Offshore corporations - The secret shell game
The names of more than 200,000 offshore companies found in the Panama Papers leak are being made accessible to the public Monday through a searchable database.
Readers who go to the website, https://offshoreleaks.icij.org, after 2 p.m. Eastern time will be able to search the Panama Papers for information on names of companies, people, middlemen and countries. The data cover entities created in 21 tax havens.
Here are some answers to questions of what, why and how.
Q: What is the Panama Papers leak?
A: For almost a year, nearly 400 journalists from news organizations in 78 countries, including a team from McClatchy as the only U.S. newspaper partner, worked in secret to collaboratively scour an archive of 11.5 million documents. The files come from the Panamanian law firm Mossack Fonseca. It’s a world leader in the formation of offshore companies.
An offshore company is one set up outside an individual’s home country, often in places that offer low taxes or stringent bank secrecy laws. Creating such a company is not illegal and they do have legitimate uses, ranging from lowering tax bills to estate planning to simplifying the sale of foreign property.
But they can also be used to launder illicit gains, evade taxes and hide corruption.
Q: Who is publishing this information?
A: The website and searchable database are managed by the International Consortium of Investigative Journalists. ICIJ is a nonprofit organization that works to promote financial transparency across the globe. The organization explained that “it will be a careful release of basic corporate information.”
Q: What’s the big deal?
A: Under the umbrella of the ICIJ, reporters were able to unveil some secrecy surrounding offshore companies and, when publishing together on April 3, expose a wide range of possible and actual wrongdoing. The prime minister of Iceland stepped aside after revelations of family ownership of offshore companies. British Prime Minister David Cameron went before Parliament to acknowledge he benefited from an offshore company established by his father.
The collective reporting also showed how Russian President Vladimir Putin’s inner circle, including the godfather of one of his daughters, was moving more than $2 billion through secret offshore companies. McClatchy exposed how a businessman close to Mexico’s president moved massive sums of money through secret companies; the link between drug cartels and offshore companies; how a decorated Air Force lieutenant colonel became a player in the offshore world; how U.S. states such as Wyoming and Nevada offer foreigners the same anonymity sought in offshore tax havens, and how Ecuador’s president was being probed over secret companies in Panama.
Q: What will the searchable database show?
A: If you search for a specific person and he or she appears as an owner, director or shareholder of an offshore company, you will see the name of that company, the listed address and the tax haven where it is registered. You will also see its relationship to other companies or people in the data. You will be able to visualize the networks around these offshore entities and, where possible, see their true owners.
Q: Will all files related to that company or person be accessible?
A. No, because many documents include personal information that could be used fraudulently, such as passport numbers, bank account information, telephone numbers and addresses.
Q: If someone does not appear in a search, does it mean they are not in the files?
A: No. Many of the older documents in the files are in formats that are not as easy to use with modern name-recognition tools. And there’s the problem of bearer shares, a type of anonymous share ownership that is banned in the United States and most of the world. Bearer shares were commonplace until about 2007 and Panama is just now doing away with them. McClatchy unearthed a Mossack Fonseca spreadsheet that shows 16,301 active bearer-share companies in Panama as of August 2013.
Q: If I can’t see all the files, why bother?
A: The very release of names is important because it allows citizens and governments in countries across the world to determine whether powerful, connected or corrupt people in their country have secretive offshore companies. It should also enable tax authorities everywhere to collect more names and make significant associations.
Q: If someone appears in the data, does it mean they have lots of money and are doing something wrong?
A: No. Owning an offshore company in and of itself is not illegal. There are many legal reasons to use them, for example, to preserve anonymity in the purchase of a company or real estate to prevent a seller from inflating the price, or to ease the transfer of foreign-owned property. An offshore entity can also be used legally to create a trust to plan for inheritance.
Since tax information is seldom made public, it’s difficult to know whether someone has fulfilled the reporting requirements of a given country or jurisdiction, or is hiding or even laundering money. In a large number of cases uncovered by McClatchy and its reporting partners, owners of offshore companies are from countries where the rule of law is weak and corruption is rife.
Q: Has Mossack Fonseca suffered consequences from the publication of the papers, and is it still in business?
A: Yes, it is still in business, but is has come under intense scrutiny across the globe. Panamanian authorities raided the company’s Panama City offices soon after the stories appeared around the world. Finance and banking authorities in Denmark, Belgium, Norway, Costa Rica, Holland, Hungary, Poland, Greece, Spain and Mexico have promised investigations.
The Finnish, Canadian and Irish governments have asked journalists to turn over the 2.6 terabytes of data – or at least to turn over the files pertaining to their nationals. Belgian and Australian journalists who took part in the reporting project have been asked to provide testimony before legislative commissions, and Ecuador tried to force journalists to appear before investigators.
The U.S. Attorney for the Southern District of Manhattan also has asked the ICIJ to share information. U.S. Attorney Preet Bharara said in a request to meet with an ICIJ member that he had opened an investigation into the Panama Papers. Wyoming, meanwhile, has launched an investigation into Mossack Fonseca’s operations in the Cowboy State after McClatchy published its story set there.
Q: What do I do if I appear in the database?
A: That depends. If you have not declared your ownership in an offshore entity to the Internal Revenue Service, that would be a place to start. The IRS has already issued a notice asking anyone in the Panama Papers who needs to declare ownership to do so.