The Effects Of The Panama Papers Have Literally Changed Countries, Which Couldn't Have Come Soon Enough
The Panama Papers were leaked on Sunday and already one European leader has been taken down, a huge effect of the revelations. But that's not the only one. In many countries, including the United States, changes have been announced thanks to the Panama Papers. Just days into the scandal, the political climate in countries around the world has shifted — even the drama's namesake country is talking changes.
The U.S. Treasury Department announced Thursday that it would soon issue a rule requiring banks to seek the identities of the people behind shell corporations, a step in the right direction. In China and Russia, the state-run media has largely ignored the findings — in contrast to European and American papers where the leak has been given top-billing nearly the entire week — but even there officials are embarrassed and worried about the fallout.
It's not just the implicated politicians who are facing the fallout. Tax havens like the British Virgin Islands could fall under more scrutiny and pressure to change their corporate reporting laws and tax structures. If so, politicians, celebrities, and wealthy individuals tied to the Mossack Fonseca accounts — not to mention those who haven't been leaked — would need to rethink their holdings. Perhaps paying taxes is better than being part of the next round of revelations — Mossack Fonseca is after all only the fourth-largest law firm specializing in these types of deals.
So what's the outcome so far? Here's where we are right now.
Given the growing association of Panama with shady offshore banking, the country's president, Juan Carlos Varela, has tried some damage control. "The Panamanian government, via our foreign ministry, will create an independent commission of domestic and international experts," he said in a televised statement. The panel would propose measures to improve transparency in the country's legal and financial systems.
Following days of protest, Iceland's prime minister stepped down and a replacement was named. Early elections are to be held this autumn. The now resigned Sigmundur Davíð Gunnlaugsson was shown in the leak to own an offshore firm with his wife. He did not declare his ownership when he entered parliament, and the firm had connections to failed Icelandic banks, further fueling the public outcry.
The practice of hoarding money overseas might be over soon. The new Treasury Department rule is just the latest nail in the coffin of the practice, at least for your average Joe. VICE News interviewed Christian Reeves, a tax consultant who helps clients set up offshore accounts. He said that the days of unregulated overseas banking are winding down — at least for American clients. And at this stage, only big, multimillionaire clients will be caught. "The average guy with a few million he wants to hide offshore and untaxed — those days are long gone," he said.
Reeves said that you can probably expect the U.S. government to respond similarly to the way it did in Switzerland when it audited UBS and sued for access to accounts in 2010. At the time, the IRS suspected clients of the banks owed taxes. They threatened to seize the U.S. assets of UBS and essentially shut down the bank. They could also do this in Panama, but when one bank closes, more open. After a few high profile examples of American tax evaders went to jail, Reeves said most Americans would probably turn themselves in.
The law firm at the heart of the controversy has painted itself the victim. It said that the leak was not internal but that it had been hacked from foreign servers. It filed a complaint with the Panamanian attorney general's office and has accused media companies of illegally printing private information out of context.
One of the co-founders gave an interview to The Wall Street Journal. Jürgen Mossack said that the company would carry on with business as usual. "We're not going to stop the services and go plant bananas or something," he told the Journal. "People do make mistakes. So do we, and so does our compliance department. But that is not the norm."