What are the Panama Papers?

The Panama Papers are a massive leak of 11.5 million files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca. These documents provided detailed information about more than 214,000 offshore companies in 21 offshore jurisdictions, named over 14,000 middlemen, such as banks and law firms, and go as far back as the 1970s.

The papers, comprising close to 2.6 terabytes (TB) of data, were subsequently handed over to the International Consortium of Investigative Journalists (ICIJ). Since then, 400 journalists at 107 media organisations have been analysing the data.The sheer file size of the Panama Papers data leak dwarfs every single previous data leak in the past years. As BBC put it, “if the amount of data released by Wikileaks was equivalent to the population of San Francisco, the amount of data released in the Panama Papers is equivalent to that of India.”

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Source: BBC

What is Mossack Fonseca?

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The law firm, Mossack Fonseca & Co, is a Parnamanian law firm and corporate service provider. It has over 40 offices, including in Switzerland, Shanghai, Hong Kong, London and Singapore. The firm itself was formed in 1977 by Jurgen Mossack and later joined by Ramon Fonseca in 1986.

What Mossack Fonseca is accused of is being an “agent for front companies” often tied to gangsters and thieves. Basically, Mossack Fonseca appears to have helped their clients to launder money, dodge economic sanctions and avoid tax. After all, “governments can’t tax money that it cannot find”.

In other words, Mossack Fonseca helped individuals or companies to set up shell companies in Offshore Financial Centres, also affectionately known as tax havens. These shell companies have no significant assets or business operations and are usually managed by lawyers, accountants or even corporate secretaries. They are merely fronts for the management of the money in it.

These firms are situated in Offshore Financial Centres because of the high level of banking secrecy and mild or no taxes on financial transactions. Hence, they are often known as tax havens. According to The Independent, 10 of the biggest tax havens include Luxembourg, the Cayman Islands, Isle of Man, Jersey, Ireland, Mauritius, Bermuda, Monaco, Switzerland and the Bahamas.

For a simple cartoon version of how money is being shifted to shell companies in tax havens to possibly escape government intervention and hide assets from creditors, see the following video.

What’s in the Papers?

The papers shed light on how the rich have been making use of secretive offshore tax regimes to hide wealth, especially in countries with low or no regulatory oversight. In the files, around 140 politicians from more than 50 countries have been named, including heads of state, their associates and other elected officials.

Some of the big names in the papers include:

  1. Argentina President Mauricio Macri

  2. Ukraine President Petro Proroshenko

  3. King of Saudi Arabia, Salman bin Abdulaziz bin Abdulrahman Al Saud

  4. UAE President Khalifa bin Zayed bin Sultan Al Nahyan

  5. The now-resigned Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson

  6. Brother in Law of the President of China

  7. Son of Malaysia’s Prime Minister

Beyond these names, other well-known figures such as six members of the United Kingdom’s House of Lords, three former Conservative MPs, Barcelona CF forward Lionel Messi and even a member of FIFA’s ethics committee.

However, it is definitely possible that several or even many of these people were not attempting to avoid taxes or commit crimes. Some legitimate uses of shell companies are seeking privacy for individuals or businesses.

How are these papers related to Singapore?

Singapore is sometimes looked upon as tax haven for several reasons: (i) it is dead simple to form a company in Singapore (ii) low corporate tax rates (iii) low personal income tax rates. Yes, though it might be tough to imagine, Singapore’s tax rates are pretty low compared to many other countries. But at 17% Corporate tax and between 0% to 22% Income tax, Singapore does have low tax rates.

Additionally, according to the Panama papers, Singapore is also amongst the top 10 countries in terms of the number of active intermediaries. The Ministry of Finance has stated they take a serious view of tax evasion here and will not tolerate Singapore being used to facilitate tax related crimes.

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Singapore has one of the highest number of active intermediaries (4,050). Hong Kong has the highest with 37,675. Source: ICIJ

However, should we be surprised that Singapore is appearing in the Panama Papers? Probably not. Singapore is a financial hub amongst the Asian countries with Hong Kong being another. Because of that, Singapore is very much open to financial transactions and businesses. Looking at Hong Kong, one sees a similar situation with Hong Kong topping the list in terms of the number of intermediaries operating there and the number of active intermediaries operating.

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Hong Kong tops the charts for where intermediaries operate (2,212) Source: ICIJ

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Source: ICIJ

In addition, Singapore’s tax rates are low but not excessively so, according to Nexia (a Certified public accounting firm and one of the largest in Singapore). Singapore has also committed to the implementation of the Common Reporting Standard by 2018, which would provide for the exchange of financial account information between jurisdictions. So perhaps, if Singapore is really a tax haven, it might not be for long.

We will likely hear more about how Singapore’s firms are involved in the financial scandal in later releases.