{"id":7,"date":"2020-07-26T06:22:25","date_gmt":"2020-07-26T06:22:25","guid":{"rendered":"http:\/\/5f1dd7efcb635200171108ba"},"modified":"2020-08-08T14:28:07","modified_gmt":"2020-08-08T14:28:07","slug":"what-was-the-panama-papers-scandal-why-is-it-still-in-the-news","status":"publish","type":"post","link":"https:\/\/2dpoint.net\/what-was-the-panama-papers-scandal-why-is-it-still-in-the-news\/","title":{"rendered":"What was the Panama papers scandal & why is it still in the news?"},"content":{"rendered":"Reading Time: <\/span> 2<\/span> minutes<\/span><\/span>

In 2015, an anonymous person leaked 11.5 million finance-related documents (from a law-firm in Panama, Mossack Fonseca) to a German newspaper.<\/li>\n
After a year-long investigation, it was found that Mossack Fonseca (MF) had helped its clients hide taxable income from governments and, in some cases, clean dirty-money through creation of shell companies in tax-haven countries such as Panama, Cayman Islands etc.<\/li>\n
A shell company is a company that doesn\u2019t produce anything and exists only on paper;\u00a0a tax-haven is a country with zero or very low tax rates and almost a guarantee that the client information wouldn\u2019t get exposed, thanks to the country\u2019s heavy restrictions on information-sharing.<\/li>\n
MF was found to have been licensed by various tax havens (it operated in 21 markets) to register companies there.<\/li>\n
If someone wanted to register a company in one of these tax havens, MF would look after paperwork, open bank accounts and offer its own employees to act (on paper) as executives and other staff for a fee (initial + annual).<\/li>\n
The tax haven countries allow this because it is a big source of money for them & also provides jobs to lawyers, accountants etc.; it is estimated that British Virgin Islands alone receives $200 million from these \u2018companies\u2019 and Mauritius has 5000 employed in shell-company related jobs.<\/li>\n
Creating a shell company is unethical but not necessarily illegal & a lot of corporates such as Apple, Skype etc. use shell companies to save tax.<\/li>\n
E.g. a company in the US (corporate tax let\u2019s say 30%) can move its patents, formula or an important ingredient of the business to its shell company in Switzerland (corporate tax 8.5%) & to access this asset, the US company will pay a hefty fee to the Swiss shell company, thereby reducing its profits (by incurring hefty cost) in the US and, in turn, tax liability.<\/li>\n
Individuals use shell companies for both legal (hiding money from former spouses, business partners etc.) and illegal purposes (cleaning money earned from extortion, kidnapping, drugs etc.<\/u><\/a>).<\/li>\n
E.g. an individual in the UK can set up a shell company in Panama, which then buys another company in Cayman Islands and that company buys a property in the UK and leases it to earn rent; not only does the individual in the UK save tax on initial \u2018big money\u2019 because lack of ownership but avoids tax on the rental income from the property.<\/li>\n
Most of the shell companies that MF had set up were legitimate but it
\nwas because of a few used for illegal purposes and MF\u2019s lack of due diligence to catch those that it got embroiled in such controversy and had to close down in 2018.<\/li>\n
E.g., as a part of the process, MF asked for identification documents to run a background check on the person opening an offshore company.<\/li>\n
Not everyone came out clean in these background checks, yet some of these people were allowed to open offshore companies and clean their dirty money.<\/li>\n
The scale of these international operations was so big that some of the cases are still being investigated and the governments are still recovering money.<\/li>\n<\/ol>\n
<\/p>\n
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