A legal way of doing illegal - Panama Papers

What is Tax Haven?

A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. Individuals and businesses that do not reside a tax haven can take advantage of these countries' tax regimes to avoid paying taxes in their home countries.

The Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Belize, Luxembourg, Hong Kong, the Isle of Man, Mauritius, Monaco, Panama, Switzerland are all considered tax havens.


So, What is wrong with it?

Suppose, If a company makes one million, but spends 500,000 on investing in new technology or infrastructure for their product or something like that, they're only taxed from the remaining 500,000 because that's all of their "profit.

Companies could "invest" million of dollars and then it wouldn't be taxed, because according to legal documents it isn't profit, it's an "investment," which is untaxable, and then they would get their money back from the fake business.

Once the money is disguised as the assets of this enterprise—which would typically be set up by a trusted lawyer or crony in an offshore secrecy haven to further obscure ownership—you can spend it or use it for new nefarious purposes. This is the very definition of money laundering—taking dirty money and making it clean—and shell companies make it possible.

The offshore system relies on a sprawling global industry of bankers, lawyers, accountants and other middlemen who work together to protect their clients’ secrets. These secrecy experts use anonymous companies, trusts and other paper entities to create complex structures that can be used to disguise the origins of dirty money.

Role of Mossack Fonseca in #Panamapapers

Mossack Fonseca is a Panama-based law firm whose services include incorporating companies in offshore jurisdictions such as the British Virgin Islands. It administers offshore firms for a yearly fee. Other services include wealth management.

Over a year ago, an anonymous source contacted the Süddeutsche Zeitung (German Newspaper) and submitted encrypted internal documents from Mossack Fonseca.

Who said Investigative Journalism doesn't exist

11 million documents (2.6 terabytes of data) held by the Mossack Fonseca have been leaked to Suddeutsche Zeitung, which then shared them with the International Consortium of Investigative Journalists (ICIJ), consisting 107 media organisations in 78 countries.

An extensive investigation follows and the result is surprising. They show how the company has helped clients launder money, dodge sanctions and evade tax through 2,14,000 shell companies. From Politicians to Corporates to Celebrities to Beuraucrats, the who and who of many countries are involved in this legal scam.

#‎panamapapers‬ explained succinctly to 6 year old.

Reddit, user DanGliesack gave one of the best explanations yet:

When you get a quarter you put it in the piggy bank. The piggy bank is on a shelf in your closet. Your mom knows this and she checks on it every once in a while, so she knows when you put more money in or spend it.

Now one day, you might decide "I don't want mom to look at my money." So you go over to Johnny's house with an extra piggy bank that you're going to keep in his room. You write your name on it and put it in his closet.

Johnny's mom is always very busy, so she never has time to check on his piggy bank.

So you can keep yours there and it will stay a secret.

Now all the kids in the neighborhood think this is a good idea, and everyone goes to Johnny's house with extra piggy banks.
Now Johnny's closet is full of piggy banks from everyone in the neighborhood.
One day, Johnny's mom comes home and sees all the piggy banks. She gets very mad and calls everyone's parents to let them know.
Now not everyone did this for a bad reason.
Eric's older brother always steals from his piggy bank, so he just wanted a better hiding spot. Timmy wanted to save up to buy his mom a birthday present without her knowing.
Sammy just did it because he thought it was fun.
But many kids did do it for a bad reason.
Jacob was stealing people's lunch money and didn't want his parents to figure it out.

Michael was stealing money from his mom's purse. Bobby's parents put him on a diet, and he didn't want them to figure out when he was buying candy.

Now in real life, many very important people were just caught hiding their piggy banks at Johnny's house in Panama.

Today their moms all found out. Pretty soon, we'll know more about which of these important people were doing it for bad reasons and which were doing it for good reasons.

But almost everyone is in trouble regardless, because it's against the rules to keep piggy banks secret, no matter what!

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