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“Panama Papers” becomes largest data leak to date

After the release of over 11 million confidential documents, several world leaders and well-known organizations are having their financial practices closely scrutinized.

Photo by the London Post.

In recent weeks, over 11.5 million files from Mossack Fonseca, a Panama-based law firm, have been leaked on the Internet.  The confidential documents were leaked to the International Consortium of Investigative Journalists (ICIJ), who after some analyzing published the information on their website.  Mossack Fonseca provides services to individuals, as well as companies, and is the fourth largest offshore service provider in the world.

Mossack Fonseca operates in jurisdictions that are optimal for people who wish to have greater privacy and lower taxes.

Mossack Fonseca operates in jurisdictions that are optimal for people who wish to have greater privacy and lower taxes.  Such jurisdictions include Switzerland, among others.  People and companies who use offshore services usually get their privacy by having their money under the control of a shell company that is an inactive company used as a vehicle for financial maneuvers, which is then run by an offshore service provider – such as Mossack Fonseca.

When people think of offshore banking, the practice is often associated with forms of illegal activity.  However, it is important to note that not everyone who utilizes offshore banking is involved in illegal activity.  Many people use offshore banking simply to save money, or for other personal reasons, despite what pop culture entertainment may have us believe.  It is often assumed that people use offshore accounts for tax evasion purposes, but for those subject to United States Income tax, money in foreign bank accounts must still be declared under penalty of civil liability.   Regardless, there are some instances in which offshore banking has been used for money laundering, or other illegal activity.

This week, 28 countries will meet in Paris to strategize on how to collectively deal with offshore banking and its effect on taxes.

There are many regulations on offshore banking to attempt to combat these illegal activities, including the Bank Secrecy Act.  The Bank Secrecy Act requires that taxpayers file a Foreign Bank and Financial Account Form for accounts over $10,000 located outside of the United States.  This week, 28 countries will meet in Paris to strategize on how to collectively deal with offshore banking and its effect on taxes.  This meeting is being spearheaded by the Joint International Tax Shelter Information and Collaboration Network (JITSIC).

Chris Jordan, the Chairman of JITSIC, has stated that if offshore companies continue to structure aggressively as they have done, the JITSIC will begin to go after them aggressively.  The key purpose of this meeting in Paris is to combine information to come up with a global picture of what is happening with offshore banking and the status of the practice.

Mossack Fonseca’s data leak is the biggest recorded data leak . . .

Mossack Fonseca’s data leak is the biggest recorded data leak, larger than both the 2010 WikiLeaks and the 2013 data leak by journalist Edward Snowden.  Upon the leak of the Panama Papers, several well-known individuals and their associates were revealed to be involved in offshore banking, including Vladimir Putin (President of Russia), the president of the Fédération Internationale de Football Association (FIFA), and 143 politicians worldwide.  This is particularly concerning because implications of tax evasion weakens trust in public institutions and the law.

Russian President Vladimir Putin is among the world leaders who have been connected to the Mossack Fonseca data leak.  While Putin’s name does not appear in any of the leaked papers, many people close to him do appear and seem to have made upwards of two billion dollars in backdoor dealings.  Putin has acknowledged that those close to him were involved with the offshore banking firm, but insists neither he nor those close to him were involved in any illegal activity.  With Russian elections coming up, Putin believes that this information was part of an effort by the United States to undermine the Russian election process.

Sigmundur Davio Gunnlaugsson, the prime minister of Iceland, was revealed to be involved with Mossack Fonseca.  According to the leaked papers, he co-owned a company with his wife in the Virgin Islands to hold some of their investments.  Many of his offshore investments were in Icelandic banks that, as Prime Minister, he has been working with, which would directly affect his personal investments.  They insist they have always disclosed their finances properly to the Iceland government, but he has since resigned as prime minister.

Prime Minister David Cameron of Britain was indirectly involved in offshore banking through Mossack Fonseca.  His father set up an offshore trust account with a company, which did not pay British taxes, which Cameron allegedly benefited from.  Cameron insists that although he did benefit from selling the shares after his father’s death, he did so within the bounds of the law.  Cameron has often been criticized for his family wealth in the United Kingdom, and this incident is no exception.   In response to the leak, Cameron has proposed new measures to ensure that British corporations can’t get away with tax evasion through offshore banking.

Separate from the political sphere, Gianni Infantino, president of FIFA, the international soccer organization, come under the spotlight with the Panama Papers leak.  Prior to being selected as president of FIFA, Infantino was director of legal services for the Union of European Football Association.  According to the leaked documents, Infantino’s signature appears on two contracts governing media rights for soccer tournaments.   The issue here is that those involved in the contracts, Hugo and Mariano Jinkis, have been indicted in the United States for bribery and corruption.  This poses a problem for FIFA, as they assured the public that their new president was clean of any wrongdoing, and had no dealings with those involved in previous FIFA scandal.  FIFA has not yet commented on the implications of the leak, but given the cloud of scandal that already surrounds the sport, the results could be extremely damaging.

[Mossack Fonseca] has publicly stated that this was not the result of an internal leak from someone at the law firm, but rather a hack from an outsider.

In response to the data leakage, Mossack Fonseca has adamantly denied any wrongdoing on the firm’s behalf.  The firm has publicly stated that this was not the result of an internal leak from someone at the law firm, but rather a hack from an outsider.  They also point out that many of the well-known individuals involved are not actually clients of theirs, but are involved as third parties.

Even still, this data leak has put them under intense scrutiny, with government officials investigating all the information leaked and searching for hints of illegal activities.  It is apparent after this scandal that all companies involved with offshore banking will face intense scrutiny, and that further regulations amongst governments will be implemented to combat the furtherance of illegal activities in offshore banking schemes.  Mossack Fonseca states that it has, and will continue to comply with all anti-money laundering laws, but that other parties involved must also do their part.

Although no high profile United States citizens have been implicated in any of the Panama Papers, the United States Government may still act.  These data leaks are devastating to all of those who are involved in the offshore business, because secrecy is one of the biggest draws of utilizing offshore accounts, and with further regulations, the offshore bank account practice may be weakened.

Anyone seeking more information about the Panama Papers and those involved can visit the ICIJ website, which has charts of who was involved and how.  Even with the leak of the information, the actual practices that go into offshore banking are secretive.  The ongoing consequences of this leak are yet to be determined, but the world continues to watch and see what may result.

Katelyn Heath, Ethics Editor
About Katelyn Heath, Ethics Editor (19 Articles)
Katelyn Heath is a third year law student and serves as the Ethics Editor for the Campbell Law Observer. She is from Salisbury, North Carolina and graduated from UNC-Charlotte with a Bachelor of Arts in History and Criminal Justice in 2014. Following her first year of law school she attended Baylor Law Schools Academy of the Advocate in Scotland. She is also currently working for Marshall and Taylor PLLC, a local family law firm.
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