top of page
Search

The Panama Papers: Corruption's Effect on Global Security

Writer: Morgan McBride
Morgan McBride
Sep 3
7 min read

Ten years ago, an information leak exposed a plethora of corruption, money laundering, and tax evasion enacted by politically connected individuals. What did that mean for global politics?





On April 3rd, 2016, the International Consortium of Investigative Journalists released the now-infamous Panama Papers, which they had received from an anonymous source. 2.6 terabytes of data (the equivalent of approximately 600 DVDs) containing 11.5 million confidential documents about more than 214,000 shell companies from more than 200 countries were leaked from the Panama-based law firm Mossack Fonseca.


These documents illustrated four decades of illicit transactions, revealing how wealthy individuals and powerful corporations have laundered money and evaded taxes and other regulations. The Panama Papers link the direct and indirect offshore financial holdings of approximately 140 current and former world leaders, politicians, public officials, and others. The searchable list of individuals highlights how funds illicitly flowed through the global financial system between 1977 and December of 2015.


The German newspaper Süddeutsche Zeitung initially obtained the data, which included emails, financial spreadsheets, passports, and corporate records that revealed the secret owners of financial accounts and shell companies in 21 jurisdictions worldwide. The investigation uncovered the pervasive use of anonymous shell companies and offshore accounts to conceal wealth, obscure ownership, and facilitate corruption. The Panama Papers revealed links among a dozen world leaders, 128 public officials, politicians, celebrities, businesspeople, and other wealthy individuals who perpetuated the illicit economy.


The law firm Mossack Fonseca operated in tax havens worldwide, helping its clients launder funds and evade taxes through those nations' lax financial governance. As the fourth largest provider of offshore financial services, the law firm acted on behalf of over 300,000 companies. While offshore financial structures are legal, wrongdoing within them can enable crime and illicit financial activity to proliferate through those systems.





With Mossack Fonseca operating across numerous jurisdictions worldwide, its clients and beneficiaries played a significant role in harming the global economy. Corruption, money laundering, and tax evasion form an intricate web of illicit activity that ultimately created dangerous ripple effects across continents.





The Panama Papers uncovered numerous relationships among banks, lawyers, accountants, multinational companies, and others, which cemented widespread concern about the global movement of illicit wealth. Reporting from the Tax Justice Network indicated that global banks and the rich economies that support them have driven the financial secrecy industry. Switzerland and the UK were prominent parts of this industry, as their banks held 76% of the offshore banking market for the Panama Papers’ offshore entities. As the chart above indicates, Singaporean banks also played a significant role in offshore banking, especially as foreign banks used Singapore as a host jurisdiction.


One key sentiment from the Panama Papers was that corruption is not confined to lower-income countries. Alex Cobham describes that, “It might be closer to the mark to say instead that corruption has long been a rich country way of doing business.” Even if this sentiment holds some truth, it does not negate the fact that the interconnectedness of the 21st century makes corruption, money laundering, and tax evasion a dire problem for all nations and territories.




Sigmundur David Gunnlaugsson




After a career as a journalist and radio-TV personality, Sigmundur David Gunnlaugsson became Iceland’s prime minister in May 2013. Three years into his tenure, the documents spotlighted by the Panama Papers showed that the Gunnlaugsson family had had a tight-knit relationship with bank creditors. He and his wife, Anna Sigurlaug Pálsdóttir, bought Wintris Inc. from Mossack Fonseca, specifically through the Luxembourg branch of Landsbanki, a major bank in Iceland. The couple used Wintris Inc. as a shell company to invest millions of dollars of inherited money from Pálsdóttir’s family wealth as an Icelandic Toyota dealer. Court records also indicate Wintris as a creditor with millions of dollars in claims in bankruptcies run through the three major Icelandic banks.


The total amount of claims Wintris held as a creditor equated to nearly $4 million in assets at current exchange rates and $8 million at pre-crash exchange rates. These numbers also don’t include any other assets Wintris might have had, since none appeared in the official filings. Because Gunnlaugsson co-owned this company with his wife when he entered parliament in April 2009, he ultimately sold his half of Wintris to his wife for one dollar on the last day of 2009. The Panama Papers’ detailed release of this information brought this into the spotlight, as many viewed it as questionable financial maneuvering of an elected official.


In a Facebook statement on March 15, 2016, Anna Sigurlaug Pálsdóttir said Wintris had never been a secret, and that both of them intended it as an investment vehicle for their family’s funds. However, this admission was not entirely unprompted, because Reykjavik Media and SVT (Swedish public television) asked Gunnlaugsson if he owned an offshore company during a video interview.





I unfortunately do not speak Icelandic, so I only understood the English portion of this interview. However, it is clear from watching the video that this line of questioning threw Gunnlaugsson off, as shown by his storming out of the interview. At a minimum, the interview suggests Gunnlaugsson knew about Wintris only minimally, as he presents Wintris as a company he served on the board of and had an account with. Palsdottir’s claims bolster this argument by claiming that she is the sole owner of Wintris’ assets, and that Gunnlaugsson’s listing as a co-owner was a mistake made by the bank. Nevertheless, Gunnlaugsson resigned from his role as Iceland’s prime minister on April 5, 2016.



While many details surround Gunnlaugsson’s involvement in offshore banking, the exposure of these allegations broadened the scope to include the activities of other Icelandic political elites. Bjarni Benediktsson, then-Minister of Finance and Economic Affairs, and two Icelandic businessmen owned and shared “power of attorney” over a shell company named Falson & Co. Mossack Fonseca created this company in 2005 in the Seychelles. Because these three men had the power to approve the company's transactions, they are directly linked to its issuance of bearer shares, stock instruments that transfer asset ownership to whoever holds the physical share certificate. Similarly, Benediktsson also did not disclose his ownership of the company to parliament or the general public.


Ironically, even though both Gunnlaugsson and Benediktsson were exposed in some way by the Panama Papers, Bjarni Benediktsson became prime minister of Iceland from January to November 2017, and again from April to December 2024.


Investigations stemming from the Panama Papers’ revelations led to the prosecution of some of Iceland’s top bankers, sending at least two dozen individuals to prison. Although Iceland made progress in the immediate aftermath, the ordeal prompted its governance structures and the general public to reconsider how its banking and financial industries operate.



The Family of Nawaz Sharif


A common theme throughout the Panama Papers data was the involvement of politically exposed persons (PEPs) in offshore finance mechanisms. A politically exposed person is anyone entrusted with significant public responsibilities and power, often meaning government officials, public officials, military officials, diplomats, and others in roles on behalf of their nation. Additionally, the immediate family and extended family of these individuals are often considered politically exposed persons as well.



In the case of Pakistan’s former Prime Minister Nawaz Sharif, a network of businesses was found to be connected to the Sharif family, primarily involving three of his four children. Their businesses span a variety of industries, including steel, sugar and paper mills, and extensive international property holdings. As one of the nation’s wealthiest families, members of the family have been officially accused of corruption, ownership of illegal assets, tax avoidance, and money laundering. Three of his children, Mariam, Hasan, and Hussain, held ownership or authorization to execute transactions for several companies. With the family maintaining substantial assets funneled through the British Virgin Islands, Switzerland, Liberia, and more, investigations linked the properties and wealth flowing throughout the family unit.


The Sharif vehemently denied any wrongdoing as the scandal broke in 2015; however, the Supreme Court voted to disqualify Nawaz Sharif from holding public office going forward. The former prime minister fled to London alongside his wife and children for the next year. Nawaz Sharif and his daughter, Maryam Nawaz Sharif, were both convicted in absentia of owning assets beyond his income (Nawaz) and abetting a crime (Maryam). In late July of 2018, they both began serving their sentences of 10 years and 7 years in prison, respectively. Their sentences were suspended two months later, and they were released from prison. The tide did not turn in Nawaz Sharif’s favor at that point, as he was later sentenced to seven years in prison and a $25 million fine on December 24th of that year, as he was unable to prove the source of income used for the purchase of one of his assets. The saga continued when the courts granted him release from prison on medical bail less than a year later, in October 2019.


As the sting from the corruption scandal faded, Shehbaz Sharif, Nawaz Sharif’s younger brother, became prime minister of Pakistan in 2022. Nawaz Sharif also had his convictions overturned on appeal, allowing him to regain the ability to hold public office. Now, a decade after the release of the Panama Papers, Nawaz Sharif is a member of the National Assembly of Pakistan.




What has the Panama Papers changed?




The anti-money laundering industry has bolstered investigative and regulatory processes over the last decade.


Mossack Fonseca, the Panamanian law firm at the center of this, closed in 2018 amid heightened pressure after the Panama Papers sparked many scandals. Additionally, over 1.3 billion dollars of restitution (repayment as punishment for illicit finance) in tax revenue was returned to 23 national governments.


The anti-money laundering industry has bolstered investigative and regulatory processes over the last decade. Domestic policies and international agreements have allowed a new framework for investigating and prosecuting offshore finance to emerge in the years following the Panama Papers. However, numerous fiscal schemes, such as anonymous ownership of companies and properties, have remained largely unchanged.


Offshore financial hubs still exist as entities through which legal and illegal financial flows operate. Furthermore, property markets, such as housing markets, the vehicle industry, art markets, and more, have remained conduits for illicit wealth.


Thanks to 350 journalists across 80 countries. The Panama Papers became a major catalyst for increased awareness of illicit finance and how the elite operate behind the scenes of the global economy.



-------------------



Sources:

 
 
 

Comments

bottom of page