The ‘Panama Papers’ Expose the Secret World of the 1%

Sometimes, quantity has a quality all its own.

Even in a decade marked by massively consequential leaks, the so-called Panama Papers set a new standard for epic disclosures when they came to light on April 3. The confidential records–2.6 terabytes of data, or more than 11.5 million documents–leaked from Panama’s Mossack Fonseca by an anonymous source appear to show how the law firm, with branches around the globe, helped heads of state, oligarchs and celebrities launder money, dodge sanctions and avoid taxes. This cache is far larger than the intelligence records revealed by Edward Snowden three years ago or the U.S. diplomatic cables made public by WikiLeaks in 2010.

The papers, acquired by the German newspaper Süddeutsche Zeitung and the subject of a yearlong investigation led by the International Consortium of Investigative Journalists, include financial records, passports and correspondence stretching back 40 years, detailing 214,000 offshore shell companies in 200 countries. These implicate a range of individuals, including the family of Syrian President Bashar Assad, British Prime Minister David Cameron’s late father, several of Russian President Vladimir Putin’s court favorites and Icelandic Prime Minister Sigmundur Gunnlaugsson, who was forced out of office at least temporarily on April 5. Not to mention financial giants UBS, HSBC and Société Générale. Mossack’s clients were the 1% personified.

While just being named in the papers isn’t evidence of illegality–offshore accounts aren’t of themselves against the law–the revelations will reinforce the anger of the growing number of people who believe the world’s political leaders, business tycoons and ultra-wealthy have co-opted systems designed to lift everybody up–democracy, capitalism, free markets.

It’s also only the tip of the iceberg. “The size of the leak is unprecedented, but the tricks Mossack Fonseca has allegedly used for its clients are neither new nor surprising,” says Heather Lowe, director of government affairs for Global Financial Integrity, a Washington-based nonprofit consultancy. “Anonymous shell companies and the failure of governments to require lawyers, corporate-service companies or banks to collect beneficial-ownership information on clients leave the door wide open for dirty money to flow around the globe virtually unhindered.”

In the U.S., the impact is sure to be felt at the ballot box. Many American voters already feel on a gut level that global capitalism is working mainly for the 1%, not the 99%. This has fueled the candidacies of both the socialist Bernie Sanders and the billionaire Donald Trump. But the Panama Papers go beyond gut feelings to illuminate a key aspect of why the system isn’t working–namely that globalization has allowed the capital and assets of the rich to travel more freely than those of everyone else. The result is rampant tax avoidance, labor offshoring and a class of elites that flies 35,000 feet over the problems of nations and their taxpayers. “The 1% can move anywhere they want and profit handsomely from the relocation,” says Peter Atwater, a behavioral economist. “But the 99% are left with the aftermath–the empty buildings of a deserted Detroit, the toxic waste from chemical plants in West Virginia or the unsustainable tax liabilities of Puerto Rico.”

The effects of that aftermath are profound. Global Financial Integrity recently found that developing and emerging economies lost $7.8 trillion in cash from 2004 to 2013 because of maneuvers like those allegedly perfected by Mossack. Illicit outflows are increasing at a rate of 6.5% a year, twice the rate of global GDP growth. Most emerging markets are slowing and may help tip the global economy back into recession by year’s end. “Hunger,” wrote the great historian Thomas Carlyle, “whets everything, especially suspicion and indignation.”

What comes next? Many think nothing less than a total re-evaluation of how the market works–and where it is failing. That’s already beginning; new rules released by the U.S. Treasury on April 4 crack down on American corporations that allow themselves to be acquired by foreign firms to avoid U.S. taxes. Thanks to the Panama Papers, the outrageous ease with which financial capital can move around the world–and who that hurts–can be ignored no longer.

–With reporting by MELISSA CHAN/NEW YORK and RISHI IYENGAR/HONG KONG