After Panama Papers broke in April 2016 and rocked the transparency world, unprecedented historical global effects took place and those are expected to continue for years to come.
Since then, global media reports and official statements count around one hundred fifty inquiries, audits or investigations announced by police, customs, financial crime and mafia prosecutors, judges and courts, tax authorities, parliaments and corporate reviews in seventy nine countries. Many legislatures have changed laws and regulations overnight, governments have reported recouping taxes on previously undeclared funds, and officials in three countries have resigned (including a prime minister and an energy and industry minister).
With business executives and attorneys behind bars awaiting for criminal trials in the Middle East, Europe and Latin America, Panama Papers has brought the issues of anonymous shell companies, illicit financial activity and tax evasion into the spotlight. Unfortunately, this seems to be the tip of the iceberg, as Europol (Europe’s law enforcement agency) revealed that 3,469 probable matches were found between the Panama Papers database and information in its own files about tax fraud, organized crime, terrorism, Russian organized crime groups, drug trafficking, human trafficking, illegal immigration and cybercrime. Out of those matches, 116 related to Europol’s project on Islamic terrorism, codenamed Hydra.
Most governments and organizations in Latin America and Central America are responding aggressively to the Panama Papers, as in the following examples:
One thing that is evident in the Panama Papers case is that the clients were searching for anonymity instead of tax planning. It is paramount to distinguish between legal tax avoidance and illegal tax evasion (such as evasion through offshoring private wealth and tax frauds). Legal tax avoidance through profit shifting, using nominal tax rate differentials, legitimate tax deductions and special tax regimes, continue to be crucial for limiting tax liabilities of business owners and wealthy individuals and boosting financial results. In coming years, governments will have to become more and more transparent, or they will find transparency forced upon them instead.
Many companies have recognised that compliance is becoming more and more complicated, from both a group and local jurisdiction perspective. The changes in the fiscal landscape internationally, combined with the international reach of some of those changes have placed greater emphasis on the need for businesses to tackle those challenges proactively and with transparency.
It is the overall understanding that the “Panama Papers,” offer a rare opportunity to regulators to bring greater transparency in the ownership of the firms they incorporate. Anonymous companies have been a known problem for many years, but this investigation is unprecedented in size and scope.
Although international commitments have been made in the G8 and the G20 groups in the past several years to improve beneficial ownership transpareny (such as the European Union, with its recent “fourth anti-money laundering directive”, requiring member states to collect and prepare central registries of beneficial ownership information for companies formed within their borders), now because of the easier access to information it is expected from a number of countries to ramp up their investigation prosecution and to strengthen their banking regulations.