By Peter Ward April 8, 2016
Panama Papers Unveil Shell Company Secrets
Suddeutsche Zeitung, the newspaper that first received the Panama Paper leaks. Pictured here in 1946 © Von Bundesarchiv, Bild 146-1990-032-29A
This week’s business pages were dominated by news of the biggest document leak in history: the Panama Papers, representing 11.5 million documents leaked from Mossack Fonseca, a Panama-based law firm that sets up offshore shell companies for its clients. The leak, which is ongoing, revealed the names of numerous politicians, celebrities, athletes and other wealthy public figures and the ways in which they have exploited anonymous offshore accounts to shield their money from taxes through shell companies.
The data was sent by an anonymous source a year ago to German newspaper Suddeutsche Zeitung, which shared it with the International Consortium of Investigative Journalists. The ICIJ in turn shared the documents with a large network of media partners.
Dozens of articles were written about the document and data this week. A $2 billion trail leads all the way to Russian President Vladimir Putin, in a scheme by Russian state banks to hide money offshore. Some of that money ended up at a ski resort where Putin’s daughter was married in 2013. Other national leaders found to be involved in offshore wealth schemes include Pakistan’s prime minister Nawaz Sharif, Petro Poroshenko, president of Ukraine, and the prime minister of Iceland Sigmundur David Gunnlaugsson, who became the first major casualty of the Panama Papers when he resigned on Tuesday.
Sigmundur Davíð Gunnlaugssonin was forced to step down this this week after the Panama Papers revealed offshore holdings. © Frankie Fouganthin, CC BY-SA 4.0
China has attempted to censor all mention of the Panama Papers, after it emerged that relatives of some of the country’s top leaders had used offshore companies to secretly stash their wealth.
American names only began to surface today, and so far include a number of U.S. businessmen convicted of financial crimes such as Ponzi schemes.
Using offshore entities to store money is entirely legal, and there are legitimate reasons to do so, such as to prevent money from being taken from a domestic bank or to get around tough currency restrictions. However, there are also a number of illegal uses for such shell company accounts, including evading taxes by failing to report income, bribing officials, manipulating markets, dealing in arms and drugs and financing terror.
Mossack Fonseca Interactives Show Scale of Leak
The sheer scale of the Panama Papers, and the ongoing nature of the leak, makes it somewhat difficult to represent visually. But various news outlets have attempted to communicate the data in novel ways with interactive graphics.
The International Consortium of Investigative Journalists published a comprehensive interactive featuring dozens of individual stories linked through caricature illustrations. Click on an illustration, and you get a complete breakdown of the individual’s offshore accounts, ties with Mossack Fonseca, political history and biography, as well as what comment if any they provided. There is also a map illustrating the ways the individuals are linked to third parties.
The King of Saudi Arabia, Salman bin Abdulaziz bin Abdulrahman Al Saud. © By Saudiarab – Own work, CC BY-SA 3.0
The King of Saudi Arabia, Salman bin Abdulaziz bin Abdulrahman Al Saud, for example, held interests in a Luxembourg-based company, Safason Corporation, which is a shareholder in Verse Development Corporation, a British Virgin Islands-incorporated company and Inrow Corporation. Verse and Inrow were used to take out mortgages on luxury homes in London. King Salman’s role in all this is not clearly specified, and nothing suggests any wrongdoing on his part, but the documents raise questions about why Salman, or a company affiliated with him, would be anonymously buying luxury homes in the center of the U.K.’s capital.
Fusion also published an interactive article this week on the Panama Papers, called Dirty Little Secrets. The article features a number of graphics and explainers. Fusion even called on the talents of Hillbilly Jim, a former professional wrestler, and porn star Lisa Ann to to explain the finer points of setting up shell companies and how that can enable corruption, in videos that emulated the storytelling techniques of recent Hollywood hit The Big Short.
Fusion also maps the Mossack Fonseca universe, demonstrating links between clients and shareholders of shell companies dating back to 1977. The map offers clues about how many of those creating shell companies via Mossack Fonseca move in similar circles. For instance, Leticia Montoya, a Mossack Fonseca employee, is connected to at least 10,000 companies as a stand-in director or shareholder. Montoya is a human resources employee and earns around $900 per month.
Tax Inversion Deal Thwarted
Drugs ©Charles Kaiser
The Obama administration won a key victory in its battle against tax inversion deals this week, when a rule change made by the Treasury Department on Monday scuppered a $160 billion pharmaceuticals merger.
U.S. pharma giant Pfizer ended plans to merge with Allergan, a Dublin, Ireland-based competitor on Wednesday. The deal would have relocated Pfizer’s headquarters to Ireland, and cut the company’s tax bill considerably. If the deal had gone through, it would have represented a perfect example of what is known as tax inversion, the practice of merging with a company based in a country with friendlier corporate tax rates, moving headquarters to that country in order to cut taxes, but maintaining most of the company’s actual operations in the original home city.
Despite this victory, the new regulation is not expected to stamp out the practice completely. The rule change targeted elements of the tax code that would hurt the Pfizer deal specifically. Although it could affect other inversion deals in the future, it’s likely other companies could structure deals to get around the new rules. In the most recent law change, the Treasury Department changed the calculus for how tax laws would apply to specific types of inversions, making it difficult or maybe impossible for Pfizer and Allergan to achieve the tax savings they desired. Ultimately, lawmakers believe the only way to halt tax inversion is with comprehensive tax reform in the U.S.
President Obama described tax inversion as “one of the most insidious tax loopholes out there” this week. But Allergan CEO Brent Saunders criticized the rule change as “un-American.” Saunders told The Wall Street Journal: “The rules are focused on the wrong thing: Our government should be focused on making America competitive on a global stage, not building a wall locking companies into an uncompetitive tax situation.”
Getting Paid Thousands to Do Nothing
How does a minor reality TV celebrity earn more money in one evening than most Americans make in a year? They go to a popular nightclub, and do nothing, according to an article published in GQ on Monday.
Carrie Battan’s article explains the bizarre economics behind the world of club appearances, where nightclubs pay huge sums for celebrities, reality TV stars and musicians to spend a night drinking champagne and tequila at their establishments.
Scott Disick with the Kardashian sisters. © Bettina Cirone, Wikimedia Commons
The story focuses on Scott Disick, described as the “runt of the Kardashian litter”, who only has to stay at the 1OAK nightclub in Las Vegas for one hour to earn a huge paycheck. At the height of Disick’s fame, he commanded $70,000 to $80,000 per appearance, and secured a deal worth $250,000 to appear at a series of clubs in the U.K.
It may seem a questionable business practice for the clubs, but when they can charge $25,000 for a table near pop star Nikki Minaj, the rationale becomes clearer.
The article ends with a description of Disick’s most recent nightclub appearance. After saying a few hoarse words down the microphone, Disick sits out of sight of the crowds, sipping water by himself. In Battan’s appraisal, he is “the loneliest man in the room.”
This Week’s Top Headlines
There’s a $2 Trillion GDP Boost in Shrinking the U.S. Gender Gap – Laura Colby, Bloomberg News
Former Massey Energy CEO Sentenced to 12 Months in Prison – Kris Maher, The Wall Street Journal
U.S. readies bank rule on shell companies amid ‘Panama Papers’ fury – Brett Wolf, Reuters
PayPal cancels North Carolina center in protest of law that ‘denies equal rights’ – Jana Kasperkevic, The Guardian
Samsung sees 10% jump in first quarter operating profit – BBC
Mortgage rates plummet to lows not seen in more than a year – Kathy Orton, The Washington Post
San Francisco first U.S. city to require businesses to offer new parents paid leave – Danielle Paquette, The Washington Post
Fed Sends Signal That April Rate Hike Is Unlikely – Jon Hilsenrath, The Wall Street Journal
Venezuela Makes Every Friday a Holiday to Save Electricity – Nathan Crooks, Bloomberg
Valeant Pharmaceuticals gets breathing room from lenders – Nathan Bomey, USA Today
