Panama, Pandora & Shell Companies: The game of the rich

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The surprising reveal of Pandora papers, when the shockwaves of Panama paper was yet to be absorbed, clearly shows that the nation-states and the global community have failed to contain shell companies and laundering in wealth.

“Massive poverty and obscene inequality are such terrible scourges of our times — times in which the world boasts breathtaking advances in science, technology, industry, and wealth accumulation — that they have to rank alongside slavery and apartheid as social evils.”

 Nelson Mandela.
The game of rich- money, money everywhere but nowhere to spare.
picture credits@ Shane U

While on the one hand, we have playboy billionaires having a flourishing lifestyle, and on the other hand, we have people feeding on scraps ( check out the link) around the world, unable to afford even a single meal for a day.

(This article doesn’t promote the idea that it is wrong to be rich or own luxurious life, but it is about the methods employed by the rich that deprives people of equal opportunities, results in vast inequality and access to social securities)

The Shocking Disparity among the rich and the poor.

Lofty Skyscrappers- The Abode of Rich and beyond the reach of the poor.
Picture credits@ Floraine Vita

While the world is thrilled to see an ever-increasing economic growth and wealth creation among nations and their people. This wealth is not trickled down for equal upliftment of the poor. Instead, it is being further sucked up by the rich.

The wealth of the richest is constantly climbing, while the poor are getting poorer. So the stats about the global wealth distribution dictates.

While individuals worth more than $1 million constitute just 1.1% of the world’s population, they hold 45.8% of global wealth. On the other end of the spectrum, 55% of the population owns only 1.3% of global wealth.

And between these two extreme wealth distribution cases, the rest of the world’s population has a combined 52.8% of the wealth. i.e. to say, the world’s richest 1 per cent, those with more than $1 million, owns 43.4 per cent of the world’s wealth. 

From this, we can realise the shocking disparity that exists between people, with a handful of people owning most of the resources and the majority having little at their disposal.

feels legit, A rich man’s garbage is a treasure for the poor.
Picture credits@ Hermes Rivera

Failed Policies- Failed states

Taxation is a redistributive process, and the tax regime in the nation-states ensures equal distribution of wealth and opportunities for the population. 

In modern economic theory, justice is viewed as multidimensional. Therefore, fairness in tax-paying opportunities and fairness concerning end consumption ensures social justice and trickling down of wealth to the lower reaches of the population.

Thus an effective and efficient tax system forms a crucial component to secure social security and poverty eradication by the democratic governments. But, unfortunately, the rich are continuously evading taxes accumulating wealth unethically and illegally. 

We also have regressive tax regimes, which favour the wealthy and burden the middle class and poor. These tax policies work in concert to contribute to the wealth and income inequality that disadvantage the poor.

However, we will confine ourselves to the democratic nations with progressive tax regimes and how the wealthy bypass such a system for amassing their wealth.

How do they do it? we will understand it under the next subhead

Lurking questions-What did I do to be deprived of equal opportunities?
Picture Credits@ Bill Wegner

What are Tax havens?

A tax haven is an offshore nation that allows wealthy individuals, corporate houses and business owners to undertake financial transactions and banking facilities. Such financial services are done by utilising a country’s local institutions to avoid paying taxes on profits and gains to the home country.

As a result, these tax haven countries offer the benefit of minor to no tax liability, along with the added advantage that the company owners or consumers do not usually need to be citizens to take such an advantage.

Thus, tax havens allow companies and affluent individuals to circumvent higher corporate tax standards or income tax in their home nations. Examples- Vnantu, British Virgin Islands, Dubai, Malta, Mauritius, Bermuda islands, Cyprus etc.

Read more about tax havens here

What are Shell Companies

During the leaks and reveals about money laundering and tax evasion, one can often hear the term “Shell companies/corporation” and “Tax Havens”. So let us understand in a bit detail these terms and how are they used as a tool to engage in illegal activity.

Firstly it has to be kept in mind that Shell companies/corporations are not illegal entities in themselves. A shell company simply refers to a company that does NOT have active business operations and significant assets in value.

Generally, startups create shell companies to gather funds and capital for their ventures. Furthermore, shell corporations are also used to keep stocks or function as limited liability trustees.

Tax Havens and Shell companies- The mechanism of wealth
Picture credits@ Markus Winkler

However, these shell companies are used by legitimate companies and big business houses to avoid tax and engage in illegal monetary activities such as money laundering (converting black money to white money), deceptive loans, funding underground markets, unauthorised activities etc. 

Although these shell companies do not have any employees, physical location, active business and assets, they have bank accounts needed to perform the task. These companies undertake massive work, contracts and payments on paper, just like a regular company.

How Shell Companies help in Tax Evasion

So this is how they do it, Firstly corporate houses set up a shell companies in tax havens. Then they transfer/ outsource all their work and profits (Imaginary outsourcing on paper) to those shell companies in tax havens or similar companies situated elsewhere. 

Now the parent company enjoys benefits in two ways. On the one hand, all the profits earned, employees wages, and taxation all undertake under the code of tax havens, which provide lots of tax benefits and subsidies, thus saving money.

Tax Evasion is a crime against humanity.
Picture credits@ Jon Tyson

Although the actual work took place in a place, i.e. to say nation where such profits and wages were legally liable to be taxed. On the other hand, the parent company places a work contract or buys and sells assets through these companies.

Here the primary role of shell companies is to recirculate these payments made to them.

This is done either by showing that the shell company bought fictitious assets from the parent company or sold a fictitious commodity to them, even transferring the profits generated by fictitious stocks kept by them.

Thus nothing is being bought, sold, or done in reality, but fictitious transactions with invoices and payments being made.

Taxation helps us all! Increase your savings legitimately and not by Evasion
Picture credits@ Kelly Sikemma

Understanding by a Simple Example

XYZ is a jewellery company. To avoid tax liability by showing reduced profits, XYZ sold jewellery worth 10 million Euros to its underground network of customers without issuing invoices or bills.

So now XYZ has 10 million Euros of unaccounted money, how can it convert this money into legitimate cash for further use? 

Simple XYZ placed an order to procure fictitious jewellery worth 10 million euros from ABC, a jewellery making company (A shell Co.) situated in the British Virgin Islands.

Now ABC receives a payment of 10 million euros. At a later stage, ABC procures fictitious assets of XYZ for 10 million euros returning back the money to XYZ, which is legal money now obtained by selling an asset.

Picture credits@

Panama paper leak-2016

The name of Panama-based law firm Mossack Fonseca comes to mind when one talks about Panama papers. Revealed in 2016, by the German newspaper Süddeutsche Zeitung (SZ).

Panama papers exposed a vast network of tax havens, people and companies in 200 nations involved in tax evasion, fraud and avoiding international sanctions.

The importance of Panama papers lies in the fact that it was a first of its kind, independent investigative journalism which exposed the hidden syndicate of tax evasion that has been working behind the shadows. 

What was even more surprising was the name of large MNC’s like Apple, celebrities, politicians, sportspeople etc. were brought to the forefront revealing the dirty game behind the curtain.

On the one hand, many of the names leaked were promoting world development and philanthropy. But, on the other hand, the same people were sucking up the wealth of the masses and participating in unlawful activities like tax evasion.

Causing discomfort- Panama Leaks
Picture credits@ Ben Rosett

Pandora papers Reveal-2021

Pandora’s box is a greek myth that symbolises evil, sicknesses, and the world’s temptations to which humans give in. Similarly, the Pandora paper, which consists of more than 12 million leaked documents, also reveals the sins of our society. 

It tells the tale of how the celebrities, politicians, renowned figures give in to their temptations to amass wealth at the cost of ordinary people engaging in dishonourable activities.

The Pandora papers were leaked by the International Consortium of Investigative Journalists (ICIJ) in Washington, D.C. It is one of the biggest ever global investigations conducted by more than 140 media houses.

The exciting aspect of Pandora papers is the series of names that have been leaked.

From famous singers like Shakira, Beatles drummer Ringo Starr and Elton John to politicians, actors, monarchs and oligarchs. Renowned names like Jackie Chan, Sachin Tendulkar, King Abdullah II of Jordan, Czech Prime Minister have also found themselves on the list.

Even companies like KPMG, Deloitte, Banksy have also been claimed as being involved.

Watch the video here.

Upsetting Trend

Irony and Hypocrisy all in one picture.
Picture credits@ Max Bohme

What concerns the people worldwide is that despite the Panama papers leak in 2016, the nations and the international regime didn’t take any actions. Although legal proceedings were started in many countries, their results never came to light.

Moreover, no proceedings ever took place in many countries, and even the press reports were curtailed owing to the hegemony and power associated with the people involved.

Furthermore, despite all new tax regulations( Eight years since the G20 mandated the BEPS process, intended to end tax avoidance and satisfy people’s demands for tax justice and fairness.).

Better vigilance, internationalised rules and agreements between nations to prevent tax evasion, the Pandora Leak of 2021 comes as a hard slap on the face. 

Billionaires increased their wealth by US$3.9tn in the first year of the pandemic, while global workers lost earnings of US$3.7tn. With inequality still rising, exacerbated by the Covid-19 crisis, states need fair and progressive tax rules more than ever.

This forces us to question, are all the laws and policies just on the face of it to prevent a public outcry? How did these people escape the scrutiny and their names were found again in another leak? Why are the successive governments and nation-states failing to prevent the accumulation of wealth and secure social justice? 

No doubt the rich are getting richer, and the poor are getting poorer.

Nevertheless, this trend will continue unless strict action is taken by the various governments acting in synergy to tackle this menace.

But again, why and how will governments work to prevent such illegal activities when they are themselves involved is the question that needs to be asked.

Bonus content: Paradise paper read here.

By- Yash Arya

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