ChiBus Explains: A guide to the Panama Leak

By Ziad Abouchadi Class of 2017

By Ziad Abouchadi
Class of 2017

Beginning in early 2015, an anonymous source under the pseudonym "John Doe" made batches of documents available to the German newspaper Süddeutsche Zeitung, starting the largest data leak in history by far. The documents, which date back four decades, contained terabytes of information from a Panamanian law firm specialized in setting offshore accounts and shell companies that the rich and the powerful have been using to conceal wealth and to presumably commit crime.

To this day, only a fraction of the documents that came to be known as the “Panama papers” have been published, with astounding effects all over the world. The Prime Minister of Iceland has just resigned a week ago. Ukraine’s president Petro Poroshenko, who is already on an ejection seat, had promised to sell his business interests on taking office and now seems to have merely transferred assets to an offshore shell. The freshly elected president of Argentina, Mauricio Macri, will have to appear before a federal prosecutor to defend his case. Calls for the resignation of British Prime Minister David Cameron have been voiced both inside and outside the parliament. The Chinese government has been censoring any reference to the documents since they have tied China’s top leader to offshore companies at a time when he is leading a full-scale war against corruption.

It is vital to keep in mind how tricky it is to have an appropriate response to these revelations when the subtleties of tax havens and offshore accounts are not fully appreciated. For instance, the IMF defines an offshore center as a low tax jurisdiction that provides services to non residents while requiring little disclosure (The big seven are Hong-Kong, Ireland, Lebanon, Liberia, Panama, Singapore and Switzerland). As such, they can be used for perfectly legitimate and economically beneficial purposes, and can thus be completely legal, both in the offshore and onshore jurisdictions.  For example, when two firms set up a cross-border joint venture, they may choose to incorporate it on neutral turf to avoid favoritism.

It is hard for leaders to justify their personal questionable arrangements at a time when they are asking for more and more sacrifices from their populations. Courtesy of the New York Times

It is hard for leaders to justify their personal questionable arrangements at a time when they are asking for more and more sacrifices from their populations. Courtesy of the New York Times

The opponents of these arrangements raise the valid concern that, while the accounts in themselves are legal, the opacity and lack of disclosure encourages the holder of these accounts to commit crimes. One can hardly commit money laundering, tax evasion, fraud or any white-collar crime without one of these offshore accounts to a point where holding one is now equated with ill intention.

All the power players involved have strongly denied any wrongdoing, insisting that they have not done anything illegal. Their pleas for mercy have fallen on deaf ears since it appears that the public uproar is more about fairness and equity than it is about justice and legality. While it would  come as a surprise if these revelations set in motion a global fiscal reform, they certainly will shed  light on the gap between a population that is increasingly being asked to make sacrifices and leaders that seems desperately out of touch with reality.

Ziad is an MBA student who has come to realize that the full-time epithet is to be taken literally.