Panama leaks: how are the rich getting away with it?

Chido Dunn is a senior campaigner at Global Witness, a not-for-profit organisation which investigates and exposes corruption, human rights and environmental abuse.

  • The leaked 'Panama papers' have exposed money laundering, tax evasion and sanction dodging. How does it happen?

If you're a tax evader, corrupt dictator, terrorist or drug smuggler the best way to move your money around without anyone knowing is to use an anonymous company.

Plenty of jurisdictions will keep it a secret as to who the real person is behind the company, so you can move your money around without anyone knowing who the money belongs to and where it came from. The UK’s ‘Overseas Territories’ – the UK’s tax havens – are some of the most famous providers of such secrecy, and – according to a study by the World Bank – the most popular with the corrupt.

Latest on the Panama leaks scandal

It essentially makes large scale corruption very easy. In almost every case we have investigated over two decades we have found the people involved have used anonymous companies to hide their dirty deeds.

We recently carried out an undercover investigation in the US. We posed as the advisor to a corrupt African minister and asked New York lawyers how we could move millions of dollars of suspect cash into the US. Lawyers from 12 of the 13 law firms suggested we use anonymously owned companies.

Leak reveals how the rich and famous 'hide their money'

  • But many of the names being connected to the leaks aren't criminals are they?

It’s not illegal to have an anonymously owned company. Nor is it illegal to have an offshore bank account, providing you've told the tax authorities about it. People also use them to structure their investments or hide their money for other reasons (e.g. in divorce proceedings). Nevertheless, such anonymity is exactly what tax evaders, drugs cartels and other criminals want to move their dirty money around the world.

Anonymous companies are only used by the financial and political elite. These sophisticated actors use complicated structures to protect their investments and ensure that only they know the extent of their wealth and the extent of their power.

  • What are these complicated structures in laymen's terms?

A good analogy for the structures is to think of them as Russian dolls. Say you have some money that you want to use in the international financial market. You could create a company somewhere like Delaware in the US, then you create another company in another country that owns the first one, and another in another country, and so on.

The Panama law firm at the centre of the leaks denies any wrongdoing and claims it is the 'victim of an anti-privacy campaign'. Credit: Reuters

What you end up with is dolls within dolls within dolls, which means if someone – say, law enforcement or a tax inspector – took a look at your financial affairs it would be extremely hard to tell who the money belongs to, because it is protected under all these layers, each of them requiring a time-consuming and expensive legal process to break through that police only ever attempt in the most serious of cases.

As well as needing an anonymously owned company, you'll usually need a professional advisor such as a lawyer or accountant to help advise on the best structure to use. The rich and powerful rely on a huge network of professionals to help them do this.

  • So why can't investigators track these layers or follow the money to join the dots up?

These Russian doll-like structures make it incredibly time-consuming and expensive to investigate. For each layer, the police will likely have to go to court in the country in question to find out who owns the company – and the result often just indicates another layer and another jurisdiction that needs to be opened up. In some places, like most of the states of the US, no-one even records any information as to who owns and controls companies. The more layers, the more jurisdictions to tackle and tracing from one point to the next point becomes increasingly difficult.

The people who create these structures - essentially establishing a zig-zagging trail across the globe – often have huge resources. Detection agencies don't have the same resources or are stretched investigating over crimes.

  • What can be done?

Global Witness has been advocating for the names of the people who ultimately own and control companies to be put in the public domain – not just the names of the shareholders, which may be another company or a nominee, but the people who ultimately pocket the profits and control the actions of the company.

The UK has led the charge by creating a public register of the people who ultimately own and control all British companies, and steps are being taking in Europe to do something very similar.

Limited liability companies were invented as a way of protecting people’s investments; they were never intended as a way of concealing one’s identity.

  • What should David Cameron do to meet his pledge to end tax secrecy?

The Prime Minister is hosting an anti-corruption summit in London next month, which offers a real opportunity for the UK to demand other countries take action.

But the Panama leaks show action must be taken here too. Over half of the companies in the leaks were incorporated in the UK or its tax havens, mostly in the British Virgin Islands.

The sun-soaked British Virgin Islands has provided a safe tax haven for the super rich. Credit: PA

This finding fits with others. The World Bank looked at more than 200 cases of grand corruption and found that anonymously owned companies were used in 70% of the cases, and that companies based in the UK’s Overseas Territories were the most popular with the corrupt.

The UK has a real opportunity to make changes in its own back yard and force its tax havens to open up. Until it does that it can't claim to be a world leader.

  • Are the various practices exposed illegal or legal?

These sorts of structures aren't being used to solely hide illegal activity, but the leaks show how easily illegal activity can be protected by these structures.

So far, the leaks show that 72 current or former heads of state and 23 people on international sanctions lists were involved, which raises huge questions of the lawyers involved, who are required to do extremely thorough tests on their clients to make sure that the money they use is clean.

The real risk is that some sort of criminal activity has been involved, which raises large questions about the practice in general.

These types of structures can be used in grey areas and bad behaviour (not only in criminal cases), but the point is that they are being abused and don't benefit anyone apart from the elite.

  • If they're not all illegal has this leak raised a privacy issue?

There are always tensions between privacy rights and transparency issues, but owning a company comes with responsibilities and one main one is to say who the real owner is and not hide that fact. If there is evidence of potential wrong-doing, as there is here, the information should be out in the public domain.

Privacy is of course a legitimate concern, but the balance has tipped far too far away from transparency and is causing real harm.

The UK register has established a protection regime so if you fear, for example, you'll be kidnapped or blackmailed by revealing your involvement in a company you can ensure only the government has access to that information, rather than it being publically declared.

  • Apart from allowing the super rich to stay richer, how is this practice harmful?

This crime hurts the UK and countries abroad, threatening our economy and making us less safe. The corruption involved tops up abusive regimes, keeps fledgling nations relying on aid, stops people fro getting access to healthcare and education, and forces people to flee their counties.

These are the views of Global Witness and are not necessarily shared by ITV News.