Sunday, April 3, 2016

Mossack Fonseca: The Panama Papers

“The rich get richer and the poor get poorer” -Anonymous

The biggest information leak so far in history is embedded in the Panama Papers. Mossack Fonseca is a law firm in Panama who protects its clients’ financial activity behind many walls of secrecy. Their clients include world leaders such as Vladimir Putin, celebrities, Forbes listers, and many high profile people with lots of riches. Mossack Fonseca provides services from wealth management to offshore services. Though not all of the activities behind this firm is illegal, some do misuse its services to avoid taxes or illegally move large amounts of money.

2.6 terabytes which approximates to about 11.5 million documents have been leaked from the Mossack Fonseca database. This means the email communication and account activity of many clients have been leaked for the world to see. The significance of this leak reveals what many have feared about offshoring law firms to be true- that tax havens, shell companies, and other illegal offshoring activities are taken advantage of.

Tax havens are used by the rich around the world to avoid paying taxes on all their assets. This leads to the income inequality and wealth gap problems we see in many countries including the United States. Proof and evidence of perpetrators utilizing this method can be found  amongst the leaked information from Mossack Fonseca.

On the other hand, shell companies are essentially “fake” companies created to move large sums of money in and out of borders or for shareholders to store money through illegitimate shares.

Though Mossack Fonseca has been known to have internal disputes about parting with some of their more questionable clients, it is evident not all of its supported activities are legal. Even though one of its clients, Thomas Chan Kui (who directs a shell company), was arrested due to a financial corruption scandal, Mossack Fonseca remained deeply divided on what to do about their relations with Kui- further proving their part in suspicious activity.  

How do you feel Americans will react to this information leak in comparison to the Edward Snowden leaks?
In macroecon, how does offshore activity such as moving money or avoiding taxes affect the economy? For example, how does this contribute to the fiscal multiplier and why does that hurt every day Americans?



Jack Loar said...

I think that the Panama Papers are a huge deal because they reveal who is trying to illegally avoid taxes by hiding money. It is likely that people in positions of power in the United States are named in these documents, and it will likely lead to major protests if that is revealed. It was revealed in the Panama Papers that Iceland's prime minister was hiding money, and major protests from the citizens, possibly the biggest protests in the countries history, led to him resigning from his position. I expect a similar result if/when people find out that United States public figures are hiding money in a similar way.

Source: CNN

Jared Mayerson said...

People have reacted much less than they did during the Edward Snowden information leaks, which is sort of upsetting. Typically, criminals use these offshore accounts to hide stolen money from the government and the fact that the government itself is now doing this is embarrassing. This was a shady move by many governments around the world and should not have happened. Even if it's wishful thinking, our leaders and politicians should be honest people who do not hide things from the people they represent. I think that this is a failure on many governments' parts and that people should be stepping down, not trying to cover it up. Additionally, I think more citizens need to care more about this in order to keep our leaders accountable. If we allow them to do it this time, they may feel they can do it again.