The Pandora Papers, the leaked financial documents are testimony about how the ultra-rich, the wealthy, and most powerful people hide their fortunes from law enforcement and dodge taxes, according to Bloomberg News.
These people “park” their wealth in trusts that the majority of people do not have access to or are not aware of the avenues to do so. Aside from parking their money in unknown avenues, they also seek refuge in shell companies and holding firms located in places where the taxes are not as high and offer the provision of anonymity, according to Bloomberg News.
1. What do the Pandora papers reveal?
The revelation of as many as 11.9 million confidential papers showed that celebrities, billionaires, heads of the states have made use of the offshore firms to get private jets and mansions and invest in stakes in many companies that have zero or little transparency.
The US non-profit agency, The International Consortium of Investigative Journalists that was a partner in the investigations with the other media organizations said that the leak will expose the entanglement of secretive offshore finance and political power across the globe of the wealthy.
It is legal to move money across foreign accounts in most of the countries and names of people that have been leaked have not been accused of misdeeds, but the Pandora papers will offer an insight into how wealthy people plan about their finances, reports Bloomberg News.
2. What is the meaning of offshore?
Any asset that is parked in a jurisdiction that is outside one’s home country is called offshore. The offshore system usually comprises jurisdiction that offers low-tax regime like the British Virgin Islands, Cayman Islands, and Panama. The states of Nevada, South Dakota, and Delaware allow individuals to stay anonymous in their business and financial dealings.
3. How much money is present offshore?
According to Bloomberg News, the amount is not certain. However, economists say that the amount can be from $5 trillion to $32 trillion, and the higher-end usually represents greater than one-third of the GDP globally.
Russia, Latin America, and Persian Gulf countries are leaders in having their citizens’ money parked offshore. Bloomberg News reports that 60% of GDP or Russia is offshore in contrast to 15% from Continental Europe, and few percentages from Scandinavian nations, as per research report published in the year 2017, as reported by Gabriel Zucman, Annette Alstadseter, and Niels Johannesen.
4. How do people park their money offshore?
There is a so-called financial and legal ecosystem of the wealthy that helps the ultra-rich in parking their money offshore.
5. How does a shell company operate?
According to Bloomberg News, there are deliberately set up opaque shell firms that are present only in documents, but these firms do not have any active business operations. These shell companies can obscure ownership and can be set up for a very low cost. They according to experts from the so-called “layering phase” involved in money laundering, in which the money you want to park is circulated several times so that the same cannot be tracked. The companies can be found operating in tax havens like Nevada and Delaware in the United States, and Panama. In these places, they are allowed to be set up anonymously.
6. Is the operation legal?
It is legitimate for wealthy people to use offshore financial hubs. One reason to send money offshore is to reduce administrative and financial costs. For instance, when UD hedge funds and money managers prefer pooling the assets into the Cayman Islands for the same reason.
Another reason, according to Bloomberg News why people use offshore financial centers is because it offers protection from political regimes that appear unstable in the person’s home country. However, the absence of transparency of these operations has made it a haven for dishonest people like money launderers, traffickers of drugs, and people looking forward to ill-gotten profits.