hidden owners, followed by the United Kingdom, the United States, Switzerland, Italy, Colombia, Israel, Peru, Israel, Argentina, United Arab Emirates and Brazil.

Clinton and Obama Making Panama Papers Possible

Back in 2012, then president Barack Obama and his secretary of State Hillary Clinton issued an agreement between the United States of America and Panama. The Panama Trade Promotion Agreement entered into force on October 31, 2012, and it was the document that made the Panama Papers possible.

The agreement was marketed as a free trade agreement that will provide elimination of tariffs and will eliminate barriers for US citizens and services. Many of the shocking revelations from the Panama Papers were made possible because of the TPA. One of the opportunities that developed was US companies opening tons of offshore accounts. Huge corporations and the wealthiest people in the United States seized the opportunity.



What is even more interesting, Bernie Sanders, who is now presidential candidate opposite Hillary, back then warned against the agreement. In his speech as a senator, Bernie said the following:

- Panama is a world leader when it comes to allowing wealthy Americans and large corporations to evade U.S. taxes by stashing their cash in offshore tax havens. The Panama Free Trade Agreement would make this situation much worse.

What Happens Next?

Offshore companies have been used for years in a way to increase profit. But after the Panama Papers scandal, some economists say that there will be a new way of working. The biggest consequence is the massive blow to secrecy, which is the biggest selling point of offshore companies. Their only and biggest product is secrecy. Asides from secrecy, they don’t sell some other product.

However, other economy experts believe that not much will change. For example, the United States already function as one big tax heaven, which is one thing that presidential candidate Bernie Sanders wants to change. The Papers also reveal the ways companies, governments and wealthy people use to hide their money, which might help in further investigation and cracking down the secret funds.

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