The Panama Papers and the perils of off-shore tax havens - The Herald: Opinion

The Panama Papers and the perils of off-shore tax havens

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Posted: Tuesday, April 19, 2016 4:25 pm

For years it has been no real secret that there were ways for people and corporations to hide the full extent of the profits made by utilizing offshore bank accounts and other questionable means.

What we didn’t know was to what extent the use of these shell companies and offshore banking loopholes were being used and could only really rely on extremely vague estimates from economists and legal analysts. Well, all of this was true until the beginning of 2015 when a whistle blower using the pseudonym “John Doe” began leaking parts of what would be officially known as the “Panama Papers” to the German newspaper Süddeutsche Zeitun.

The full extent of the leak came in early April of 2016 as the names of heads of states and other important political and social figures began appearing as either owners, or profiting from these shady business practices. Now, I feel like I should iterate that by simply owning an offshore company or having

some sort of investment in one is legal, but absolutely calls for a closer look into what exactly is going on when for example, the Prime Minister of Iceland has family members in direct connection with trying to shelter millions of dollars in offshore accounts in tax havens all across the planet.

Over 2.6 terabytes of information have been collected so far, some of which dates as far back as the 1970s. This has caused an international outcry from citizens across the globe calling for a closer look at how we handle these types of things from happening at this level again.

Now, the complication begins when you take into account that as I said earlier, just having an offshore bank account is not necessarily illegal, it depends on what your intent is with the account and the reason why the money is there.

These types of “tax havens” as they are called informally otherwise, they are known as “offshore financial centers” are used by all sorts of people for perfectly legal reasons and can offer their customers an “almost” impenetrable wall of security to operate behind.

When dealing with such large sums of money, as a lot of the members of these private law firms are dealing with, this sounds extremely attractive and many people jump at the chance to create such a barrier from scrutiny especially because it is legal. The problems begin when you allow people to operate with almost no oversight and they begin to push the limits of their financial operations.

Let me put it this way, if you all of a sudden had a bank where you could put 20 percent of your income and there is no way the government could know you held any money there, some people might begin to start feeling a little less obligated to your taxes and start lying about their money on tax returns.

This same principle is at work with these offshore financial centers and the companies and individuals involved with them. The centers themselves can’t be held responsible for anything other than how they conduct themselves, if a client begins illegal activity while in connection to the financial center, only the client will be prosecuted.

Meanwhile, the biggest player amidst the Panama Papers leak is Mossack Fonseca, an obscure law firm in Central America that has been registering companies to offshore tax havens on an industrial scale.

If all that Mossack Fonseca was charged with were registering these companies, the case against them would have nothing of substance to charge them with. The law firm maintains that they have no relationship with the customer and more importantly, the customer’s money after the initial help with registration, but what seems to be the case is that Mossack Fonseca isn’t telling the truth.

For example, in the year 2008 Mossack Fonseca began offering what’s called Mossfon Escrow in which a client can deposit their money into the MF trust fund and the law firm would use that money as if it were it’s own. This begins to complicate the issue for the small law firm as they are now directly connected to these large corporations money in a big way, with some estimates coming in at almost $1.2 billion in client transactions from 2007-2015.

As more and more countries began being held accountable to an international standard of taxes, Mossack Fonseca would just start incorporating new companies in locations with fewer disclosure requirements. The leaks show that the due diligence process undertaken by Mossack Fonseca is often incomplete.

The rest of the Panama Papers are still being processed and organized because the pure amount of data that has been handed over, but it is said that by May of this year we should be able to see the full scope of this leak. If you are wondering why there aren’t nearly as many American names as there are names from other nations, the answer may not be quite satisfying as you might hope.

The main reason is because tax havens are much more easily accessible in the United States and because of this, Americans don’t usually travel overseas to utilize these accounts.

This lack of oversight has been the discussion of almost every policy maker in the country in the last few decades as more and more bills are introduced to congress concerning these off shore tax havens.

To what extent can the government intervene? If a law firm cannot promise their clients absolute secrecy, then the entire legal establishment begins to crumble.

I just want to reiterate the point that these offshore financial centers are not illegal in them, but can serve as tools for criminals to easily take advantage of and use them for things like money laundering and tax evasion.

The biggest issue surrounding these tax havens is the enormous amount of money the people involved in these types of shady business practices has available to them. With entire legal teams set up to defend their constituents, it seems like an impossible task to try and take down these types of shady dealings.

The only way we can expect any sense of progress in this area is to allow the international community a wider view of financial centers in all countries. This is a behavior that doesn’t just affect the individuals involved, but sends ripple effects throughout the business world and it’s not crazy to think this can affect countries’ economies on the national scale.

It only takes a few individuals deciding that the rules do not apply to them to ruin what we as humanity have built.

Even if on the surface something looks like it will have no affect on you, don’t toss it aside, investigate, learn and ask questions because more than likely, you are involved more than you would like to be, and that is certainly the case with the Panama Papers leak.

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