The Panama Papers elucidate the global network of dirty finance. As the latest largest leak in history, it will have unprecedented political and hopefully, legal repercussions writes Fausto Hernandez.

The Fonseca Farce. A company whose slogan is A legal approach to global solutions is almost comically suspicious. Today, Mossack Fonseca’s overstated legality is akin to a sociopath who does charity work – a mere technicality. It is currently the Panama-based epicenter of the recent 2.6 TB tidal wave of information, lyrically dubbed the “Panama Papers”. With a leak comprised of four decades and 11 million documents worth of their sensitive financial information that has so far been linked to over 140 public servants – many of global renown – Mossack exemplifies the mechanisms that allow for tax evasion, money laundering, and financial asset concealment. This is the “biggest leak in history”.

Mossack is a firm that specializes in providing financial and legal services to wealthy clients. As it states, it has a global network comprised of a myriad shell companies and over 14,000 business partners which Mossack relied on to protect and hide its client’s wealth. It was relied on for its confidentiality. The latter was all radically compromised when someone leaked confidential information to the International Consortium of Investigative Journalists (ICIJ), part of the non-profit organization Centre for Public Integrity, whose mission is to, as the name suggests, “…Serve democracy by revealing abuses of power, corruption and betrayal of public trust by powerful public and private institutions, using the tools of investigative journalism”.

Panama Papers: Sifting through the rubble

The documents are illuminating a murky, hazy spider web of dubious financial activity and enormous wealth, some of presumed illicit – for one, Mossack worked with 33 blacklisted companies and individuals, including the cousin of the infamous Syrian dictator.

A common, sly tactic is to delegate wealth in order to preserve a “clean” state: offspring and close acquaintances are often entitled to vast, inexplicable fortunes and businesses in the real beneficiary’s stead – for example, South African President Jacob Zuma’s nephew, who had oil businesses in the Democratic Republic of Congo. The money is stored in tax havens and sparsely regulated territories like the British Virgin Islands and Panama itself and handled via several intermediaries, each of which makes the trail harder and harder to follow. Among the implicated are the ex-Prime Minister of Iceland Sigmundur Gunnlaugsson, Russian President Vladimir Putin, 8 high-ranking government officials of the Chinese Politburo and British Prime Minister David Cameron, to mention a few household names.

The latter has admitted to benefiting from a trust set up by his father, while Iceland’s President, who had stakes in Icelandic banks, stepped down after 10% of Iceland’s population protested and called for his resignation. The truly global scandal has, unsurprisingly, also led to strong Chinese censorship efforts. Nonetheless, the true casualty in this affair, even more so than the grace of individual politicians, is the people’s trust in their elected officials and the people’s ignorance on the subject. Xi Jinping, who had been at the forefront of anti-corruption efforts, is also stained by the Papers simply by having close acquaintances involved, even if his conduct is perfectly legal. Given the surprising lack of high-profile American individuals or companies involved, some sources claim that the CIA uploaded the information as an anonymous whistleblower. Bradley Birkenfeld, himself a lauded leaker, certainly supports this. The leak has certainly destabilized the government of American rival countries.  

The Aftermath  of the Panama Papers – casualties and reform

Businesses such as  Mossack  are a financial tool.It is very possible, indeed quite probable, that the vast majority of the transactions detailed in the Panama Papers are perfectly legal. The issue arises with the opacity involved: trusts and mazes of shell companies may well be ways to safeguard assets as much as perfect ways to launder illicit money. At the least, it is a tax evasion mechanism that allows the uber-wealthy to dodge redistribution measures like progressive tax brackets, which exacerbates inequality and consolidates inter-generational fortunes.  Greater transparency, regulation, and vigilance are in order: no doubt, some progress will be made in the upcoming anti-corruption summit summoned by David Cameron.

Hopefully, this will serve as legal and political dawn on the lack of regulation that such financial service providers have: after all, it is estimated that Mossack only controls a small fraction of the world’s offshore wealth market. There is much more to find.

The global shock will also advance Bernie Sander’s campaign as it fuels the public’s indignation towards the 1%, which has been targeted since the Great Recession in 2008: this revelation into the efforts undertaken by billionaires to circumvent legal obligations that are inescapable to the vast majority of citizens will is tailored to Sander’s heavy redistribution, anti-inequality platform. Hillary Clinton may not be so lucky, as she pushed for the ratification of the Panama Free Trade Agreement in 2012, which Sanders, who “…was opposed to the Panama Free Trade Agreement from day one,” claims made much of this possible.

By being almost impossible to censor, the Internet has manifested as a great whistle that anyone can blow in recent times. The looming consequences of indiscretion in this era may act as a deterrent to some degree for further grey finance. The greatest leak in history was enabled by the greatest capacity to share information in history. More leaks are yet to come.

As citizens, we entrust the democratically elected leaders of our Nations with great power in order to serve the public. Graft betrays this relationship. We are on the same side. Taxpayer money must be reinvested in its country to enable growth: corruption stagnates foreign investment and stymies economic improvement. Many of the charges derived from the Panama Papers will be dismissed as immaculately legal. As even more putrid, red-hot money trails emerge from the black gunge of the papers, we must recall Benjamin Franklin’s quote: “laws without morals are useless”. Legality is certainly not morality.  

Fausto Hernandez is currently residing in Mexico City. So far he has experienced New York, Miami and London, his birthplace. Fausto was the fellow of 2015 Yale Global Scholars in Politics, Law and Economics,...

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