'Panama Papers': How the Rich and Powerful Allegedly Hid Their Wealth

PHOTO:View of a sign outside the building where Panama-based Mossack Fonseca law firm offices are in Panama City, April 3, 2016. PlayEduardo Grimaldo/AFP/Getty Images
WATCH Biggest Financial Data Leak in History

The leaked confidential documents that have been dubbed the "Panama Papers" appear to show how some political leaders and the wealthy have used secretive tax havens over a 40-year period.

The 11.5 million leaked files expose the dealings of a law firm in Panama called Mossack Fonseca that provides the incorporation of offshore entities, according to the International Consortium of Investigative Journalists (ICIJ), the group behind the report. The files reportedly show that Mossack Fonseca worked with more than 14,000 banks, law firms and companies from 1977 through 2015 to create tax havens for the rich and powerful.

Offshore bank accounts are not inherently illegal, and they have many legitimate uses. But they have also been known to be used by both legitimate and criminal businesses to hide money and avoid having to pay taxes.

According to ICIJ, the leaked documents were released to the German newspaper Sueddeutsche Zeitung and "show that banks, law firms and other offshore players have often failed to follow legal requirements that they make sure their clients are not involved in criminal enterprises, tax dodging or political corruption."

Mossack Fonseca told The Guardian that in regards to tax evasion and avoidance, "We strongly disagree with any statement implying that the primary function of the services we provide is to facilitate tax avoidance and/or evasion. Most of the persons mentioned by you are not our clients nor do they appear in our database as persons related to the companies we formed.”

“Our industry is not particularly well understood by the public, and unfortunately this series of articles will only serve to deepen that confusion," the law firm said in a statement today. "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. Obviously, no one likes to have their property stolen, and we intend to do whatever we can to ensure the guilty parties are brought to justice. But in the meantime, our plan is to continue to serve our clients, stand behind our people, and support the local communities in which we have the privilege to work all over the world, just as we’ve done for nearly four decades.”

Mossack Fonseca’s co-founder, Ramón Fonseca, told a Panamanian television station three weeks ago that the firm has no responsibility for what clients do with the offshore companies that the firm sells, comparing the firm to a “car factory” whose liability ends once the car is produced. Blaming Mossack Fonseca for what people do with their companies would be like blaming a carmaker “if the car was used in a robbery,” he said, according to a translation by ICIJ.

Here are some of the most surprising findings in the report:

140 politicians from more than 50 countries

According to ICIJ, the filings reveal offshore holdings of more than 140 public officials from around the world, including Ukrainian President Petro Poroshenko. The papers allegedly reveal that Poroshenko became the sole shareholder of a company Mossack Fonseca set up in the British Virgin Islands called Prime Asset Partners Limited. A spokesperson for Poroshenko told the ICIJ that the creation of the company had no relation to “any political and military events in Ukraine," adding that he didn't include it in his 2014 financial disclosures because neither the holding company nor two related companies in Cyprus and the Netherlands have any assets.

A spokesperson for Poroshenko argued that Poroshenko's actions were not inherently illegal.

"Although Poroshenko didn't include Prime Asset Partners in his financial disclosures, his financial advisers noted that neither Prime Asset Partners nor two related companies in Cyprus and the Netherlands hold assets. They said that the company was part of a corporate restructuring to help sell the Roshen group," according to a statement from the Poroshenko spokesperson that was published on the ICIJ site. "Although Poroshenko is the shareholder, his shares are managed by a licensed asset management company, and his assets have been held by an independently managed fund, Prime Asset Capital, since 2005."

Poroshenko reiterated today his commitment to transparency, Reuters reported, while his financial adviser said the offshore firm was created to avoid a conflict of interest by allowing his assets to be controlled by third parties while he remained president. Meanwhile, Poroshenko has faced criticism for not selling his confectionary business Roshen though he has promised to do so.

Alleged illegal activities with indirect victims

The ICIJ describes indirect ties between alleged con artists with offshore accounts and unknowing victims. One client of Mossack Fonseca was Malchus Irvin Boncamper, an accountant on the Caribbean island of St. Kitts. He pleaded guilty in a U.S. court in 2011 to helping others launder money for salesmen of fake insurance policies. When a tour boat belonging to Shoreline Cruises Inc, a tour company that purchased a fake insurance policy from one of these salesmen, sank in 2005 in New York's Lake George, the survivors and families of the 20 elderly tourists who died learned Shoreline Cruises didn't have the ability to pay the claims, according to the ICIJ.

Most popular tax havens

The leaked data shows the most popular tax havens for the rich and powerful. Of the companies that appear in Mossack Fonseca’s files, one out of every two — more than 113,000 — were incorporated in the British Virgin Islands, the ICIJ states, while the second favorite jurisdiction was Panama.

Brodrick Penn, permanent secretary in the office of the BVI premier, Orlando Smith, told The Guardian that “The BVI has a widely recognised, robust regulatory and compliance regime. We continue to play a constructive role in the furtherance of international transparency, information exchange and anti-money-laundering initiatives at the highest level.

“As a matter of policy and law we do not comment on individual cases. The BVI actively investigates issues of non-compliance and works with foreign competent authorities to detect, prevent and prosecute illegal activities, ensuring that our laws are enforced and action taken transparently when we identify wrongdoing.”

The president of Panama, Juan Carlos Varela, issued a statement Sunday about the report and argued that his government “leads a policy of zero tolerance of any aspects of the legal or financial system that is not handled with high levels of transparency,” and “will vigorously cooperate with any requests or assistance that may be necessary in the event that any judicial process develops.”

The ICIJ said it will release the full list of companies mentioned in the leaked materials in May.