Approximately 11.5 million internal documents were leaked to media organizations around the world that reveal the operations of the Panamanian law firm Mossack Fonseca.
The law firm’s leaked files (popularly known as the Panama Papers) show that Mossack Fonseca worked with more than 14,000 banks, law firms and companies to establish shell companies and offshore bank accounts in tax havens for its clients, which include high-profile individuals and public officials.
The Panama Papers investigation has had a massive impact globally. It led to the resignation of Iceland’s prime minister, official investigations were opened worldwide and an immediate censorship drive was instituted in China.
There are five main areas of impact from the information that has been released so far. However, with further information likely to emerge, the full contours of the political impacts of the leak are not yet clear.
1. The scandal might lead to the resignation of some leaders
It is possible that some serving political leaders may be forced from office as a direct consequence of the Panama leaks. Already, the scandal has led to the resignation of Iceland’s prime minister, to a political outcry that has required UK Prime Minister David Cameron to release his tax returns (a first for Britain’s top elected official), and has abruptly ended the political honeymoon of Argentina’s new president, Mauricio Macri.
Countries including Germany are stepping up efforts to look into curbs on legal, but morally questionable tax avoidance schemes that benefit the wealthiest. As with earlier steps to limit money laundering, the focus will be on more stringent reporting requirements, better international sharing of data, and more closely coordinated cross-border verification and enforcement efforts. Furthermore, the US Treasury Department has already taken some actions and issued proposed regulations, known as “customer due diligence” or “CDD Rules” to require US financial institutions to identify any individual who owns 25-percent or more of an entity owning a US bank account. The CDD Rules are intended to ensure the US banking industry has systems in place to track the ultimate beneficial owners of US accounts and avoid the type of secretive financial transactions disclosed in the Panama Papers.
3. Pressure on offshore centers is likely to increase. Panama could also face some major and likely unanticipated problems as a result of the leak
The OECD has noted the limited availability of accounting records and ownership information for private foundations in Panama, as well as its unresponsiveness to other nations’ requests for tax exchange agreements. Consequently, Panama-based companies might ultimately face sanctions if their country did not adopt higher standards in the wake of the leak.
4. Considerable changes
France and Germany are calling for a blacklist of tax havens, which might be cut off from the SWIFT financial messaging network, a global network that financial institutions use to transmit information securely, if they do not make their ownership structures completely transparent.
5. Finally, another consequence of this controversy will be suspicion and skepticism
Although a relatively small number of people participate in offshore bank accounts, information leaks like the Panama Papers give off the impression that copious numbers of the wealthy store their wealth in secret bank accounts to avoid paying their fair share of taxes. However, many of the accounts divulged in the Panama Papers did, in fact, pay taxes.
- DLA Piper: “The Panama Papers: addressing the consequences”, 2016, <https://www.dlapiper.com /en/us/insights/publications/ 2016/04/the-panama-papers-addressing-the-consequences/>;
- Live Mint: “Consequences of the Panama Papers”, 2016, Mohamed El-Erian, <http://www.livemint. com/Opinion/FJSXkzKou AMRaMgvTdgorJ/Consequences-of-the-Panama-Papers.html>;
- The Economist: “Panama Papers: Impacts will be widespread, but uneven”, 2016, <http://country.eiu. com/article.aspx?articleid= 144084798&Country=Russia&topic=Economy>
- Foreign Affairs: “The Panama Papers and Thomas Piketty”, Henry Farrel, 2016, <https://www.foreignaffairs.com/articles/world/ 2016-04-22/ panama-papers-and-thomas-piketty>;
- Chief Executive: “Far-Reaching Consequences Possible After ‘Panama Papers’ Leak”, Julie Ritzer Ross, 2016, <http://chief executive.net/far-reaching-consequences-possible-after-panama-papers-leak/>;
- The Odyssey: “The Consequences Of The Panama Papers”, Matthew Nalefski, 2016, <http://theodys seyonline.com/millikin/the-consequences-of-the-panama-papers/408091>;
- The Center for public integrity: “Impact of Panama Papers rockets around the world; U.S. officials react cautiously”, 2016, <https://www.publicintegrity.org/2016/04/05/19526/impact-panama-papers-rockets-around-world-us-officials-reactcautiously>.