Let’s say you save your quarters in a piggy bank that you keep on the shelf in your bedroom.
But your mom keeps checking up on how much you’re putting in and taking out. You don't
like that, so what you need is a second piggy bank that you keep somewhere else. Your friend
Johnny’s mom is busy and she doesn’t have time checking on piggy banks. You bring your
spare bank over there and money can come and go without anyone being the wiser. But maybe
Johnny’s mom isn’t really “too busy.” Maybe she’s just lazy. Maybe she’s deliberately
telling the neighborhood that for a small fee, she’ll safeguard their piggy banks
and not pay attention to what happens. That what countries like Panama and the Cayman
Islands and other tax havens do. They have very weak regulations in terms of watching
when money is coming into or out of bank accounts. And they have rules that make it easy to form
a corporation without disclosing who owns it. So basically everyone gets to write a
fake name on their piggy bank. There's a Panamanian law firm called Mossack Fonseca. They've got
over 40 offices in dozens of countries around the world. They specialize in setting up these
kind of special piggy banks. They’re called “shell companies” — hollow vessels that
don’t conduct any business, they just own financial assets on behalf of their real owners.
There's been this massive leak of over 2 terabytes worth of Mossack Fonseca documents to the
International Consortium of Investigative Journalists. And it sheds an unprecedented
light on the world of shell companies. People can use shell companies for legitimate reasons
— sometimes you just need privacy. But they’re also useful for covering up scandalous or
embarrassing information. The Panama Papers show close that associates of Vladimir Putin
have taken over $2 billion in assets owned by offshore shell companies. And that the
prime minister of Iceland actually held financial interests in bankrupt Icelandic banks even
as he was simultaneously involved in political negotiations over what should be done with
the banks. And the main use of offshore shell companies is avoiding taxes — because the
government can’t tax money it can’t find. One of the memos says “95 percent of our
work coincidentally consists in selling vehicles to avoid taxes." These tax havens are generally
small countries that could be persuaded to clean up their act, but so far political leaders
in the big countries haven’t wanted to do it.