Tag Archives: Panama Papers

Panama Papers: What are ‘Tax Havens’?

By Tommaso Faccio, University of Nottingham 
April, 2016

The Panama Papers leak sheds some light on the intricate ways in which the wealthy can exploit secretive offshore tax regimes. As well as charging minimal or no tax to residents and non-residents, the main characteristics of tax havens are their lack of transparency and effective information exchange.

As the leaked files of Panama-based law firm Mossack Fonseca show, these havens are used by individuals and companies to stash their cash, away from the prying eyes of civilians or investigators. This is not necessarily because their money has been obtained illegally. In the case of public figures such as politicians, for example, they may want to keep the size of their wealth a secret or hide from their electorates that they or their relatives are legally minimising their tax. To do so, they hide their identity using a number of complex legal mechanisms.

Whether it is a wealthy entrepreneur or a drug trafficker, the tricks used to make their affairs hard to trace are pretty similar. It all starts by incorporating a “shell company” (or a “letterbox company”) in an offshore tax jurisdiction, using the services of a law firm such as Mossack Fonseca. These companies have the outward appearance of being a legitimate business but in reality are just empty shells. They manage the money they receive and hide who owns it. The management is made up of lawyers and accountants, whose only role is to sign documents and allow their names to appear on the company’s letterhead.

The money is received by this shell company from people who wish to hide these funds from tax authorities and the wider public. Very few questions are asked about the source of this money, which can then be used by the shell company to carry out legal activities such as investing in real estate – or illegal activities such as bribing a government official.

The ownership of these shell companies can be easily transferred, through the use of bearer shares and bonds, whose ownership belongs to the person that holds the physical stock certificate. These were abolished in the UK in 2015 and the US government stopped selling bearer bonds in 1982 in a bid to increase transparency. They allow large sums of money to be moved around easily, with full anonymity.

Lack of transparency

The Panama Papers investigation by the International Consortium of Investigative Journalists have already put Iceland’s prime minister, Sigmundur Davíð Gunnlaugsson, under serious pressure. ICIJ has documents that show how his wife owned a British Virgin Islands shell company called Wintris Inc that held millions of dollars in bonds in the three major Icelandic banks, which collapsed in 2008. In 2009, Gunnlaugsson entered parliament but failed to declare his wife’s ownership of Wintris. The electorate was none the wiser due to the lack of information exchange between the British Virgin Islands and Iceland, which ensured that this information was not available.

It is not illegal to have dealings with a tax haven – and in fact there can be very legitimate reasons to conduct business there, such as investing in a hedge or mutual fund. And tax havens are often used by business people in unstable countries where they are at risk of “raids” by criminals or their governments.

In spite of this, the lack of transparency and lack of information exchange can also be used for illicit purposes, including money laundering, bribery, corruption, tax fraud and other illegal activities. Because the beneficial owners of a company are kept secret, the proceeds of crime can be hidden or used for nefarious purposes without any authorities being able to trace it. If law enforcement and other competent authorities had access to beneficial ownership information, they could “follow the money” in financial investigations involving suspect accounts or assets held by corporate vehicles.

The lack of effective information exchange is ensured through secrecy laws that prevent overseas tax authorities from accessing information on the complex structures located in tax havens. A number of countries have bilateral Tax Information Exchange Agreements (TIEA) with tax havens, which enable their governments to enforce domestic tax laws by exchanging, on request, relevant tax information. However, Panama has only signed one TIEA (with the United States).

Panama is far from alone in this business. According to the 2015 Financial Secrecy Index for 2015 compiled by the Tax Justice Network, Switzerland, Hong Kong, the US, Singapore and the Cayman Islands are the top five jurisdictions for secrecy and the scale of their offshore financial activities.

In 2013, The Economist estimated that around US$20 trillion could be stashed in offshore accounts worldwide. Much of this may be used for legal activities – but until there is full transparency and information exchange between tax havens and overseas tax authorities, it is impossible to determine what is the extent of the illegal tax evasion and other criminal activities these tax havens facilitate.

The ConversationCreative Commons

Tommaso Faccio is a Lecturer in Accounting at the University of Nottingham. This article was originally published on The Conversation. Read the original article.

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Panama Papers: A Conflict of Whistleblowers vs Elites

By Arne Hintz, Cardiff University 
April, 2016

The Panama Papers have brought the powerful role of whistleblowers back into the public consciousness. Several years after WikiLeaks’ Cablegate and the Snowden revelations, the next big leak has not only caused the downfall of Iceland’s prime minister (with others possibly to follow), but has demonstrated that the practice of exposing hidden information is very much alive. The struggle over controlling this kind of information is one of the great conflicts of our times.

It might seem that such leaks are rare. WikiLeaks’ publication in 2010 of the Iraq and Afghanistan war diaries and of US diplomatic cables brought major political repercussions, but public interest in WikiLeaks has fallen since. Whistleblower Edward Snowden’s revelations in 2013 about mass surveillance programmes by US and British intelligence services returned the power of the leak to the spotlight, triggering new legislation in the UK in the form of the Investigatory Powers Bill. But no mass movement of whistleblowers appears to have emerged in their wake.

Nevertheless, plenty has been going on. WikiLeaks has continued to expose hidden information, including files on Guantanamo Bay operations, secret drafts of the controversial TPP trade negotiations, and more recently a recording of an IMF meeting that provides significant insights into current conflicts between the IMF, the EU and the Greek government in their handling of the eurozone crisis. Other leaks include those that revealed HSBC bank helped clients conceal their wealth.

Old-world and new-world media organisations have developed processes to deal with anonymous data leaks and protect the safety of the whistleblowers. Organisations such as the New York Times, The Guardian and Al-Jazeera use secure digital dropboxes for depositing files anonymously. Major publishers established collaborations to share resources and expertise in order to analyse and make sense of the huge amount of data quickly and to maximise international exposure.

Leak activism and hacktivism

And beyond the major news organisations, a culture of “leaks activism” has emerged. Hacktivist groups such as Globaleaks have developed technology for secure and anonymous leaking. Local or thematically-oriented initiatives provide new opportunities for whistleblowers to expose secret information. Citizen Leaks in Spain, for example, acts as an intermediary that accepts leaks, reviews them, and sends them on to partner newspapers. Run by Xnet, an anti-corruption group, Citizen Leaks has helped uncover major cases of corruption in Spain that brought to court leading Spanish politicians such as former minister of the economy and chairman of Spain’s largest bank, Rodrigo Rato.

As intermediaries rather than publishers, organisations such as Citizen Leaks remain largely invisible to the public. But their role is crucial to expose corruption and other wrongdoings and so they are an important feature of the changing media landscape. Following the WikiLeaks revelations in 2010-11, US scholar Yochai Benkler conceptualised this emerging news environment as a “networked fourth estate”, in which classic news organisations interact with citizen journalists, alternative and community media, online news platforms, and new organisations such as WikiLeaks and Citizen Leaks. In Snowden’s case, he (the whistleblower) worked with documentary filmmaker Laura Poitras, independent journalist and former lawyer Glenn Greenwald, and The Guardian, a traditional media organisation.

Leaks activist groups and platforms are increasingly relevant because digitisation makes it easy to collect and transmit vast troves of data. The 7,000 pages of the Pentagon Papers that Daniel Ellsberg had to photocopy in 1971 would be a small PDF file today, while the huge amounts of documents that comprise the Panama Papers would have been impossible to leak in pre-digital times.

No love lost for whistleblowers

Consequently, as organisations become more vulnerable to leaks they try to protect themselves through other means. The Insider Threat Program adopted for US public administrative agencies requires employees to report to their superiors any “suspicious” behaviour by colleagues.

Under the Obama administration more whistleblowers have been prosecuted than under all previous Presidents combined. Chelsea Manning was sentenced to 35 years in prison, Julian Assange is holed up in the Ecuadorian Embassy in London, and Snowden lives in exile in Russia. So as leaks become more common, the response by states and corporations becomes harsher.

Whistleblowers are exposing the secrets of the powerful and the foundations on which contemporary political and economic power relations are built. Activism based around hacking, leaks and the release of data has put tools to affect world politics into the hands of those outside the classic structures of power and influence. Yet as previous high-profile leaks have shown, the degree and direction of change is far from clear, and there’s no doubt that the consequences for whistleblowers can be life-changing. With the stakes rarely higher, the struggle to control information is likely to stay at the top of the political agenda.

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Arne Hintz is a Senior Lecturer in Media, Cardiff UniversityThis article was originally published on The Conversation. Read the original article.

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Facts and Opinions is a boutique journal of reporting and analysis in words and images, without borders. Independent, non-partisan and employee-owned, F&O is funded by our readers. It is ad-free and spam-free, and does not solicit donations from partisan organizations. To continue we require a minimum payment of .27 for one story, or a sustaining donation. Details here; donate below. Thanks for your interest and support.

F&O’s CONTENTS page is updated each Saturday. Sign up for emailed announcements of new work on our free FRONTLINES blog; find evidence-based reporting in Reports; commentary, analysis and creative non-fiction in OPINION-FEATURES; and image galleries in PHOTO-ESSAYS. If you value journalism please support F&O, and tell others about us.

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