What the fuss is all about The Mossack Fonseca

Files have blown open the financial arrangements of the super-rich

THIS week’s news has been dominated by the release last Sunday of 11.5 million documents related to Panamabased law firm Mossack Fonseca, blowing the lid off some of the secret financial arrangements of the wealthy.

It’s a story that will run and run — it has already implicated 12 current or former world leaders, the relatives and close associates of a host of others, including UK Prime Minister David Cameron’s late father, and scores of other celebrity figures, from Jackie Chan to Barcelona football star Lionel Messi. But what are they all accused of doing? What are the Panama Papers? In a nutshell, they are a paper trail that connects the offshore financial interests of 214 488 companies and 14 153 clients of Mossack Fonseca. For the record, the firm has been around for close to 40 years and, according to the Daily Telegraph in London, claims to specialise “in commercial law, trust services, investor advisory and international structures”. What does that really mean? It means the firm facilitates or sets up companies for clients in tax havens such as the British Virgin Islands, where secrecy is paramount and, typically, the actual owners of the companies are hidden. This could have enabled powerful figures to hide information they’d rather was not in the public domain and that could even have been illegal. Have there been allegations of illegal activity? Oh yes. The worst alleged offences relate to sanctions-busting — helping people who are barred from certain markets to get around government restrictions. The BBC cites as an example Rami Makhlouf, a cousin of Syrian President Bashar al-Assad, who is blacklisted in the UK and US, but who kept his companies trading internationally by moving them to the British Virgin Islands.

In that case, there is even an embarrassing link to the UK government. In 2011, HSBC asked for a “certificate of incumbency” — essentially an identity check — for Makhlouf’s company, Drex Technologies, which the governor of the British Virgin Islands could only get with approval from the Foreign Office. “The document very clearly states that the director of Drex Technologies is Rami Makhlouf,” says the BBC. Anything else? There are claims of money laundering and that this may be why so many associates of Russian President Vladimir Putin are named. He is not mentioned in the documents.

There is also the general suspicion that much of the activity is used to IMPLICATED: Argentinian football star Lionel Messi IMPLICATED: Hong Kong movie star Jackie Chan

The suspicion is that much of the activity is used to avoid, or illegally evade, paying correct national taxes

avoid, or even illegally evade, paying correct national taxes. In one case, a US millionaire was offered fake ownership records to hide money, which, the BBC points out, is in breach of international regulations against tax cheating. So, has everyone named committed a crime? Almost certainly not — at the moment it’s not clear who has and hasn’t. In most cases, the revelations merely link people with offshore companies. Doesn’t that imply wrongdoing? It is generally viewed with suspicion, but not always illegitimate and absolutely not always illegal. The New York Times says that sometimes offshore centres are used to get around rules on, for example, US citizens owning property overseas, or to enable a safe base for making “investments into countries with weak or corrupt legal systems”. Have there been any casualties? Sigmundur Gunnlaugsson resigned as Iceland’s prime minister after the papers revealed he and his wife had a company that owned bonds in its failed banks. The Financial Times says Gunnlaugsson never disclosed these links and successfully negotiated a deal with overseas creditors of the banks, “leaving him open to allegations that he had a conflict of interest”. In the UK, Cameron’s reputation has taken a battering after it was revealed his dad, Ian, had helped set up an offshore investment trust in the ’80s that advertised itself as not being subject to any taxes. It’s been pointed out that the structure was legal at the time, but given that the UK government lobbied the EU in 2013 for concessions on trusts, it is embarrassing. — theweek.co.uk