The trove of leaked financial documents known as the Pandora Papers is the latest in a decade-long series of revelations illustrating how the world’s ultra-rich and powerful shield their fortunes from prying eyes, high taxes and law enforcement.
Using avenues not available to most people, they park money in trusts, shell companies and holding companies established in jurisdictions that typically offer low taxes and a high level of anonymity.
WHAT DO THE PANDORA PAPERS SHOW?
The leak of 11.9 million confidential documents names heads of state, billionaires and celebrities who use offshore companies to acquire mansions, private jets and stakes in companies, with little or no transparency.
The International Consortium of Investigative Journalists, the US nonprofit that partnered with media organisations on the investigation, said it “lays bare the global entanglement of political power and secretive offshore finance".
Moving money through foreign accounts is legal in most countries, and many of the people named in the data release aren’t accused of any wrongdoing, but the Pandora Papers gives a rare insight into the wealth planning of the world’s rich and powerful.
WHAT'S MEANT BY "OFFSHORE"?
Any asset held outside one’s home jurisdiction is classified as offshore. The offshore system illuminated by the Pandora Papers (and the Panama Papers leaked five years earlier) largely refers to low-tax regimes, in territories such as the British Virgin Islands, Panama and the Cayman Islands.
It can also include the US states of Delaware, Nevada and South Dakota, where so-called financial trusts allow wealthy individuals to be anonymous in their financial dealings.
The offshore finance industry based in tax havens has a long history, tracing back as early as 1816 in Switzerland, and has been refined into a major driver of global commerce by offering security, privacy and control.
HOW MUCH MONEY IS KEPT OFFSHORE?
No one knows for sure. Estimates by economists range from US$5 trillion to US$32 trillion, with the higher end representing more than a third of the entire global domestic product.
Russia, Persian Gulf nations and Latin America countries lead the way in the amount of their citizens’ money stashed overseas. The equivalent of 60 per cent of Russian GDP is held offshore, compared with about 15 per cent in Continental Europe and only a few percent in Scandinavian countries, according to research published in 2017 from economists Annette Alstadsæter, Niels Johannesen and Gabriel Zucman.
HOW DOES MONEY GET SENT OFFSHORE?
An ecosystem of legal and financial experts help the rich move their assets. The ICIJ says information for the Pandora Papers investigation came from 14 separate legal and financial-services firms.
One law firm - Panama-based Aleman, Cordero, Galindo & Lee, or “Alcogal” - is tied to almost half of the politicians whose names appear in the leaked records and nearly 2 million of the 11.9 million documents, according to the ICIJ.
In total, the consortium tallied 14,000 entities including shell companies, trusts and holding companies in Belize, the British Virgin Islands, Panama and other tax havens created with Alcogal’s support for about 15,000 clients over 25 years.
Alcogal said in a letter to the ICIJ that it performs enhanced due diligence and operates in full compliance with all requirements for every jurisdiction in which it operates.
HOW DOES A SHELL COMPANY WORK?
Deliberately opaque shell companies exist only on paper and have no active business operations. Effective at obscuring ownership, they’re easy to set up at a low cost, and are key to what experts call the “layering phase” of money laundering, when funds are shoveled around multiple times to make them harder to track.
Shell companies are traditionally found in tax havens such as Panama, but Delaware and Nevada in the US also permit corporations to be set up anonymously.
IS THIS LEGAL?
Wealthy individuals have legitimate reasons for using offshore financial centers. US hedge funds and other money managers pool assets into Cayman Islands master funds to reduce financial and administrative costs. Offshore havens also can offer protection against unstable political regimes in investors’ home countries.
On the flip side, their lack of transparency has made these places a destination for kleptocrats, drug traffickers and money launderers to stash ill-gotten gains. The Pandora Papers, for instance, provide details on a shell company that an Italian mobster used to buy land in Spain, according to the ICIJ.