Panama havens – The ugly truth

Panama havens

The 3rd of April 2016 shall be forever engraved in history as the day a German newspaper known as Suddeutsche Zeitung opened the Pandora's box in the world of finance. Thus causing the biggest leak of confidential documents and very sensitive information of history.

It all started a year ago when an anonymous source got in touch with the German newspaper. The latter affirmed detaining highly sensitive information. These revelations, motivated with reasons still unclear, contained private transactions which were all linked to a firm in Panama, a country usually known for being a tax haven. Furthermore, the Panamanian firm was known as Mossack Fonseca. Suddeutsche Zeitung asked for the help of the International Consortium of Investigative Journalists (ICIJ) to disentangle truth from falsehood. They spent one whole year analysing the 11.5 million leaked documents and finally decided to make them public. The panama papers went public at the beginning of April 2016 thus causing the downfall of several politicians, their relatives, football stars and other eminent personalities.

What is a tax haven?

Tax haven

For those who do not know, a tax haven is considered as a country which offers a few or no tax liability to foreign investors. Besides, the tax havens offer the minimum information to foreign tax authorities thus guaranteeing the foreign investors a total peace of mind and a very lenient tax regime. Foreign investors who amassed a huge fortune turn to these tax havens as this allow them to evade the taxes in their countries of origin. It is important to know that in order to take advantage of a tax haven, investors do not need to reside in the specific country. Some examples of Tax haven countries are: Panama, the Bahamas and the British Virgin Islands amongst others.

Tax evasion is a serious offense as it impacts on a whole country’s economy. Instead of paying the tax rates of their countries, some rich individuals elude the law by opening a shell company in a tax haven. This practice is harmful for a country for several reasons, such as:

  • Unemployment.
    It increases the levels of unemployment - instead of opening a real company in their own home countries which could create jobs and reduce unemployment, rich investors go abroad to create shell companies.
  • It impacts on the Gross Domestic Product (GDP) of the country.
    It reduces the GDP of their home country. As they do not invest in creating companies and hence reduce the level of unemployment, the buying power of the country is affected. People cannot afford to buy things.
  • It impacts on the welfare of society.
    The welfare of society It affects the welfare of society. As the individuals choose to evade the taxes of their country, the government do not receive a sufficient amount of money to invest in social welfare activities.

Tax evasion is detrimental for an economy as it causes collateral victims. Such as the skilled people who are not given work opportunities. Furthermore, if we carry out a more indepth look at countries where avoiding taxes is a problem, we also discover that these countries are also affected by a high rate of robberies, burglaries and thefts.

The role of Mossack Fonseca

Now that you have better understood about the meaning of tax haven and tax evasion, you will have a better grasp of the Panama paper case. The 11.5 million leaked documents which are currently disrupting the worldwide financial market come from the archives of a company known as Mossack Fonseca.

Launched in 1977, this law firm was founded by Ramon Fonseca and Jurgen Mossack. It is considered as the fourth largest offshore law company worldwide, which offers legal and wealth management services. This firm helps its customers to open companies in offshore jurisdictions countries such as Bahamas for example. It is completely legal to open an offshore company, however, it becomes illegal when the company created exist only on papers. While going through the 11.5 documents, the ICIJ discovered that the offshores companies created did not physically exist. The law firm acted as a registered agent in order to allow its rich clients to hide their fortune by creating nearly 200 000 companies.

The discoveries of the leak

This leak is considered as the biggest of the history, even sending the release of the WikiLeaks in 2010 at a lower rank. Furthermore, these revelations has tarnished the reputation of approximately 143 politicians worldwide, 12 of whom are national leaders. There are also other public figures who have been exposed, such as the family members and close friends of influential people and some celebrities.

In addition, it was discovered that some offshore companies appearing in the Panama papers were directly linked to the attacks in Syria. During these attacks, the Syrian air force dropped bombs and missile over thousands of civilians. The papers revealed that these specific companies helped the Syrian air force to restock in fuel.

Besides, among the papers, it was also discovered that one of the name found was associated to illegal practices in Russia. Orphans minor girls have been kidnapped by businessmen and was then sold to other people. These practices destroyed the lives of thousands of young girls. However, the Panamanian firm never denounced its client as it was not legally forced to report this client’s offshore company.



According to what have been discovered until now, it seems that this company only deals with dirty money. However, this Panamanian papers leak is the proof that truth always ultimately triumph. The positive outcome of this leak is that it acted as a wake up call for governments. There will be more emphasis on tax evasion and avoidance thus ensuring a wholesome economy for the countries suffering from these two scourges. Meanwhile, the International Consortium of Investigative Journalists is still analysing the 11.5 documents. The revelations made up till now was just the top of the iceberg. The ICIJ is still actively analysing the remaining data and as from what can be understood, the protagonists of this alarming list of clients that Mossack Fonseca has, are not going to see their troubles end any soon.

Priscilla Camryn By: Priscilla Camryn