Offshore Accounting: The Dark Industry Funding The World’s Leaders

On April 3, 2016, German newspaper Sueddeutsche Zeitung in association with the International Consortium of Investigative Journalists (ICIJ) released the first news reports regarding a set of confidential documents detailing the Panamanian company Mossack Fonseca’s business dealings. These documents and news reports showed Mossack Fonseca’s role in creating approximately 214,000 offshore shell corporations for hundreds of the world’s most powerful people. Sueddeutsche Zeitung and the ICIJ have announced that a more complete list of people implicated in these papers will be released in early May. Many of the people involved in the creation of these shell corporations now face allegations that they used them for various unethical and illegal actions.

The legal firm and corporate services provider at the center of this story is Mossack Fonseca, founded by Jurgen Mossack who later partnered with Ramon Fonseca. The company specializes in creating and selling shell corporations, a company whose primary role is to facilitate business transactions or to hold assets, without actually having any interests or operations of its own. Mossack Fonseca has created hundreds of thousands of this type of company, often placing fake directors in charge in order to conceal the identity of the owner. These directors often have no actual knowledge of or interest in the shell company’s owner or actions. While there are many legitimate and perfectly legal uses for shell companies, there as many semi-legal and illegal uses. These range from tax evasion to covering up fraud to financing arms and drug deals.

The individuals implicated by the Panama papers come from the most powerful groups of people in almost every major country on Earth, many of them elected or chosen to lead their countries. At least six current heads of state have been directly involved in the ownership and misuse of shell corporations with close friends or relatives implicating twenty more heads of state. The list of implicated politicians include the President of Argentina, the Former Prime Minister of Iceland, the King of Saudi Arabia, the Prime Minister Khalifa of the United Arab Emirates, and the President of Ukraine. Many of these people were respected leaders in their countries with a history of representing the people. The question on everyone’s mind is what did these people need secret offshore bank accounts and shell corporations for? What were they doing?

The specific accusations pointed to the owners of shell corporations created by Mossack Fonseca vary wildly and are often incredible. Ex-Prime Minister Gunnlaugsson of Iceland resigned amid the claim that he used a shell corporation to hide income made from investing in bonds held by the same banks that launched the 2008 financial crisis. Perhaps one of the worst realizations of the Panama Papers is that brothers Rami and Hafez Makhlouf used a shell corporation to bypass international sanctions placed on them because of their involvement in Syrian President Bashir Assad’s attacks on pro-democratic protests. Because both of these men held high ranking posts in President Assad’s government, some are saying they used this circumnavigation to finance operations of Syrian troops.

But thess allegations extend beyond the world of national governance. In what is probably the most chillingly ironic story to come out of the Panama papers, Juan Pedro Damiani, a senior executive at FIFA who chaired its internal Ethics committee, is implicated in using a shell corporation to accept bribes from FIFA executives he investigated for ethics violations. On the more corporate side of these allegations, Hans-Joachim Kohlsdorf, a former Vice President at Siemens, the international science and research corporation, has been identified as owning a shell corporation with nearly a half-billion dollars in it. This has led some to believe it’s leftovers he kept from a company account that he and other senior executives at Siemens used to bribe government officials into securing lucrative company contracts.

With hundreds of people and businesses already identified as owners of these shell corporations, and only 1% of the actual Panama Papers released so far, investigators, journalists, and citizens are left with nothing but uncomfortable conclusions about the world’s leaders. Because he could hide it from his citizens, a man poured millions into banks doomed to fail, leading the world to recession. Because they could scrub their names from purchase receipts, two brothers funded an army marching against their own people. The fact that we did not find it necessary to implement oversight on these shell corporations means that we were complicit in these crimes.

How did we let this behind-closed-doors practice become so much a part of business life that everyone accepts it as a matter of course? In defense of his brand, Ramon Fonseca claimed that these fake companies are “a completely legal and necessary practice in a global world where nobody does business in their own name.” Why did we elect leaders that feel it necessary to hide their identities in order to protect themselves and, more importantly for them, their finances?

The Panama Papers call to attention gaping holes in our economic system that we’ve known about for years. Perhaps they also reveal a fact we’ve chosen not to consider: the people we’ve put in power might have no business being there.

If you’d like to stay updated on this story, check back in the Acronym website frequently. Also check out the source of this article’s information and the source of the original leaks: Sueddeutsche Zeitung (http://panamapapers.sueddeutsche.de/en/) and the ICIJ (https://panamapapers.icij.org/). The investigators from Sueddeutsche Zeitung also recently published a question and answer session on Reddit (https://www.reddit.com/r/IAmA/comments/4fi6ck/we_are_the_investigative_journalists_who_worked/)