News reports based on an unprecedented leak of classified documents have, in very little time, dramatically exposed a secret world of the global elite, where large sums of money are quietly, anonymously, and apparently legally hidden and shuffled around with barely any governmental oversight.
The 11.5 million documents, dubbed the Panama Papers, come from Mossack Fonseca, a Panama-based law firm that handles offshore shell companies. The news organizations with access to the documents, which are not public, have reported only a small portion of their contents, and promise more in the coming days. The actions described in the reports are not necessarily illegal, but they do raise questions about the kinds of legal tax-avoidance services available to the world’s wealthy—and draw attention to Panama and other countries that allow such practices to flourish.
Panama is known as a tax haven, the name given to countries where foreign individuals and companies are taxed at very low, or even nonexistent, rates. In tax havens, international businesses operate outside of their owners’ jurisdictions—offshore—and so enjoy the financial benefits of the country where they are operated. In Panama, that means less regulation and more privacy. Panama doesn’t ask offshore companies to pay income tax on international transactions, sales tax, and other fees—only an annual franchise tax of $300 to the government, according to InSight Crime, which studies organized crime in Latin America and the Caribbean.