Finance and Business

How The Wealthy Hide Billions Using Tax Havens

– [Narrator] In 2016, 11.5
million files were leaked from Mossack Fonseca, the
world’s fourth largest offshore law firm. These were called the Panama Papers. Hundreds of thousands of offshore entities and shell companies connected
to over 200 countries and territories appear in the papers. Prominent world leaders,
politicians, business people and the super wealthy were
exposed to have been using offshore accounts for tax
avoidance and other purposes. So, why should you care? Every year, about 70 billion dollars that the US could be
using for infrastructure, law enforcement, healthcare
or education is missing. It’s hidden deep within shell companies and anonymous entities in places like the British Virgin Islands. Now, let’s back up. What exactly is a shell company anyway? – Setting up a shell company
is really quite easy. You can go to a place like Panama or the British Virgin
Islands or Delaware or Nevada and usually the places
where you’re doing it have tough laws where they will not reveal who the beneficial owner
is and they just layer on different aspects of anonymity. So for example, you
could have fake directors where you pay a little bit
extra and someone pretends to be the public face of this company. Just because you have a
shell company does not mean necessarily that you’re
doing anything illegal. Say for example, you wanna
have some business activities but you don’t want certain
business partners to know what you’re doing. The more normal one is some
form of legal tax avoidance. I think that a lot of people in the US think that tax evasion and
tax avoidance is something that happens in a far
off place with palm trees and ocean breezes. And the reality is it’s a big deal here. The US Treasury estimates that something like 300
billion dollars a year is laundered through the United States. Foreigners are coming in
and buying up property with anonymous shell companies and some of that is perfectly legitimate but some of it is clearly money laundering and corrupt officials and
other people using their cash to park it in property
and making it impossible for the people who live
there to afford it. And our government is claiming that it doesn’t have enough
money for infrastructure or for healthcare or for
police or for education and at the same time,
there’s just huge amounts of tax avoidance and tax evasion going on through this secrecy world. Worldwide tax authorities have collected more than a half a billion dollars based on the Panama Papers leak. – [Narrator] Of the
214,000 entities identified in the Panama Papers, about
one half of them are located in the British Virgin Islands. How did this tiny area
become such a huge tax haven? Mossack Fonseca is a Panama
based law firm founded in 1977. After instability in Panama
was pushing clients away during the ’80s, the firm discovered the British Virgin Islands
were ripe new territory for anonymous shell companies. – Their vision was to be McDonald’s of the offshore system, right? It was high volume, low cost and so they were going to pump out these anonymous shell companies
and make them available to a wider audience. In the beginning, that’s a
great business model, right, because all you’re doing is you create this anonymous shell
company, you give it a name, you don’t care who actually
is behind it and you stick it in a folder and you forget about it until a year passes and
it’s time to invoice for the renewal. Later on, there’s more vetting. Governments start to realize
that these are being used by criminals and money
launderers and things like that and so they say, “We
need more information.” And I asked Jurgen Mossack,
“Did you ever see that wonderful “I Love Lucy episode where
she’s in the chocolate factory “and she’s trying to keep
up with the conveyor belt “and it’s going faster and faster?” And he said, “Yes.” It was very much like
that at a certain point. – [Narrator] So we know it’s a big problem but how is this still happening? – There’s a lot of bureaucratic
inertia and timidity in the IRS for sure. But another big part of it is
that Congress has eviscerated the IRS and they’ve starved it
of funds, there’s been a lot of retirements and so you’ve
deliberately hobbled the IRS and made it impossible for
them to go after this kind of tax evasion. A lot of this information
is being held in banks and in jurisdictions where
they do not cooperate with US authorities easily. The only way that the
IRS can really figure out what’s going on is through these leaks. And it’s really these
leaks in recent years that have allowed the IRS
and the rest of the public to really get a vision
of how this system works and how big it is, how all-encompassing. It’s gonna take people being aware that the reality is we don’t
have to accept the austerity that is being forced on us. The Europeans are ahead of us
on this because they got hit very hard after the financial crisis. There were major cutbacks
in multiple countries. And so when these leak
investigations started coming out and they found out that the
mega wealthy amongst them were not paying their fair
share, people got very upset about that and it really hasn’t penetrated in the United States quite as much but I suspect that it will in the future.
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