U.S. Department of Justice Launches Investigation into Panama Papers

A few weeks ago the world was introduced to one of the largest information leaks ever seen: over 11.5 million documents and 2.6 terabytes of information from the Panamanian law firm Mossack Fonseca went public. While the leak does not necessarily stamp all those involved with guilty convictions for tax evasion, money laundering, or any other crime associated with offshore bank accounts, it does raise many concerns for both the firm and its clients. Those documents that have been reviewed show that many of the individuals implicated in the Panama Papers have strong ties to the United Kingdom; in fact, estimates show that over half of the companies that Mossack Fonseca created for its clients are registered in the UK or in British-administered tax havens.

The "blast zone" caused by the unveiling of the Panama Papers is not contained in Panama and the United Kingdom, however. Individuals from Russia, to Pakistan, to Iceland have been caught in the fall out. For its part, the United States Department of Justice has recently decided to launch a formal criminal investigation to determine the extent to which some of Mossack Fonseca's clients were making use of offshore companies to engage in international tax evasion.

In an unscheduled press conference, President Barack Obama summarized one of the largest issues with the Panama Papers: parsing out the legal versus illegal use of the offshore companies. Undoubtedly, for some of the firm's clients, the use of such companies was intended for criminal purposes and meant to assist with tax evasion schemes. At the same time, some of the companies Mossack Fonseca created were for entirely legal purposes. Now, it is a matter of devoting time and resources into untangling the web of intermediaries, nominees (entities that are listed as account holders, but have no control over accounts and technically are used for signatory purposes only), and the true, oftentimes hidden, account owners.

In all, the "value" of the tax avoidance plans contained in the Panama Papers is estimated to be in the trillions of dollars. As may be expected, while many of the world's most affluent people benefitted from Mossack Fonseca's services, much of the detriment from the lost revenue in unpaid taxes will fall on lower to middle-class populations. President of the World Bank, Jim Yong Kim, stated that the offshore havens have permitted some of the world's most powerful people to avoid paying taxes to such extent that the result will be extremely damaging to the bank's overall mission to end extreme poverty. In the end, while the richer held onto their wealth, the loss of funds that would have otherwise rightfully be remitted through taxes prevented states from funding programs aimed at increasing overall prosperity.

At the present time, the Panama Papers have caused some major shakeups around the world, including the resignations of some top leaders. However, as investigations continue, it is likely that the public outcry that the Papers have sparked will continue to reverberate. As officials work to uncover the truth behind the Panama Papers, others, such as the World Bank and International Monetary Fund will continue to crusade towards stronger, more complete international tax rules that will prevent future scandals.

If you are concerned about your offshore accounts, and want to ensure that you are meeting reporting requirements, please contact Frost & Associates today. 

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