The Panama Papers, leaked from Mossack Fonseca’s website, have shaken the world. The expose revealed how the high and the mighty stashed their wealth in offshore tax havens to avoid paying taxes. Some of the tax cheats who got caught with their pants down are Vladimir Putin, the President of Russia; Nawaz Sharif, the Prime Minster of Pakistan; Petro Poroshenko , the President of Ukraine. Many other high profile politicians, celebrities, and their family members are in the soup for having their names featured in the Panama Papers.
What is Mossack Fonseca and what does it do?
At the eye of the storm is a Panama-based law firm, Mossack Fonseca, which offers legal and financial services. It appears that he law firm has many high profile clients whom it helped in stashing their ill-gotten wealth by assisting them in setting up offshore shell companies with an intention to evade taxes.
What are offshore tax havens?
The wealthy people, according to the tax laws, have to pay a certain percentage of their income to their governments in the form of direct taxes. However, the rich, who can’t satiate their infinite hunger for money and wealth, don’t want to pay the taxes. They look for tax havens which are present in many parts of the world to stash their untold wealth.
Tax havens are the countries or independent places where the tax liability of the individuals or companies is virtually zero. Even the people who are not the citizens of these tax havens can derive benefit by stashing their money in those countries or places. One of the typical characteristics of these tax havens is, they have strict privacy laws and the tax cheats who hide their money in them can be rest assured that their names will not be made public.Panama Papers Exposed the Dark Deeds in Offshore Tax Havens Click To Tweet
Most of the tax cheats, who stash their money abroad, open shell companies in these tax havens by availing the services of the law firms like Mossack Fonseka. The tax cheats, once they establish the shell companies, start acquiring and hiding properties in the name of their companies. Anyone who tries to know the real owners of these shell companies invariably faces failure. According to Investopedia there are many tax havens spread all across the world, such as Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, Hong Kong, the Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, Switzerland and St. Kitts and Nevis.
How did the Panama expose come about?
According to reports, a German newspaper called Sueddeutsche Zeitung obtained around 11.5 million documents, which famously came to be known as Panama Papers, and shared them with the International Consortium of Investigative Journalists. The German newspaper, in turn, accessed them from an anonymous source.
How the documents leaked?
Ramon Fonseca, one of the founders of the law firm, denied reports claiming that the leak is an insider act, and stated that a technical evaluation done on their website came to the conclusion that their website was hacked. He tried to hide behind the right to privacy, which he called a human right. People, who indulge in corruption and financial irregularities, always try to hide behind the right to privacy. This raises the question whether the financial privacy as a means of tax avoidance is legitimate.
How did the leak happen?
According to Wordfence, the developer of the popular Wordfence security plug-in, the Mossack Fonseca website was built on WordPress. WordPress is a popular Content Management System, on which around 25% of the world’s websites run. The hackers, who breached into the server of Mossack Fonseca, exploited a loophole in its WordPress-based website. Wordfence claimed that the technical evaluation carried out by them brought to light that an outdated plug-in called Revolution Slider provided the hackers with an opportunity to breach into the server.
Impact of Panama papers
After the Panama papers expose, Iceland Prime Minister, Sigmunder Gunnlaugson resigned after some of the names of his family members appeared in the leaked document. Even the British Prime Minister David Cameroon is in the soup after it came to light that his late father had hidden millions in an offshore tax haven. Many more heads may role in the month to come. The Panama Papers leak should be an eye opener for the world leaders and the world community must make a concerted effort to neutralize the tax havens so that the high and the mighty will have nowhere to go to stash their ill-gotten wealth.