Here's Why You Should Give a Shit About the Panama Papers
The Panama Papers—11.5 million leaked documents that detail the inner workings of Mossack Fonseca, a law firm accused of helping drug lords, sports stars, Ponzi schemers, kings, presidents, prime ministers, FIFA officials, mafia members, high-profile thieves, high-ranking politicians, and at least one convicted sex offender launder money, evade taxes, and escape criminal prosecution—are a big deal.
Mossack Fonseca has ties to the $37 million Brink's-MAT robbery of 1983, which British media called "the crime of the century." Thirty-three of its clients have been blacklisted by the US government for allegedly doing business with Mexican drug lords, terrorist organizations, and "rogue nations" like North Korea and Iran. Its files have unearthed a secret, shady $2 billion trail of money that leads to Vladimir Putin. One of its clients played a crucial role in the Watergate scandal. Another was convicted for the torture and murder of a US drug enforcement agent.
With a story this big—dubbed by Edward Snowden as "the biggest leak in the history of data journalism"—it can be difficult to understand exactly what's at stake. The Panama Papers are, unquestionably, insane. But what do they have to do with you?
If you live in one of the 200 countries and territories that Mossack Fonseca's clients call home—and, given the fact you're reading this article, you probably do—the story of the Panama Papers is your story. The money the law firm helps to hide should be used to pay for your schools, your highways, your hospitals. The criminals it works with run the most violent illegal organizations your country has ever seen. The politicians who have taken and made bribes, dodged taxes, and amassed fortunes of unimaginable scale are your politicians.
Not long after the story broke, people started posting tweets along the lines of: "Shock, horror: wealthy, powerful people are corrupt—why should I give a shit?" Well, because of course you should give a shit. To know this story—of hidden millions, of corruption, of murder and bribery and power and betrayal—is to know your own. Here's how the revelations came to be, and why you should care.
THE LEAK
A little over a year ago, an anonymous source reached out to the German newspaperSüeddeutsche Zeitung (SZ) and offered it heaps of internal documents from Mossack Fonseca, which specializes in selling offshore companies based in tax havens across the globe. The source didn't ask for compensation. Instead, he wrote in an email to the paper that he wanted one thing: "To make these crimes public."
Over the next several months, SZ found themselves with about 2.6 terrabytes of data. The paper shared it with the International Consortium of Investigative Journalists (ICIJ), allowing hundreds of reporters from more than 100 media organizations in 80 countries to sift through the documents. After a year of research, those journalists finally began to figure out how Mossack Fonseca works—and to uncover how a business that's never faced criminal prosecution could have a bigger hand in corruption, bribery, and crime than anyone ever imagined.
THE SCHEME
Offshore companies aren't illegal—not inherently, anyway. But using them to hide assets from tax authorities, thwart investigations, and protect criminals is.
Here's how this whole mess of a situation works:
An individual, often through a middle-man he or she is close to, pays Mossack Fonseca to create a "shell company"—a business on paper, but in reality, a storehouse for a shit-ton of money, whether in cold hard cash or tied up in shares. Mossack Fonseca sets up the shell company offshore in a place like Panama (where the firm is based), the British Virgin Islands, or any other "tax haven"—a place where the true owners of a company can be anonymous and their home country (which, typically, doesn't know about the company in the first place) can't tax it.
Say a politician makes $100,000 per year as his or her salary, and for some reason—bribes, business deals, all manner of shady shit—also makes upward of $1 million in some other way. If he or she puts that money in an offshore shell company, he or she can access it without being taxed for it. Even if the shell company is discovered, it can't be tied directly to the politician because the company is technically owned by someone else—a stand-in owner who's appointed by Mossack Fonseca to run the company on paper, but, in reality, doesn't own anything. To move the money, the company pretends to make business deals: The Panama Papers reveal thousands of fake share trades, million-dollar payments for "consultancy," and huge payouts in "compensation" for canceled transactions.
"This is not business," money-laundering expert Andrew Mitchell QC told BBC Panorama. "This is creating the appearance of business in order to continually move and hide assets."
THE SCANDALS
Let's start with the big one: Vladimir Putin.
His boyhood friend, Sergei Roldugin—a major-league cellist and the godfather of Putin's firstborn daughter—is listed as the owner of a slew of offshore companies. They've been set up by Mossack Fonseca, and they've received innumerable payments worth tens of millions, the papers revealed. However, it appears that the money's not actually going to Roldugin. Instead, the ICIJ believes, it's going to Putin's closest associates—and maybe even Putin himself.
The way that works is tricky. It's best explained, I think, by a mind-blowing example that the ICIJ highlighted in its reporting:
On February 10, 2011, an anonymous company in the British Virgin Islands named Sandalwood Continental Ltd. loaned $200 million to an equally shady firm based in Cyprus called Horwich Trading Ltd.
The following day, Sandalwood assigned the rights to collect payments on the loan—including interest—to Ove Financial Corp., a mysterious company in the British Virgin Islands.
For those rights, Ove paid $1.
But the money trail didn't end there.
The same day, Ove reassigned its rights to collect on the loan to a Panama company called International Media Overseas.
It too paid $1.
Photo: kremlin.ru via
In the space of 24 hours, the loan had, on paper, traversed three countries, two banks, and four companies, making the money all but untraceable in the process. St. Petersburg-based Bank Rossiya, an institution with a majority owner and chairman who has been called one of Putin's "cashiers," established Sandalwood Continental and directed the money flow.
International Media Overseas, where rights to the interest payments from the $200 million appear to have landed, was controlled, on paper, by one of Putin's oldest friends: Sergei Roldugin.
The point is this: Here, somebody with extremely close ties to Putin traded $200 million for $1. That's just one of several transactions ICIJ uncovered in Mossack Fonseca's files—totaling at least $2 billion—that involves companies or individuals "uncomfortably close" to Putin. As ICIJ points out, the money might be changing hands in secret because it's being used as "payoffs" for aid from the Russian government or big-ticket contracts. To boil what's at hand down to a word: corruption.
FIFA, it turns out, is more fucked up than we thought—and Mossack Fonseca is involved. Four of the soccer organization's 16 officials indicted in the US for corruption used Mossack Fonseca to create offshore companies. A member of FIFA's Independent Ethics Committee, Pedro Damiani, did work for seven MF offshore companies tied to former FIFA Vice President Eugenio Figueredo—the guy who was charged for wire fraud, money laundering, and racketeering in May of last year. Additionally, it looks like there's no way Damiani didn't know that Hugo and Mariano Jinkis—a father-son duo who allegedly bribed FIFA officials with tens of millions for broadcasting rights to Latin American matches—were doing something dirty. Damiani is now the subject of an internal investigation by the very ethics committee he helps to run.
Iceland's prime minister, who came to power after the collapse of several major banks in his country, effectively owned an offshore company (yep, you guessed it, set up by our friends at Mossack Fonseca) that had major holdings in those same banks. I say "effectively" because, though he once owned half of the company's shares, he's since sold the rest to his wife. For $1. While it's unclear if the PM, Sigmundur Gunnlaugsson, did anything illegal, he and his government negotiated settlements with the same banks he held shares in. Since the Panama Papers story broke, he's been called to step down.
Every major scandal that the Panama Papers have brought to light is equally (if not more) tricky to understand as this whole Putin business. If you're interested in the evidence behind each shit-show, I'd highly recommend exploring the ICIJ's website.
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