Panama Papers: no huge fish but a huge haul

6 April 2016

The facts and figures are in many ways startling. Yet in some ways the real revelations of the ‘Panama Papers’ published this week – at least so far – are a bit disappointing; at least to the jaded and cynical eye.

The stats of this immense effort by the International Consortium of Investigative Journalists (ICIJ) are admittedly mind-boggling. Some 11.5 millions records, dating back nearly 40 years, of Mossack Fonseca – a global law firm based in Panama – contain details on more than 214 000 offshore entities connected to people in more than 200 countries and territories.

Company owners include billionaires; sports stars, like Lionel Messi; entertainers, like Jackie Chan; drug smugglers and fraudsters. The offshore holdings of 140 politicians and public officials around the world – including 12 current and former world leaders, are exposed. These include the prime ministers of Iceland and Pakistan, the president of Ukraine, and the king of Saudi Arabia.

The papers document some US$2 billion in transactions secretly shuffled through banks and shadow companies by associates of Russian President Vladimir Putin. The papers include the names of at least 33 people and companies blacklisted by the United States (US) government because of evidence that they’d been involved in wrongdoing, such as doing business with Mexican drug lords, terrorist organisations like Hezbollah or rogue nations like North Korea and Iran.

They show how major banks have driven the creation of hard-to-trace companies in offshore havens. More than 500 banks and their subsidiaries and their branches – including HSBC, UBS and Société Générale – created more than 15 000 offshore companies for their customers through Mossack Fonseca.

Hundreds of journalists of the ICIJ, comprising over one hundred media organisations worldwide – including several in Africa – mined this ore of information for eight months, we are told. That was investigative reporting on a truly industrial scale.

But was it worth it? Did all this sifting of ore produce any really worthwhile gems of scandal? Or, to shift the metaphor, did the trawling land any really big fish? Not really, it seems ­– or not many scaly creatures we didn’t already know were a bit off. 

Anyone expecting revelations on the scale, for instance, of a disclosure that the late Libyan dictator Muammar Gaddafi had buried his fabled billions in a bank account owned by South African President Jacob Zuma, would have been disappointed.

To Icelanders, the revelation that their boyish-looking former prime minister Sigmundur David Gunnlaugsson and his wife owned a company in the British Virgin Islands which held £2.8m of investments in the country's collapsed banks – which he helped bail out – was no doubt volcanic, and protestors clamouring at his door forced his resignation this week.

But for much of the rest of us, there are no truly explosive revelations. Or not yet.

In Africa, the public figures who have so far been revealed as using the services of Mossack Fonseca to hide their wealth offshore are either rather obscure and uninteresting, or we knew they were fishy anyway.

Many of these people had already been fingered for dodgy deals or, conversely, might have parked their money offshore for perfectly legitimate reasons (as the ICIJ is at pains to point out).

Khulubuse Zuma’s controversial acquisition of two huge oil fields in the DRC in 2010 – allegedly through his uncle’s influence on Kabila – has already been reported at length. The Panama Papers add some detail about Caprikat, the company that Mossack Fonseca registered offshore in the British Virgin Islands, a notorious tax haven, through which Zuma acquired the oil assets, supposedly worth R100 billion.

As Heather Lowe, the Director of Government Affairs for Global Financial Integrity, a Washington DC-based consultancy, told Timemagazine, despite the immensity of all these leaks, ‘the tricks Mossack Fonseca has allegedly used for its clients are neither new nor surprising.

‘Anonymous shell companies and the failure of governments to require lawyers, corporate service companies, or banks to collect beneficial ownership information on clients leave the door wide open for dirty money to flow around the globe virtually unhindered.’

Her organisation has estimated that developing economies lost US$7.8 trillion between 2004 and 2013 because of such practices. Last year, former South African president Thabo Mbeki, who heads a task force appointed by the African Union and the United Nations to probe such ‘illicit financial flows’, found that they cost Africa alone at least US$50 billion a year.

Yet that is beginning to change at last, though not as fast as it should. In 2013, the G20 and the Organisation for Economic Cooperation and Development (OECD) launched an initiative to stop what it called ‘base erosion and profit shifting,’ – the fancy accounting which multinational companies use to avoid or evade taxes, such as moving profits into low, or no, taxation jurisdictions.

One of the less-noticed, and more encouraging, revelations of the Panama Papers is how in 2010, Mossack Fonseca ended its relationship with Caprikat as published reports raised questions about the company’s acquisition of the DRC oil fields. This came after British Virgin Islands authorities ordered it to provide background information on Zuma, which the law firm had not previously obtained.

Alex Hogg, editor of BizNews.com has quipped that ‘Mossack Fonseca has no problem representing Ponzi scheme operators, drug lords, tax evaders and even a jailed paedophile. But it found Khulubuse too hot to handle…’ Witty – but not quite accurate. The Panama Papers reveal that Mossack Fonseca has been closing down or pulling out of many companies after being compelled to do due diligence on them.

At its peak in 2005, Mossack Fonseca was setting up 12 287 companies a year and deactivating 6 339. In 2015, by contrast, it set up just 4 341 and deactivated 8 864.

OECD Secretary-General Angel Gurría said this week the Panama Papers had shone the light on Panama as ‘the last major holdout that continues to allow funds to be hidden offshore from tax and law enforcement authorities.’

While revealing nefarious activities, the papers also showed a decline in the use of offshore shell companies, ‘which is a testament to the incredible transformation effected in the last seven years to establish robust international standards on tax transparency,’ he said. The OECD’s efforts include the ‘Tax Inspectors Without Borders’ initiative for developed countries to help developing countries increase tax control and boost revenues.

Many activists would surely disagree with Gurría that Panama is the last tax haven in the world. Tax Justice Network, for example, believes that many countries, including ‘respectable’ ones like the US and United Kingdom, are still guilty of helping corporations hide profits and avoid taxation.

Either way, the real achievement of the Panama Papers should be to give tremendous new impetus to these international efforts to shine harsh light on multinationals; and force them to pay their taxes where they make their profits.

The investigation has confirmed, in stark, undeniable detail, what everyone suspected – the rottenness of the international tax system. It has also itself presented governments of the more than 200 countries and territories implicated with a potential treasure trove in taxes.

Several governments have already launched probes, or have said they will, into the companies and individuals named. Many more are sure to follow.

South Africa’s Minister of Finance Pravin Gordhan rather gleefully announced this week the South African Revenue Services will be investigating all the South Africans mentioned, for possible tax evasion. ‘Of course, I am not the commissioner of revenue,’ he added, as an afterthought and possibly a sly dig at his arch-enemy Tom Moyane, who does occupy that position, and who might not relish the prospect of looking too closely into the tax arrangements of the nephew of his patron, Jacob Zuma, for instance.

And so to lament the lack of many truly big fish landed would be to miss the point of the Panama Papers. What counts is not how many big fish are caught in the net, but the size of the total haul.

Peter Fabricius, ISS Consultant