Governments face the heat as Panama Papers make the world tremble

  • AP, FRANKFURT, Germany
  • Updated: Apr 05, 2016 21:09 IST
An employee of software company Nuix stands in their office located in central Sydney, Australia. Software produced by the little-known Australian developer has helped journalists piece together news leads from the mountains of data found in the contents of the Panama Papers, one of the biggest document leaks in history. (REUTERS)

Governments around the world tried on Tuesday to contain the fallout from the publication of thousands of names of rich and powerful people who conducted offshore financial activity through a Panamanian law firm.

China dismissed as “groundless” reports that relatives of current and retired politicians, including President Xi Jinping, own offshore companies.

The state media are ignoring the reports, and search results for the words “Panama documents” have been blocked on websites and social media.

Iceland’s prime minister has vowed to not resign despite thousands of angry protesters demanding his ouster and fresh elections. The leaks showed possible links to an offshore company that could represent a serious conflict of interest.

Read: Amitabh Bachchan on Panama Papers leak: My name has been misused

And Ukraine’s president was accused of abusing his office and of tax evasion by moving his candy business offshore, possibly depriving the country of millions of dollars in taxes.

The reports are from a global group of news organizations working with the Washington-based International Consortium of Investigative Journalists. They have been processing the legal records from the Mossack Fonseca law firm that were first leaked to the German Sueddeutsche Zeitung newspaper.

Shell companies aren’t by themselves illegal. People or companies might use them to reduce their tax bill legally, by benefiting from low tax rates in countries like Panama, the Cayman Islands and Bermuda. But the practice is frowned upon, particularly when used by politicians, who then face criticism for not contributing to their own countries’ economies.

Britain's Prime Minister David Cameron speaks during a question and answer session on the forthcoming European Union referendum. Cameron came under pressure to explain his family's financial affairs on Tuesday after the so-called Panama Papers revealed his late father ran an offshore fund which avoided paying tax in Britain for 30 years. (AFP)

Because offshore accounts and companies also hide the names of the ultimate owners of investments, they can be used to illegally evade taxes or launder money.

Mossack Fonseca says it obeys all laws relating to company registrations and does not advise people how to evade taxes.

The firm said in a statement that “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 in this illegally obtained cache of documents suggests we’ve done anything wrong or illegal, and that’s very much in keeping with the global reputation we’ve worked hard to build over the past 40 years of doing business the right way.”

Read: Panama papers in numbers: Countries implicated, companies involved

Members of the Group of 20 — which includes China — have agreed on paper to tighten laws relating to shell companies and make sure authorities can find out who the real owners are. Actual legislation at the national level has lagged behind the promises, however.

People demonstrate against Iceland's Prime Minister Sigmundur Gunnlaugsson in Reykjavik after a leak of documents by so-called Panama Papers stoked anger over his wife owning a tax haven-based company with large claims on the country's collapsed banks. (Reuters)

The appearance of offshore accounts in political scandals is far from new. Shell companies played a role in the corruption scandal involving the Petrobras oil company in Brazil. The U.S. Justice Department said in an indictment last year that offshore accounts were used to mask the transfer of bribes to officials at FIFA, the global soccer federation.

China’s foreign ministry spokesperson Hong Lei said he would not discuss the reports further and declined to say whether the individuals named would be investigated.

“For these groundless accusations, I have no comment,” Hong told reporters at a regularly scheduled news conference.

Sueddeutsche Zeitung, working with NDR and WDR public television, reported Monday that 14 German banks had used Mossack Fonseca’s services to set up 1,200 letterbox companies for clients.

The report said use of offshore company registrations had spiked after the European Union introduced regulations in 2005 requiring countries to exchange tax information on physical persons, but not for companies. Many of the accounts, however, have since been closed.

The EU has since tightened its rules on offshore companies under its Fourth Anti-Money Laundering Directive, which is being phased in as national governments pass local laws to comply by June 26, 2017. The new rules tighten requirements for companies to keep accurate information on their real owners and to make that available to authorities.

Read: Censorship, CIA and no US citizens: Panama Papers conspiracy theories

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