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What the Panama and Paradise Papers Tell Us

Posted  June 15, 2018
By Michael Ronickher

At this spring’s OffshoreAlert Conference in Miami, journalists involved in two of the biggest document leaks in history, the Panama and Paradise Papers, spoke on panels about secrecy jurisdictions and discussed the tax avoidance, corruption, and money-laundering they permit. Their fascinating presentations provided a chance to reflect on the magnitude of the information released to the public and on how far the world still has to go to encourage positive whistleblowing, so that some of the crimes revealed in those leaks are harder to perpetrate in the future.

The Panama Papers

On April 3, 2016, a collection of documents that came to be known as the Panama Papers were released by the International Consortium of Investigative Journalists and the German newspaper Süddeutsche Zeitung. At the time, the 11.5 million files, which took the team of journalists more than a year to investigate, were the largest trove of documents ever released due to the actions of a whistleblower. They represented years of records from the Panamanian law firm Mossack Fonseca, which facilitated the creation of shell entities in a host of offshore secrecy jurisdictions.

The reporting and underlying documents highlighted the hidden financial dealings of various wealthy and powerful individuals, as well as corporate entities, some of which included corrupt or criminal actors engaged in drug trafficking, arms deals, and tax evasion. The revelations sparked government investigations around the world, not to mention a global outcry about the ease with those with money could shield their assets from public view.

The Paradise Papers

The next year, the same journalists released 13.4 million documents, emails, and presentations that had been provided to them by a whistleblower. This set of documents, which came to be known as the Paradise Papers, revealed the widespread use of illicit offshore tax havens by government officials, royalty, entertainers, and powerful corporations.

The majority of the documents came from Bermuda-based law firm Appleby, which did a roaring business in helping entities and high-net worth individuals establish and register companies in offshore jurisdictions. Others came from Asiaciti Trust, a Singapore-based corporate services provider, and from the company registries of 19 offshore tax havens.  Collectively, they pierced the veil of many secrecy jurisdictions, revealing the underlying beneficial owners of many of the accounts and corporations they had managed to hide—and the financial dealings they were designed to conceal.

What We Can Learn

In the immediate aftermath of these revelations, the focus was naturally on the resulting scandals: discussions of what celebrities, politicians, or global corporations had money in havens and the resulting ramifications for their careers, business, and freedom to continue in both—gripping stuff.  But on more sober reflection, there are other lessons here, as well.

Secrecy Enables Fraud

First is the obvious conclusion that the use of secrecy jurisdictions to hide money is incredibly widespread. Of course, much of this usage is legal. But illegal tax fraud and money-laundering are also widespread, and they should concern everyone.

Most citizens of most nations pay taxes, and it is often only the rich and powerful who have the means to avoid them. When they do, they shift the burden to those who cannot, while reaping the benefits of the system they do not financially support. As the Guardian wondered, “[w]hy should taxes just be for the little people?”

Much of this tax avoidance would not be possible without the secrecy afforded by offshore shell corporations such as those exposed by the Papers. In the wake of the revelations, various countries made noise about improving financial transparency rules, and some have taken such steps. But there are still plenty of secrecy jurisdictions available to those who would like to take advantage of them—and have the means to do so.

Why We Need Whistleblowers

Another lesson from these massive leaks is that we need whistleblowers. One of the best ways to break through the barrier of secrecy is through the actions of a whistleblower who has the courage to reveal the key information that allows governments and journalists to understand where money is moving, why, and to whose benefit.

As the Atlantic noted in the wake of the Panama Papers, “firms like Mossack Fonseca are just part of a web of “legal corruption” that reaches virtually every country.” Sunshine is the counter to that web, and sunshine will only come through the actions of whistleblowers in concert with the journalists and governments who can investigate this web and enforce the appropriate laws in response.

How We Can Encourage More Whistleblowers

The final conclusion from considering the Papers is that even though many whistleblowers have the courage to come forward with their critical information, we should do more to protect and incentivize them.

Whistleblower protection and reward programs are critical to encouraging whistleblowers to come forward. For U.S. tax evasion, the IRS has a whistleblower program that provides informants, even international ones, with a reward of 15-30% of what the U.S. government recovers. With the recent changes to the law that now include criminal fines and forfeitures in the total use to calculate the ultimate award, the program can provide a powerful incentive for a whistleblower to expose illegal tax avoidance.

That brings us back to the Panama and Paradise Papers. Had the whistleblowers behind them pursued an award, they could potentially stand to receive large sums from resulting tax evasion investigations, audits, or prosecutions, if the U.S. is able to recover funds that should have been paid into the Treasury.

But we can do more. Most notably, the U.S. should develop an anti-money-laundering whistleblower program. Although money-laundering is a crime, there is no statute that provides a clear incentive to whistleblowers to bring forward information about it. The U.S. should enact a law providing protection to whistleblowers and the possibility of a reward calculated as a percentage of funds forfeited in the enforcement actions that result from their information.

That is not to say that whistleblowers with information on money-laundering are without a means to a reward. If the money-laundering is in the service of tax evasion, it may lead to a fruitful IRS whistleblower submission. If it involves banks or companies under the SEC’s jurisdiction, it could lead to a reward under the SEC’s robust whistleblower program.

If you have information about tax evasion or money-laundering, or any other kind of fraud, the whistleblower attorneys at Constantine Cannon can help. We know what it takes to bring a case like this. Please contact us to discuss your situation.

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Tagged in: Importance of Whistleblowers, IRS Whistleblower Reward Program, Money Laundering, SEC Whistleblower Reward Program, Tax Fraud,