Panama Papers: How the Worlds Rich and Powerful Hide Their Money

Simon Morales, Journalist

On the morning of April 3, 2016, Mossack Fonseca went from being an unknown law firm in Panama city to the firm responsible for the largest financial scandal of the decade. 11.5 million files were leaked by the German newspaper Süddeutsche Zeitung in an investigation involving dozens of reporters from the International Consortium of Investigative Journalists (ICIJ). This leak exposed how the world’s celebrities, politicians and businessmen evaded taxes and committed illegal activities without the knowledge of the governments. 

Mossack Fonseca was founded in 1977 in Panama by two lawyers. It rapidly expanded, and at one point was responsible for around 5% of the global shell company market. The companies business was to create “shell firms” which are companies that exist only on paper and have no office or employees. These shell companies were purchased by banks or individuals wishing to hide their identity in transactions, making them attractive to criminals or tax evaders wanting to move money out of the country. The firm gained a reputation for its services worldwide, where it had over 50 offices.

In late 2015, german newspaper Süddeutsche Zeitung received 11.5 million documents from an anonymous source. These documents were all the internal files of Mossack Fonseca in the last 20 years. This lead to an in-depth investigation with the best reporters from the ICIJ. The report exposed world leaders leading to the resignation of multiple prime ministers, including Icelandic prime minister Sigmundur Gunnlaugsson. Additionally, it helped show how the Odebrecht construction company paid bribes throughout Latin American to secure contracts. They helped evade billions of dollars in income taxes and knowingly sold these financial services to criminals who made money from drugs and other illicit businesses.

After the scandal passed in 2016, there were multiple convicted politicians and fines placed. This event also lead to the closure of Mossack Fonseca and the arrest of both directors. While this event exposed how the world’s wealthiest people avoid paying taxes, not much has been done to avoid this from happening. Mossack Fonseca’s clients moved to other firms in Panama City or other tax havens. The British Virgin Islands and Delaware in the United States are responsible for the majority of the shell companies being created, meaning that while the investigation into Mossack Fonseca exposed a lot of information on tax evasion, it was just the tip of the iceberg.