On 3 April, secrets were unveiled when a massive data leak of documents from Panama-based law firm Mossack Fonseca went public, exposing how its associates all over the globe hid billions of dollars behind offshore companies
To help you understand the "biggest leak in the history of data journalism" (Edward Snowden, 2016) and how Malaysia is connected to the scandal, we simplify the facts below:
1. What exactly are "The Panama Papers"?
The Panama Papers are a set of 11.5 million confidential documents from Panama-based law firm and offshore service provider Mossack Fonseca, which contain more than 214,000 offshore companies in many different tax havens as well as identities of the companies' shareholders and directors. Those identified include wealthy and powerful political figures and celebrities as well as their relatives and business associates.
Some of the documents are said to show how the firm facilitates tax evasion and money laundering for its clients as well several mentions of bribery, corruption, business sanction violations, and criminal enterprises.
The documents were first given by an inside source to German newspaper Suddeutsche Zeitung and subsequently, the Washington-based International Consortium of Investigative Journalists (ICIJ), after which they were distributed to and analysed by about 400 journalists at 107 media organisations from more than 80 countries.
2. What is Mossack Fonseca and what do they do?
Founded in 1977, the Panamanian law firm has more than 40 offices worldwide. One of the largest firms in the corporate services industry, it specialises in commercial law, trust services, investor advisory, and international structures as well as offshore financial services e.g. setting up shell companies.
NOTE: A shell company does not have significant assets or operations, but rather, it is an inactive company which is used as a vehicle for business transactions e.g. buying assets without having it traced back to the actual owner, or kept dormant for future use in some other capacity.
Mossack Fonseca operates in several tax havens i.e. countries with low or no tax rates and/or a financial secrecy system, including Switzerland, Cyprus, and the British Virgin Islands. As the world's fourth biggest provider of offshore services, the firm has represented more than 300,000 companies.
3. Is it legal to use set up offshore accounts?
Yes, keeping money in offshore accounts can be perfectly legal. In fact, business owners from countries with sanctions against them such as Russia and Ukraine put their assets offshore to prevent "raids" by criminals and to get around hard currency restrictions i.e. to take advantage of lower costs and less stringent regulations. Others use offshore accounts for inheritance and estate planning.
However, some also take advantage of the anonymous structure to launder money and for corrupt politicians to hide public funds.
In Mossack Fonseca's case, the firm stressed that it has always complied with anti-money-laundering laws and carries out due diligence on all its clients. It also highlighted that the firm is constantly trying to prevent any misuse of its services but refuses to take the blame for failings by intermediaries such as banks, other law firms, and accountants.
4. How much data has been leaked?
According to Sueddeutsche Zeitung reporter Bastian Obermayer, this is the "biggest leak that journalists have ever worked on" while secret intelligence whistleblower Edward Snowden describes it as the "biggest leak in the history of data journalism".
The Panama Papers consist of 11.5 million files documented over the past 40 years of Mossack Fonseca's operations.
To put it into perspective, a total of 2.6 terabytes of information was drawn from the firm's internal database. To compare, WikiLeaks released 1.7 GB worth of information on the US diplomatic cables in 2011 while Edward Snowden disclosed 9,000 to 10,000 NSA documents in 2013.
5. Who are the public figures that have been named as shareholders and directors of offshore companies in The Panama Papers?
A total of 12 current and former heads of state were directly linked to Mossack Fonseca, including Argentinian President Mauricio Macri, Prime Minister of Iceland Sigmundur Davíð Gunnlaugsson, former Prime Minister of Ukraine Pavlo Lazarenko, and King Salman of Saudi Arabia.
Government officials as well as their relative and associates were also named in the list, including close friends of Russian President Vladimir Putin, brother-in-law of Chinese President Xi Jinping, son of Malaysian Prime Minister Najib Razak, and cousins of Syrian President Bashar al-Assad.
Other prominent names include Argentinian football star Lionel Messi and former UEFA President Michel Platini as well as Chinese actor Jackie Chan, Indian actress Aishwarya Rai Bachchan and her father-in-law Amitabh Bachchan.
6. What shocking revelations have emerged from The Panama Papers?
(i) Although his name does not appear in any of Mossack Fonseka's records, Russian president Vladimir Putin's influence is said to have helped his inner circle secure secret offshore deals and vast loans worth USD2 billion (RM7.8 billion). According to The Guardian, the Russian premier's friends have "earned millions from deals that seemingly could not have been secured without his patronage".
(ii) Prime Minister of Iceland Sigmundur Davíð Gunnlaugsson is alleged to have hidden a major financial conflict of interest i.e. secretly owned the debt of failed Icelandic banks while he was involved in political negotiations over their fate.
(iii) Former Ukrainian President Petro Poroshenko had apparently transferred his Ukrainian business interests to an offshore company controlled by him instead of selling them off during his campaign.
(iv) King Salman of Saudi Arabia is alleged to have unspecified roles in a network of companies in the British Virgin Islands. The companies were used to buy luxury homes worth millions in central London.
(v) Documents show that Lionel Messi, the world's best footballer and his father, Jorge Horacio, were ultimate beneficial owners of Mega Star Enterprises, an offshore company registered by Mossack Fonseca in February 2012. Both men are currently on trial in Spain for tax evasion, though they have denied the accusations and blamed a former financial adviser instead.
You can read about the other power players' involvement here.
7. Where does Najib's son come in?
According to Mossack Fonseca's files, Nazifuddin had created two offshore companies with help from the firm in 2009 and 2012.
In 2009, Nazifuddin became one of two directors of Jay Marriot International Ltd., which was registered in the British Virgin Islands. The other director was Ch'ng Soon Sen, who was then the executive director of a major property developer called Malaysia Pacific Corp (Ch'ng is now its CEO).
In 2012, Mossack Fonseca helped Nazifuddin set up another company in the BVI called PCJ International Venture Limited, which he became a director of alongside business developer Megat Daniff Shahriman bin Zaharudin. Megat is also the financial adviser of an NGO headed by Nazifuddin called Youth on Unity, which aims to help Malaysia's underprivileged children. PCJ International Venture Limited was inactivated in 2013.
Aside of his alleged dealings with Mossack Fonseca, Nazifuddin has invested in various Malaysian business ranging from sectors such as technology, energy, finance, mass transit, and paints and coatings. He became Vice President of the Olympic Council of Malaysia in 2015, and denied allegations that he was involved in a digital currency Ponzi scheme in Thailand. He has also publicly defended his father in relation to the controversial transfer of RM2.6 billion of funds into his personal account.
8. What does Nazifuddin have to say about his involvement with Mossack Fonseca and The Panama Papers?
Speaking to ICIJ, Nazifuddin explained that PCJ International Venture Limited was intended "for international business" but there were "no business transactions" prior to its shutdown.
Meanwhile, Ch'ng - the co-director of Jay Marriot International Ltd. - confirmed that there had been no business activity since Jay Marriot was formed in 2009. He also said that Nazifuddin transferred his share to Ch'ng's sister and resigned as director in 2011.
9. What's next?
The Australian Tax Office, New Zealand's Inland Revenue Department, and the United Kingdom's tax office (HM Revenue and Customs) are currently launching their own investigations into individuals who are and were clients of Mossack Fonseca.
Criminal investigations might also follow in dozens of countries, with more revelations expected to be revealed as the documents are pored over more thoroughly. The ICIJ has also announced that a full list of people and companies involved will be released in early May 2016.
No US politicians have yet to be implicated in the scandal, but that may soon change if this tweet from the editor from Suddeutsche Zeitung is to be believed.
Read all the stories that have been published in the first round of the data leak here.