22 Oct 2019

The Laundromat: Panama Papers real-life thriller

From Nine To Noon, 10:15 am on 22 October 2019

Two-time Pulitzer Prize-winning journalist Jake Bernstein was a senior reporter on the International Consortium of Investigative Journalists Panama Papers project which won the Pulitzer Prize for Explanatory Reporting, uncovering the complex world of secretive offshore tax havens, corruption and fraud on a massive scale.

His exploration of the scandal is now a book and a film starring Meryl Streep, Gary Oldman, and Antonio Banderas.

The Laundromat, is released on Netflix - despite a lawsuit from Mossack Fonseca lawyers trying to shut it down.

The Laundromat

The Laundromat Photo: Netflix

It was back in the 1980s that two lawyers Jürgen Mossack and Ramón Fonseca got together in Panama and decided to make their small firm the “MacDonald's of the offshore world”, Bernstein told Kathryn Ryan.     

At the time there were few rules governing offshore shell companies and the pair, after meeting over a deal involving a Saudi Arabian client and a yacht, saw an opening, he says.

“And so, Jürgen and Ramón, get this idea that, you know, they want to really expand this business to the masses, they kind of want to be the MacDonald's of the offshore world.

“They want to sell companies to lots of people and it's a propitious time because globalisation is beginning and communication through the internet [which] allows for a broader reach.”

But scrutiny of such arrangements by governments ramps up post 9/11, he says.

“In the United States governments start to be worried about terrorist financing and the drug epidemic and they recognize that this system is a problem.

“And so they start, depending on the jurisdiction, layering on more vetting requirements and more due diligence. And by that point Mossack Fonseca has already released tens of thousands, if not more, companies into the wild. And it's very hard for them to go back and try to figure out who is actually behind those companies, let alone continue this sort of MacDonalds model that they have fashioned.”

The two soon become overwhelmed as greater scrutiny and vetting demands are piled on and some big banks become embroiled in their financial and legal labyrinth, he says.

UBS was a prime example, he says, which bought hundreds of paper companies from Mossack Fonseca on behalf of clients.  

“Mossack Fonseca would literally give a drawer full of companies to UBS and then UBS, every time a client would need it, would mark that up and sell it to the onto the client.

And so Mosscack Fonseca says we now need to know who are the owners of all these companies and the UBS banker gets very indignant and says well that's not our responsibility you sold them to us, you need to know who the beneficial owner is. And Mossack Fonseca says but we just gave you the companies and then you turned around and sold them to your own clients. So how are we supposed to know who has them?

“And it becomes this sort of hot potato thing and it's actually quite comical in a way.”

He says it took a huge dump of data for the “one bad apple” theory to be smashed.

“There's a huge lobby in favour of this industry; it's lawyers, accountants, it's bankers, it's corporations that use tax havens. And so occasionally a journalist would get some little expose who tried to raise awareness about the system and were attacked viciously.

“When that failed usually people would say ‘Oh, this is an isolated incident’, or ‘this is one bad actor’ or ‘it's not really a problem’. And so it took a leak of what ultimately ended up being 12.5 million documents to give this macro view and say, ‘well no this is much bigger than an isolated incident, this is much bigger than a bad actor, this is systemic.’”

So, since the massive data dump that blew the lid on the offshore industry, has anything changed? Not a whole lot Bernstein says.

“The evolution of this world that I talked about in my book, over 40 years, is almost like a living organism. And it mutates to get around strictures that are thrown up to try to confine it.

“And so I think to some degree we're always going to see that, so if the British Virgin Islands tightens things up, then you might see companies flow to Singapore or to Israel. So, it's a very tough thing to get a hold of.”

And vast amounts of wealth are hidden away by the world’s wealthiest and corporations and people, Bernstein says.

“I mean, 50 percent of the wealth held in tax havens belongs to households with more than $50 million in net worth. And so this is really being used by the ultra-wealthy and the amount that's held offshore is something in the order of $8.7 trillion.

“And you have to believe that a good portion of that should be taxed and probably isn't being. Just based on the Panama Papers, the tax authorities worldwide have collected something of the order of I think it's about $1.5 billion in tax revenue - and that's the low hanging fruit.”

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