The Panama Papers One Year Later: Shell Companies, Money Laundering, and the Role of Women
The Panama Papers revelation arrived at its one-year anniversary on April 3rd, although some let this important anniversary go unmarked amidst the current news maelstrom. However, this revelation will remain one of the first indications of the extent of how the rich and powerful take advantage of existing financial frameworks and the ways in which anonymous shell companies undercut development for the world’s most poor and vulnerable, and even undermine global security. The release of the Panama Papers was the largest leak of confidential documents in history totaling 260GB (compared to that of the second biggest leak of mass data in history, WikiLeaks’ release of 1.7GB of diplomatic cables in 2010). The Panama Papers’ release demonstrated the extent to which anonymous shell companies had enabled some of the world’s most elite to evade taxation, even though most shell companies came to exist through legal means. At the center of this leak was one law firm and corporate service provider, Mossack Fonseca, a global top five incorporators that has worked with intermediaries to establish thousands of anonymous shell companies.
Lack of supervision and transparency in financial asset flow of the wealthy and powerful leaves the world’s populations that are most acutely affected by wealth inequality - especially women - holding the bag. Although most anonymous shell companies are executed through perfectly legal means, the Panama Papers demonstrated that legality is hardly the issue. There are currently weak checks and no balances in institutions that enable and facilitate shell companies and offshore tax havens. Intermediary organizations, like Mossack Fonseca, are considered negligent at best, and possibly complicit with the money laundering of illicit funds at worst, all while claiming plausible deniability. This was, of course, the approach taken by Mossack Fonseca in 2016 following the initial leak.
Who is Responsible?
In the Panama Papers, approximately 14,000 intermediary organizations were identified, including banks, financial advisers, and law firms. Intermediary organizations contact offshore firms like Mossack Fonseca on behalf of their client to establish an anonymous shell company. A shell company allows a person or organization to hide ownership of a set amount of assets and operates as a vehicle for assets to pass through. Again, most of these shell companies are established within the parameters of the law. However, in the event that one of these companies is established for illicit purposes, who then is responsible?
Mossack Fonseca responded to the leak claiming “we conduct thorough due diligence on all new and prospective clients that often exceeds in stringency the existing rules and standards to which we and others are bound.” This begs the question: what are the implications for global security through such weak financial oversight? While the process may be legal, the effects of anonymous shell companies reach far and wide, and offshore accounts allows for unethical and illegal activities to go unnoticed.
Women are largely unrepresented as clientele for shell companies and tax havens, and similarly are not represented in financial service intermediaries. That is, financing illegal activity through shell companies is predominantly a man’s game. Those responsible for oversight for some of the most unhinged financial practices on record are stuck in a loop of possibly lethal groupthink. Women are particularly missing from leadership roles in finance, despite substantial evidence of increased success and productivity when companies make it a strategic priority to incorporate women into more senior positions. On the other end of the spectrum, many activities that undermine global security derive from regimes and criminal groups that are notorious for their marginalization of women. This includes thirty-three companies and individuals sanctioned by the U.S. after they conducted business with “Mexican drug lords or terrorist organizations or rogue nations like North Korea or Iran.” An overall lack of diversity, especially a lack of women, fused with little transparency lends shell companies to anarchical forces in the furthest corners of the world which harm vulnerable populations, particularly women.
The Panama Papers shed light on the extent of unchecked global, illicit financial flows in spite of Mossack Fonseca’s claims of due diligence. Illicit financial flows can stem from drugs and drug-related violence to human trafficking. Billions of dollars are lost in tax revenue to governments struggling to provide even the most basic services. For instance, almost a third of African wealth, a total of $500 billion, is held offshore in tax havens, costing these countries an estimated $14 billion a year in lost tax revenues, according to one report. Concretely, wealth inequality and billions of dollars lost in tax revenue has tangible effects and diminishes a country’s capacity to provide government services including schools, roads, medical care, and economic development at a domestic level. When local governments do not receive their fair share of taxes, economic growth initiatives are hindered. In terms of principles and integrity, illicit financial flows and tax havens, like those facilitated through shell companies, undercut the principle of financial service democratization and lower consumer confidence in financial systems while increasing the belief that financial services only benefit the rich. While these consequences affect vulnerable and marginalized groups broadly, women in particular suffer.
Considering that 70% of those living in poverty globally are women and girls, the consequences of tax evasion through shell companies are heavily gendered. An overall lack of financial transparency, as demonstrated in the Papers, in tandem with growing wealth inequality - exacerbated by an estimated over $450 billion lost each year in the U.S. alone - is in part due to shell companies creating a compounding financial structure of anonymity that works to suppress women every fiscal year. Women in poverty can lose access to programs and initiatives from governments that, in spite of the best intentions to further gender equality, may fall short in funding in government budgets. Shell companies are often financial vehicles that ensure the systemic abuse of women in conflict, as well as financial vehicles to ensure women’s deeply entrenched marginalization through tax evasion.
Where We Stand Now
In February 2017, almost one year after the release, Ramón Fonseca and Jürgen Mossack, the founders of Mossack Fonseca, were arrested on money laundering charges in Panama. Since the revelation, NGOs have gone after countries like Switzerland to explain how they are going to be accountable to their international legal obligations in CEDAW and the Sustainable Development Goals with a view to reduce/eliminate both wealth and gender inequality. As the investigation into Russia’s influence and cooperation with the Trump campaign proceeds, it is possible that this very same mechanism could appear again in the headlines, especially as leaks mount claiming alleged financial collusion between the Trump campaign and Russian parties.
However, with the Panama Papers in the world’s rearview mirror, little political will currently exists to address the revelations both internationally and in the United States following the Obama administration’s call to action shortly after they were leaked. No viable legislation exists (yet) in the 115th congress and the last meaningful action to increase transparency was taken in 2010 under the Foreign Account Tax Compliance Act requiring foreign financial institutions and other foreign entities to divulge foreign assets held by U.S. citizens. In spite of this, much global cooperation on financial transparency remains to be established to combat the illicit flow of funds through shell companies. Moving forward, world policymakers may well forget the lessons that were learned from the Panama Papers only to be reminded through the next controversy, or even tragedy.
Kelsey is a international development and relations professional living in Washington, D.C. and is moving to Sichuan Province, China in June to participate as a Peace Corps Volunteer. Follow her on Twitter: @kelseyatruman.