From Panama to Paradise. An insight into secret financial dealings in the world of multinational corporations through the "Panama Papers" and the "Paradise Papers"

Elaboration, 2017

13 Pages


Table of Contents

Whistleblowers or Traitors? – an Introduction
The Panama Papers
The consequences:
The Paradise Papers
U.S. Universities Going Overseas
Of Racing Cars and Airplanes

Apple Finds a New Shelter for its Profits
Why Tax Havens Are a Moral, Political and Economic Danger

Appendix: Wealth Inequality in the United States
The “Forbes 400“


Whistleblowers or Traitors? – an Introduction

In November 2017, only one year after the publication of the “Panama Papers”, secret documents from the law firm Mossack Fonseca based in Panama City, a new leak, called the “Paradise Papers” again gave insight into the dealings of international companies and rich individuals.

In both cases the leaked documents show how big companies systematically avoid paying taxes in the countries where their profits are generated and how rich individuals hide their wealth from the public eye, hire specialized lawyers to find and use any available loopholes to reduce their taxes. And it is an invaluable and vital means for organized crime around the world. Money that has obviously been “earned” through corruption, human trafficking and drugs is laundered with the help of an industry that has been expanding quite impressively over the past decades.

The people who reveal the tricky strategies used by the rich and powerful remain either anonymous like “John Doe” in the case of the Paradise Papers, as they fear for their lives, or they do it openly like Chelsea Manning, Julian Assange and Edward Snowden, to name just a few and they pay for it with their freedom or by going into exile.[1] For one side they are whistleblowers and even heroes revealing the illegal or at least highly dubious and immoral secret dealings of greedy capitalists, autocrats and even democratic governments, for the other side they are traitors and criminals giving away information they had no right to publish and thus endangering the security of their country and the future of individuals and businesses. Or as the law firm Appleby, the source of the Paradise Papers in Bermuda put it, Appleby were “’not the subject of a leak, but of a serious criminal act’”.[2]

In the following the main facts revealed by these secret documents will be presented with examples from various areas to show to which extent tax evasion has developed in the last few years and to which degree wealth has been accumulated in the hands of just a few, supported by an industry whose mission it seems to be to constantly find new ways of hiding, obscuring and shielding profits and wealth of rich people and big companies from the reach of public authorities.

The Panama Papers

In 2015, 2.4 terrabyte of data, 11.5 million documents from the law firm Mossack Fonseca in Panama giving details on over 200,000 of the company’s clients were leaked to German investigative journalist Bastian Obermayer of the newspaper “Süddeutsche Zeitung”. The data came from an anonymous source, calling itself “John Doe”. When the reporter asked why the whistleblower was doing this, the answers was: “I want to make these crimes public”.[3]

The documents give information about rich individual people, companies and organizations that were trying to hide their wealth from the public eye for various reasons. Although it is not illegal to keep one’s money in a bank in Panama or any other tax haven, the documents clearly show that in many cases shell companies set up by Mossack Fonseca were used for tax evasion or illegal purposes like money laundering.

Panama, like other offshore tax havens offers banking services for people who are not residents of the country, guarantee absolute anonymity and demand extremely low taxes, so this is the ideal location for people and companies that have lots of money, don’t want to know anybody how much exactly they have and what they do with their money and want to keep taxes on their profits as low as possible.

As the number of document far exceeded the investigating capabilities of a single newspaper, the Süddeutsche Zeitung shared the documents with the International Consortium of Investigative Journalists (ICIJ) and so journalists from more than 100 news organisations in over 80 countries began evaluating the data. In May 2016 the documents were put online despite Mossack Fonseca’s desperate attempts to stop the publication.

In order to understand how the system works it is worthwhile to take a closer look at Mossack-Fonseca, the law firm from which the Panama Papers were leaked.

Its business model works as follows: someone wants to hide money or its source. Maybe it came from some illegal business, maybe the person simply does not want to know anyone that he or she has that much money. So the person contacts a specialized law firm in Panama for example.

For as little as 1000 dollars Mossack Fonseca or another law firm opens a shell company and a bank account for the customer. If the owner wants to remain anonymous, the firm can also provide a director who signs all the necessary paper work, while the real owner retains full control of the company. So the true owner can buy and sell any kind of property although his or her name never appears in the official documents.[4] “From the outside, the company is a black box: no one sees what is going on inside.”[5]

There can of course be legitimate reasons for setting up an offshore company and owning one is not illegal, but the leaked documents show very clearly that the main reason for setting up a letterbox company is to hide the identity of the real owners.

The consequences:

While autocratic governments just shrugged off the revelations or, like in the case of Russia blamed “’Putinophobia’”[6] for the accusations, politicians in democratic countries sometimes were confronted with the fury of their citizens. Former Prime Minister Sigmundur Gunnlaugson of Iceland at first stormed out of a television studio when confronted with the allegations that he had invested in an offshore company, but later had to step down as leader of the government and as party leader as well.

One year after the revelations authorities world-wide were able to claim more than $100mio. in unpaid taxes, more than 6500 criminal investigations had been initiated, some countries had passed new legislation prohibiting or regulating more strictly any deals through offshore letterbox companies, among them Taiwan, New Zealand and the United States.[7]

The Mossack Fonseca bosses were held in pre-trial detention and the company had to sack about 600 of its employees

The Paradise Papers

When in November2017, only one year after the “Panama Papers”, the “Paradise Papers” were published, the international public almost had a déjà-vu experience. Again millions of files with information about financial dealings in offshore havens were stolen and published. The main addressee was again the “Süddeutsche Zeitung” that shared the information with the international community of investigative journalists, the ICIJ, quite like before. Only this time it was not a single individual revealing documents from a single source, but documents came from 21 different sources. Most of the confidential documents came from the law firm Appleby, based in Hamilton, the capital of Bermuda and from Asiaciti Trust, an international trust and corporate services provider which is headquartered in Singapore. Additionally the “Süddeutsche Zeitung received data from companies in 19 tax havens, including Bermuda, the Cook Islands and Malta.[8]

In the following a few examples of the use of tax havens and offshore companies will be discussed to show what offshore tax havens really are and how they affect the lives of ordinary citizens.

U.S. Universities Going Overseas

Some colleges and universities in the United States are very rich. “… college endowments have amassed more than $500 billion nationwide.”[9] Particularly private schools like colleges in the Ivy League have built up enormous fortunes over the years, using the privilege of college and university endowment profits being tax-free.

Just a few examples: Harvard University owns $34.5 billion, Yale $25.4 billion, the University of Texas has $24.2 billion. Listings of American universities and their fortunes include about 120 universities and colleges owning more than $1 billion.[10] According to a study by Charlie Eaton, professor at the University of California, the three main tax breaks used by universities cost the American taxpayer about $19.6 billion a year. ”Taxpayers, many of them wealthy, get breaks when they donate to colleges. Tax-free municipal bonds allow schools to borrow money at low rates. And for the most part, endowment investment returns are tax-free.”[11]

This must be seen on the background that traditional earnings of universities and colleges used to come from holdings like United States equities or from investments in companies related to their educational mission. But as schools were looking for more profitable investments like private equity and hedge funds that borrow money, they could be required to pay taxes on the returns. The solution to this problem are so-called “blocker corporations” which are put between the university and the private equity company that manages the investment. They effectively block any tax payment as the tax is owed by the blocker corporation which is based somewhere in the Caribbean, where the tax rate is 0%.[12]

Blocker corporations are not illegal, but in view of the extremely high fees demanded by many colleges, more and more people become angry when they see the figures involved and hear about this tax evasion strategy. Even Republican Senators, led by Senator Orrin G. Hatch of Utah, required private universities to give information on their tax cuts.

Another reason to hide their investments was that some money went into highly controversial projects which could have led to protests by students who demand a shift to “green” investments. The Appleby documents show that Columbia and Duke universities invested money in a mining company in Brazil that planned to set up a pipeline to transport iron ore over almost 500 kilometers to the nearest port, a project that could have endangered the groundwater quality in an area inhabited by over 100,000 people.[13]


[1] Chelsea Manning was sentenced to 35 years in prison for giving away secret document on the wars in Iraq and Afghanistan; she was pardoned by President Obama in May 2017, after 7 years in prison. Assange has been living in the Embassy of Ecuador since 2010 for fear of being extradited to the U.S. after founding the platform “Wikileaks” and publishing secret American documents. Snowden took refuge in Russia after he disclosed secret information about American global surveillance programs.

[2] Bernstein, Jake

[3] Hines, Nico

[4] cp.: Leyendecker, Hans et al.

[5] Leyendecker, Hans et al

[6] Hines, Nico

[7] cp.: Strozyk, Strunz

[8] cp.: Gamperl, Elisabetz et al.

[9] Saul, Stephanie

[10] cp.: Wikipedia’s “list of colleges and universities in the United States by endowment”

[11] Saul, Stephanie

[12] cp.: Saul, Stephanie

[13] cp.: Saul, Stephanie

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From Panama to Paradise. An insight into secret financial dealings in the world of multinational corporations through the "Panama Papers" and the "Paradise Papers"
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Bernd Müller-Knospe (Author), 2017, From Panama to Paradise. An insight into secret financial dealings in the world of multinational corporations through the "Panama Papers" and the "Paradise Papers", Munich, GRIN Verlag,


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