106 prominent newspapers have led a joint investigation into Panama’s offshore companies for approximately a year. Through 2,600 terabytes of data, that is 11.5 million documents or 1.500 times WikiLeaks, journalists said they have identified 29 out of the 500 richest people in the world, 12 former or active Chiefs of State, 128 high-ranking politicians or public officers who would have used or would still be using Panama-based shell companies set up by Mossack Fonseca, a Panamanian law firm founded in 1977 that has since then allegedly created or administrated more than 214,000 entities.
Though having a Panama-based offshore company may add to already existing suspected fraud for some specific individuals, this is lawful if the existence of the company has been fully disclosed to the tax authorities of the country the owner / beneficiary resides in and/or has the citizenship of. What the Panama Papers confirmed is that after years of international fight against tax havens, they are still thriving, perhaps even better than ever. Of course law enforcement has to sanction fraudsters however States also have to wonder why so many people and/or companies put financial assets in offshore structures abroad.
Of course, there is the question about whether taxation is too high and could be the reason behind people and companies discreetly sending money away from their national tax service. Also, if one remembers the systemic risks of the 2008 financial crisis and the 2011 euro area sovereign debt crisis, one doesn’t want to put all its eggs in one basket, hence the relevance of an offshore company. Finally, most of the media focused on western famous people who allegedly have (had) assets in Panama-based companies, yet it seems the offshore financial system has been flourishing mainly on financial assets from individuals who reside in / have citizenship of countries where there’s a real lack of democracy, fair due process of law and public freedom.
Sometimes, offshore companies could constitute some kind of a safety net for individuals who fear their country’s over-concentrated authorities. Conversely, this can also be a financial safe haven for unscrupulous freedom-destroying despots, criminals and terrorists. Offshore companies are also a vector for large companies to carry out confidential transactions in view of an acquisition of an interest if not a takeover in a company. This is also a funding vector for States when conducting national security operations.
The lawfulness of a Panama-based offshore company strictly depends on its disclosure and activities as a result. What has drawn our attention about the offshore financial system is the growing awareness that a large portion of world finance remains hardly visible, altering our ability to assess the real state of global economy.