The "Panama Papers" Leak Exposes Tax Dodgers Around The World

A massive leak of confidential documents held by a renowned Panamanian law firm has reverberated around the world. The “Panama Papers,” as the documents have been dubbed by international media sources, reportedly show how the firm of Mossack Fonseca helped powerful global players launder money, dodge sanctions and evade tax liability. But Mossack Fonseca representatives claim they’ve done nothing wrong and have been operating within legal boundaries for four decades.

The treasure trove of more than 11 million documents comprising the Panama Papers was uncovered by the International Consortium of Investigative Journalists (ICIJ), a coalition of media outlets. The ICIJ says that the Panamanian firm helped establish secret shell companies and offshore accounts for clients. The documents point to 12 current or former world leaders and dozens of others connected to heads of state.

Among the “who’s who” of people named in the documents are friends or relatives of Russian President Vladimir Putin and leaders of Great Britain, China, Iceland, Pakistan and the Ukraine. In addition, the president of Argentina, Mauricio Macri, allegedly failed to disclose his link to a shell company.

Most of the accused have denied the allegations. The Kremlin dismissed the revelations as “a series of fibs” intended to discredit Putin. Iceland has issued a statement that the offshore firm that its prime minister, Sigmundur David Gunnlaugsson, is linked to is merely a holding company for his wife’s assets and doesn’t provide any tax advantages, while a spokesperson for Marci says that he has no interest in a shell company. China promptly denounced the leak and limited media access concerning the issue. However, the U.S. and certain other countries – including Great Britain, France, Australia and Mexico – have vowed to get to the bottom of the matter.

Mossack Fonseca issued a statement on April 4 declaring its innocence. “Our industry is not particularly well understood by the public, and unfortunately this series of articles will only serve to deepen that confusion. The facts are these: while we may have been the victim of a data breach, nothing we’ve seen in this illegally obtained cache of documents suggests we’ve done anything illegal, and that’s very much in keeping with the global reputation we’ve built over the past 40 years of doing business the right way, right here in Panama.”

The ICIJ also says that the papers expose the ways in which Mossack Fonseca enabled its well-heeled clients to stash assets in tax havens. One such wealthy client, U.S. financial author and “life coach” Marianna Olszewski was reputedly offered fraudulent ownership records to hide money from authorities, a direct breach of international rules prohibiting money laundering and tax evasion.

The news about the Panama Papers is emerging as the U.S. continues to ramp up efforts to thwart illegal practices involving offshore accounts. Agreements signed with other countries under the Foreign Account Tax Compliance Act (FATCA) have cracked open access to bank information previously held in secret in other countries, notably Switzerland and the Cayman Islands. If a foreign bank refuses to disclose information about account holders required by FATCA, it may be assessed a 30% withholding tax on certain U.S. source payments, whether or not the recipient is a U.S. taxpayer.

In addition, U.S, taxpayers are required to report holdings in foreign banks and other financial institutions for any year in which their total assets exceed $10,000. The FBAR (short for Report of Financial Bank and Financial Accounts) for the 2015 tax year must be filed by June 30, 2016. Beginning with the 2016 tax year, FBARs must be filed by April 15 to coincide with the income tax filing deadline.

Undoubtedly, there will be fall-out from the Panama Papers leak as investigators follow up. Don’t expect this to go away anytime soon.

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