5 Key Things to Know About the Pandora Papers

This week we are closely watching the disclosures emerge from the Pandora Papers, a massive leak of secret data about the illicit financial activities of the super-wealthy from 200 countries. In the days to come, we will learn more about the tax avoidance of billionaires and the ways states like South Dakota and Florida have become U.S. tax havens.

Here are Five Things You Need to Know:

1. The Largest-Ever Journalistic Collaborative, More Significant Than the Panama Papers

The Pandora papers are a massive expose about the secret shell games and tax avoidance schemes of the world's ultra-wealthy, from over 200 countries. This massive undertaking involved 600 journalists from 117 countries and was coordinated by the International Consortium of Investigative Journalists (ICIJ) in what they describe as the "largest-ever journalistic collaborative." See initial coverage here in The Washington Post and The Guardian, two of the key media outlets part of the consortium.

Five and a half years ago, the ICIJ released the Panama Papers, which focused on a leak from a single law firm, Mossack Fonseca. According to Gerald Ryle, director of the ICIJ, the Pandora Papers are the "Panama Papers on steroids." See a summary prepared by the ICIJ here.

The Pandora papers draws on leaks from confidential records at 14 different offshore wealth service firms in Switzerland, Singapore, Cyprus, Samoa, Vietnam, Hong Kong, as well as firms in well-known tax havens such as Belize, Seychelles, Bahamas and the British Virgin Islands (BVI). These firms help wealthy individuals and corporations to form trusts, foundations, incorporate companies, and establish other entities in low- or no-tax jurisdictions.

The Pandora Papers analyzed 12 million files from these firms including leaked emails, memos, tax declarations, bank statements, passport scans, diagrams of corporate structures, secret spreadsheets and clandestine real estate contracts. Some reveal the real owners of opaque shell companies for the first time.

2. The Global Implications Are Huge and Politicians Will Be Embarrassed

The Pandora Papers are truly a global story, with major implications for many countries. Some of the largest revelations involve Russian nationals with connections to Vladimir Putin and elites from Latin America. For example, journalists from the Spanish dailyEl Pais, exposed the "Secret Vault of Mexican Billionaires." In Mexico they found over 3,000 wealthy and powerful Mexicans in the 11.9 million leaked files, with connections to current and previous presidents. They discovered a common pattern of wealthy Mexican elites using a single Panamanian law firm, Alcogal (Aleman, Cordero, Galindo & Lee), along with shell companies and trusts in the British Virgin Islands, and real estate purchases in Miami and around the US.

The Pandora Papers will hopefully turn up the heat on the politicians that maintain the wealth-hiding status quo. The files list over 330 current and former politicians and world leaders from 91 countries that are implicated in transactions. This is twice the number implicated in the 2016 Panama Papers.

Political leaders include King Abdullah II from Jordan and former British Prime Minister Tony Blair (according to The Guardian, Jordan blocked the ICIJ web site hours before the Pandora papers release). This explains why existing political bodies seem incapable of closing down systems that enable wealth hiding and tax dodging.

"It demonstrates that the people that could end the secrecy of offshore systems... are themselves benefiting from it," said Gerald Ryle, director of the ICIJ. "So there's no incentive for them to end it."

3. The US is Exposed as a Global Tax Haven

U.S. citizens are under-represented in these leaks, largely due to where the service providers are located. No U.S. wealth-advisory firms were part of the leaks. Nonetheless over 700 companies revealed in the Pandora papers have ties to beneficial owners connected to the United States.

The Pandora Papers do, however, expose how the U.S. has become a global destination for global wealth, some of it ill-gotten. The Panama Papers, the Paradise Papers (Bermuda and Singapore) and Luanda Leaks (Angola) all reinforced the misperception that most of these financial shell games take place "off shore," in secrecy jurisdictions and tax havens in small countries with weak banking laws.

But the Pandora Papers show that the U.S. and states like South Dakota now rival notoriously opaque jurisdictions in Europe and the Caribbean in financial secrecy. The states with the most active trusts revealed in the files were South Dakota (81), Florida (37), Delaware (35), Texas (24), and Nevada (14).

4. Shady Billionaires from Around the World Are Going to South Dakota

Findings suggest that South Dakota has sheltered billions in wealth linked to wealthy individuals previously accused of serious financial crimes and labor violations. Two examples: Brazilian orange juice baron, Horst Happel, was fined $88 million in 2016 for underpaying his workers. In 2017, he moved substantial wealth to a trust in South Dakota. Carlos Morales Troncoso was the former vice-president of the Dominican Republic. He ran a sugar company called Central Romana that was accused of human rights violations. He set up trusts for his daughters in the Bahamas that were moved, after his death, to South Dakota. The reason global money is flowing to the "Mount Rushmore State" is because of their low taxes and advantageous dynasty trusts.

5. The Pandora Papers Will Boost the Case for US Tax Reform

The Pandora Papers will hopefully give a boost to the US Congress in passing a progressive tax plan to fund the Build Back Better program--and that includes money for IRS enforcement to ensure the wealthy pay their fair share.

As The Guardian reports: "The Pandora papers also place a revealing spotlight on the offshore system itself. In a development likely to prove embarrassing for US President, Joe Biden, who has pledged to lead efforts internationally to bring transparency to the global finance system, the US emerges from the leak as a leading tax haven. The files suggest the state of South Dakota, in particular, is shelter billions of dollars in wealth linked to individuals previously accused of serious financial crimes."