The Panama Papers are documents leaked from the Mossack Fonseca law firm, the world’s fourth biggest provider of offshore services
Some documents show the shell companies the firm helped set up allegedly were involved in money laundering and tax evasion and other illegal activity.
But there is nothing fundamental illegal about using offshore companies, says Jean-Philippe Delsol, a French tax lawyer who sometimes advises clients to set up offshore accounts.
“If you are businessman not working in Switzerland, but a resident of Switzerland, you are taxed… in a lump sum, and so you are not obliged to declare your assets in an offshore account,” he explained to RFI.
The issue becomes murky when it comes to public figures.
“When you are the president of Ukraine and you say ‘I sold all my businesses to be clean’, but you put your assets in offshore structures in Panama, this is not tax avoidance, it’s tax evasion,” he says.
The line between the legal and the illegal can be grey, and the layers of secrecy involved in offshore accounts help hide what his happening behind the scenes.
The documents appear to show Mossack Fonseca involved in setting up over 200,000 companies in tax havens. The firm acted as a registered agent for these companies, managing them based on instructions from intermediaries in countries like Switzerland and Luxembourg.
Those intermediaries represent the real owners of the assets in the shell companies, and the Panama Papers appear to connect the dots between them.
Fighting tax evasion
If countries want to go after tax evasion, Delsol suggests they simplify their tax laws.
The reason tax havens exist is that there is “tax hell”, he says.
“If the tax system was simpler, clearer, without needing a tax lawyer… don’t you think we could avoid coming up with such complicated structures, going through Panama?” he asks rhetorically. “I think it is responsibly of the government to modify and simplify the tax system in their country.”
There is also political pressure to reform offshore tax havens, and leaks like the Panama Papers spur action.
Daniel Lebegue, the head of the French arm of Transparency International, says transparency is the main tool to fight against illegal practices.
Laws, regulations and a robust legal system are part of it, he says. But whistleblowers play a big role.
“You need the active participation of citizens in public life. And whistleblowers are acting as responsible citizens to push the implementation of regulations,” he told RFI. “And I believe most of them are operating for the common good.”
The identity of the person who leaked the documents in the Panama Papers is not known. French president Francois Hollande said Monday that “whistleblowers do useful work for the international community” and called on them to be protected.