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The Abuse of Privacy: Mossack Fonseca and the Panama Papers Leak

“Privacy is a fundamental human right that is being eroded more and more in the modern world. Each person has a right to privacy, whether they are a king or a beggar.” Few could disagree with the essence of this statement by Panamanian lawyer Ramon Fonseca, one of the founders of Mossack Fonseca, which has made the news in the last few days.

The Panamanian firm is known for one vital speciality: giving advice to an assortment of mainly powerful clients in areas of tax evasion, or minimisation, depending on the moral, and ethical take on the matter. Evasion tends to sound more sordid than minimization, which is the preferred gloss used by the experts in the field.

The masterminds behind the venture are Fonseca himself and German-born lawyer Jürgen Mossack. Both developed elaborate schemes in developing shell companies and trust accounts that have provided a smorgasbord of secretive options for clients. Those services are in turn sought by major banks whose clients wish to see more financial bang for the stored buck.

Mossack Fonseca has created, since 1977, an industrial complex of tax sheltering and clandestine consolidation spanning two hundred thousand clients, a web of shuttling and funnelling to evade the evil gaze, and pinching fingers, of the tax man. “These findings,” argues Gabriel Zucman, a keen economist on the subject at the University of California, Berkeley, “show how deeply ingrained harmful practices and criminality are in the offshore world.”[1]

Not that the shell company is a particularly wicked creation. For one, it is legal, despite having no employees on paper. The nominee director is bound to have no power, a move which permits the actual company owner to operate pseudonymously or anonymously. Such an entity can be created in a matter of minutes, and bought for such low prices as $2,000. Such behaviour is attributable to a financial system that is punctured and filled with options for those with heavy, and ultimately fleeting money bags.

Such companies, however, start becoming facilitating instruments for crime when they are deployed for certain enterprises, the traditional ones being money laundering and overt tax evasion. The line, however, is often murkey.

The seemingly secure doors to the world of Mossack Fonseca were compromised with the massive data link that has cast light on a seemingly impenetrable market of parked transactions. It involved a breach of the data centre at the company to the value of 2.6 terabytes, leading to the exposure of 11.5 million documents by the German paper, the Süddeutsche Zeitung, which subsequently shared the material with the International Consortium of Investigative Journalists.

Degrees of privacy matter in accordance to the responsibility of the person parking income in such havens. Political figures might well be happy to insist that citizens pay their due yet obtain finances in the course of their employ that may well be beyond scrutiny.

The world engendered by Mossack Fonseca is one distinctly hostile to that notion of transparent public service, enabling a network of advisors and followers to profit from the political system. The form that profiting takes varies from the ethical dispute about service itself, to the more sinister notion of laundering.

The client base, to that end, is illuminating. There are 12 current and former world leaders who are on the books, including the pro-Western Ukrainian President Petro Poroshenko and the Saudi King; and 29 Forbes-listed billionaires.[2] The Australian Tax Office alone is investigating 800 Australian residents in connection with the leak.[3]

What is particularly stinging in this regard are figures who have themselves railed against the sapping tendencies of corruption, seeing it as a disease in need of eradication. The family of China’s Xi Jinping, a figure keen to combat those malodorous “armies of corruption”, comes up in the collection. Money, as ever, smells differently depending on who owns it.

Regarding Poroshenko, the documents allege that this self-touted reformist leader, in 2014 “scrambled to find a copy of a home utility bill for him to complete the paperwork to create a holding company in the British Virgin Islands.” Such a move was dismissed by a representative of Poroshenko as having any bearing on “political and military events in Ukraine”.

Iceland’s prime minister, Sigmundur Gunnlaugsson, is also in some bother with the exposure. Millions from the country’s banks, it is alleged by the leaked documents, was effectively concealed in an offshore company under the name of Wintris Inc on the Caribbean island of Tortola in the British Virgin Islands.[4]

Having purchased the company along with his wife, Anna Sigurlaugh Pálsdóttir in 2007, the prime minister failed to declare that interest on entering parliament in 2009. To give it a good sense of theatre, Gunnlaugsson sold half of the company to his wife for the princely sum of $1.

“We can’t permit this,” fumed former finance minister Steingrímur Sigfússon. While there was nothing necessarily illegal about the venture, “the fact is you shouldn’t leave yourself open to conflict of interest.”[5] Such are the ways of the proverbial “banana republic”.

With governments continuing to insist on the necessity for citizens to pay their share of tax, and the battle of citizens, notably of enormous wealth, to evade such obligations, the argument for differing levels of treatment continue to gain force. The same goes for dealing with blacklisted companies engaged in the weirdly colourful world of terrorist finance and drug sales. All feature in the Panama Papers. Even privacy advocates and lawyers concede that celebrity and the public interest are matters that demand a different regime of treatment. Transparency for the powerful, in short, should be a fundamental aspiration in policy, as should sanctions against tax havens.

Notes. 

[1] https://www.occrp.org/en/panamapapers/overview/intro/

[2] https://panamapapers.icij.org/the_power_players/

[3] http://www.abc.net.au/triplej/programs/hack/setting-up-your-own-tax-haven-shell-company-takes-10-minutes/7297094

[4] https://uploads.guim.co.uk/2016/04/03/BV_288_Wintris_jb_clean_Redacted.pdf

[5] http://www.theguardian.com/news/2016/apr/03/iceland-pm-calls-snap-election-offshore-revelations

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Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne. Email: bkampmark@gmail.com

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