By: Joseph Dittman
One of the most harmful problems to any economy all over the world is tax evasion. Tax evasion has been a very common practice for big companies and it can be a very damaging practice to a nation’s economy, especially when it’s a huge company–like Apple–that’s laundering billions of potential tax revenue every year. Tax evasion and money laundering can be seen clearly by the law when businesses manages to find legal loopholes in international regulations, or it can be done illegally without anyone knowing
Over a year ago an anonymous source sent the German news press Suddeutsche Zeitung over 11 million emails and documents. It took months for a huge team of journalists from all over the world to sort through the massive amount of information they were given, but on April 3rd, the German news press released their research on 2.6 terabytes of information on a company in Panama named Mossack Fonseca. This massive amount of information is what Suddeutsche Zeitung is calling the Panama Papers.
So what was in those terabytes of documents that’s so important? What is Mossack Fonseca and what were they doing? How is Jackie Chan involved in this? And why did the prime minister of Iceland resign because of this leak?
Essentially, Mossack Fonseca sells fake businesses called shell companies to anyone for as low as $1000 a piece. But why would anyone need a fake company though?
One thing you need to understand is that the profit that any company gains is taxed. Money that is invested into any corporation is not taxed. This is a very standard practice because this is how any business can grow.
The main purpose of these shell companies is for businesses(or anyone really) to “invest” in these fake companies. This allows businesses to hide money without it ever being taxed, and it’s how so many business and powerful people all over the world have been evading taxes for over 40 years with Mossack Fonseca. People have been using these shell companies for any form of business from selling fruit, to dealing arms to Syria, and human trafficking to hide their revenue from the law.
The most interesting part of this is who is using these shell companies to hide their wealth. Just a few of Mossack Fonseca’s clients are the King of Saudi Arabia, President Vladimir Putin, and The Prime Ministers of Iraq, Ukraine, and Iceland. Many other clients used close family members and friends to access these shell companies including the deceased father of British prime minister David Cameron, the brother-in-law of China’s leader Xi Jinping, and the favorite contractor of Mexican president Enrique Peña Nieto.
The lack of American politicians and corporations in the Panama Papers is because shell companies can be created in the US so companies, like Apple, launder their money to the Cayman Islands,to engage in major tax evasion. . But when asked about American individuals in the documents, the editor of Süddeutsche Zeitung said: “Just wait for what is coming next.”
Unfortunately, the people who would be doing the prosecution towards the big officials involved in all this are the one who were clients of Mossack Fonseca themselves. So this will probably fade away from the news without many being punished. But on the bright side, due to nearly 8% of its entire population protesting, the prime minister of Iceland has resigned himself from office. All troubles aside, this is a great example of how information sharing and collecting together to express distaste for a practice can bring a reliable sense of justice.