A few days ago it came to light through the now famous Panama Papers (a leak of information from the Panamanian law firm Mossack Fonseca), the existence of offshore companies involving governments, politicians, businessmen, sportsmen, artists, etc., from more than 40 countries on five continents. What does this mean? Why is it so serious? What do these leaked documents show? And what background is there behind this trade mechanism known as offshore companies?

By: Ari Russo


Offshore companies and tax havens in the shadow of the law

Offshore is an Anglo-Saxon term meaning “drifting”, “away from the coast” and is used in business and financial field to refer to the transfer of capital to tax havens. The term refers to the fact that on the high seas no regulation from any country applies, because it is outside borders; i.e. free of rules. Basically, that’s what a tax haven is: a territory or State characterized by hosting “ghost” companies for several kinds of maneuvers, such as tax evasion, money laundering, “self-loans” of debt, avoiding or triangulating laws, restrictions and prohibitions, etc.[1]

Offshore companies are incorporated in countries in which they don’t perform any activity (tax havens). Hence the definition of “ghost companies”. Tax havens and offshore companies are not necessarily illegal: they are legal mechanisms of the system, so that companies, politicians, well-known individuals, etc., can avoid any regulation and save their profits by hiding or disguising them.

The main mechanism of tax havens is to allow anonymous purchase and registration of private property, based on “privacy protection”.

This is already extremely questionable, since it allows companies, and bourgeois individuals to secretly accumulate capital. For example, if an automotive company decides to shutdown a plant claiming bankruptcy and leaving 500 employees on the street, it can do it. If the owners have properties and millionaire businesses that could avoid the shutdown and layoff of hundreds of workers, it doesn’t matter. We wouldn’t even know, because if those businesses and assets are based in a tax haven they are legally secrets.

There is another related concept, which is the Free Trade Zone. Free Trade Zone is an area that has “soft” import-export laws, with low taxes or directly tax-free, and that is autonomous in relation to other states (which allows it to “avoid” national regulations for the simple fact of being located in another territory), with minimal or no labor laws, and a long list of mechanisms that boost capitalist accumulation. Unlike tax havens, free trade zones tend to host productive companies, not ghost businesses. However, in many cases we can find territories that are both things. That is the case of Panama and the famous Colón Zone.

A capitalist who decides to move his/her capital to a free trade zone, i.e. a territory where there are no taxes on imported raw materials, and where they can buy much cheaper resources than in their own country, and employ cheap and skilled labor with no need to offer basic labor benefits (such as sick days, procedures or study, Christmas bonus, paid holidays, right to organize, retirement regulations, etc.), is greatly increasing his/her profits thanks to a legally allowed superexploitation. To avoid questions, taxes, legal problems and any other consequences of fraudulent accumulation of capital (whether in a free trade zone or in their own country), there is a tax haven: a territory where they can “disguise” their true amount of capital (and, of course, how they got it).

Bourgeois justice, tax evasion and theft of public money

Imagine the legal problems a worker would have if he/she lied while doing his/her income taxes, hiding for example that he/she has a second property that increases their total income. Well, this is exactly what happens with great multimillion dollar companies that hide properties around the world. This is what Panama Papers showed. The big difference is that workers would suffer severe consequences for this, while in bourgeois justice, as stated above, the existence and use of tax havens is legal.

But why is it so serious? What does it really imply if property and assets are hidden or companies created without any productive base?

Concealment of property and creation of shell companies in tax havens are a form of tax evasion. It means that huge amounts of money from the taxes these companies should pay are being accumulated in private pockets of bankers, businessmen and politicians, instead of becoming public investment in their home countries.

If the taxes paid are based on property and/or capital owned, not declaring property basically means theft of public money. In this case, not only capital is hidden, but payment of the corresponding taxes that should be allocated to education, healthcare, jobs and housing is also avoided.

Some might think this phenomenon is marginal, that it is an exception to the rule. Nothing is further from reality: independent researchers estimate that tax evasion “ranges between 4 and 10% of overall revenue from corporate taxes, which means between 100 and 240 billion dollars“.[2] Infobae estimates that “About a third of worldwide bank deposits could be in institutions located in tax havens.”[3] If we focus only on the U.S., Oxfam estimates that the top 50 multinationals have $ 1.4 trillion dollars in tax havens, managing to reduce their tax rate from 35% to 26.5%.[4] Other studies argue that U.S. companies have managed to hide up to 40% of its profits.[5]

That is, while workers fight against austerity plans and cuts to our rights, and face an economic and social crisis that reduces our quality of life to barbaric levels; while we die waiting for care in hospital corridors; while our schools are shutdown and teachers’ pay reduced; while there are increasingly land occupations due to lack of housing and workers suffer layoffs, suspensions and salary cuts; while governments make speech after speech explaining that the global economic crisis is hitting hard and why we, the workers, must make an effort to live in worse conditions, they, the same leaders, the same companies that shutdown, the same banks that merge, pocket millions and millions of dollars that belong to us in secret.

Mossack Fonseca and the Panama Papers

Mossack Fonseca, based in Panama and with more than 40 branches spread throughout the world, emerged in the 70s and works with some of the world’s largest institutions. But what exactly is the role of this firm? What does it do? Basically, it ensures the legality of corrupt multi-million-dollar businesses, so that these mechanisms of super-exploitation and protection of private profit are not considered a criminal activity according to the law.

In other words, it is a legal and organized criminal network, which involves institutions such as HSBC, Credit Suisse, Deutsche Bank and Siemens AG; high-ranked politicians such as U.K. Prime Minister David Cameron, Russian President Vladimir Putin, Ukrainian president Petro Poroshenko, Argentinean President Mauricio Macri, Chinese President Xi Jinping, Syrian dictator Bashar Al-Assad and several of his relatives and associates, Alaa Mubarak [son of former Egyptian President Hosni Mubarak], Keiko Fujimori [daughter of former Peruvian President Alberto Fujimori], Dov Weisglass [Ariel Sharon’s chief of staff], Tarek Abbas [son of Palestinian President Mahmoud Abbas], Icelandic Prime Minister Davíð Sigmundur Gunnlaugsson – who was forced to resign on April 5 after the scandal – and former Italian Prime Minister Silvio Berlusconi, among hundreds of other people, companies and financial, private and government institutions.

Panama Papers is the name given to the investigation by more than 400 journalists around the world, after 11.5 million documents leaked (e-mails, passport copies, stocks , transactions, securities) confirming the existence of a large network of fraud and organized crime involving a great part of the world elite.

While the mechanisms these companies use might be considered “legal”, the concept of “legality” is extremely questionable and necessarily leads us to ask: what interests do bourgeois laws serve?

If you look at it either through the lens of bourgeois democracy or outside of it, free zones, tax havens and offshore companies are a complete theft. They artificially cut taxes and production costs, and steal money from workers directly or indirectly through tax evasion, stealing from society as a whole. Firms like Mossack Fonseca get rich by legalizing these mechanisms of theft, corruption and organized crime funding when law allows it, and hide them when it doesn’t.

Money laundering and corruption scandals

There is a third aspect of this type of firm in relation to tax havens, which is money laundering: the use of legal capital for illegal purposes, or the introduction of illegally sourced capital into the legal market. This way, terrorist groups, drug dealing and prostitution networks, among others, are funded through profits generated in production but that do not return to the legal market. They become undeclared capital, i.e. hidden, supposedly nonexistent. That money from million-dollar taxes should be allocated in jobs, healthcare and education, but it is partly kept in private hands and partly reinvested in illegal activities. These activities include funding political parties[6] or even well-known mob groups, which are part of the firm’s client database, and also tax evasion and impunity from economic and political sanctions regarding different types of crimes.

For example, it has been discovered that Bashar Al Assad founded companies with Mossack Fonseca’s capital, thus avoiding international sanctions against Syrian oil. That’s how a regime that currently carries out one of the largest counter-revolutionary wars of the century, can “democratically” steal the Syrian people’s money.

So, it’s not just stealing from society and workers as a whole, but also using that money to fund the greatest evils affecting our society, such as war, prostitution, unemployment and destruction of resources.

Some conclusions

The Panama Papers expose the intrinsic corruption of the capitalist system. It is a business economically, politically and legally created to fund illegal activities with stolen capital.

Beyond the individuals and institutions directly involved, the whole farce that free market and bourgeois democracy represent within the capitalist system become evident.

The circle starts when profit from social production does not return to society but remains in private hands. It continues when it is concealed that such capital even exists, so that it can be invested in places where bourgeois law itself is more flexible to allow this scam. As if it were not enough to secretly steal capital from the whole society for private purposes, the same capital is used to fund illegal businesses that destroy society itself: drugs, prostitution, terrorism, etc. And as the icing on the cake, tax havens are used to evade the sanctions international bodies like the United Nations are forced to provide against such crimes.

The entire system, from capitalist production and market to the laws governing it, is designed considering individual and private appropriation of social capital as something legal, that commonly happens everyday. As if it were normal.

Likewise, it becomes evident that bourgeois democracy is precisely the democracy of the owners of society against real democracy of the majority. While we believe we have some power to influence or decide through the vote of our representatives, those representatives are never workers, but millionaires, politicians and businessmen, that adapt the whole system to fit their private interests. We are talking about parties and politicians whose campaigns are funded with money illegally stolen from society.

It is becoming increasingly evident that bourgeois democracy is in reality the democracy of a few, at the expense of deceit, exploitation and oppression of the majority. Bourgeois democracy is the mechanism through which States allow the bourgeois class to “legally” exploit and oppress workers and peoples of the world, avoiding any real responsibility or sanction when not even their own laws allow them to justify themselves. Banks, multinational corporations, governments, the justice system and the mainstream press are all part of this system where corruption is not an isolated case, but one of the economic and political bases of capitalist society.

From the International Workers League – Fourth International, we say that it will not be through reforms to the bourgeois-democratic regime, it will not be in parliament, that we will achieve “justice” in situations such as the ones exposed by the Panama Papers, since they are much more common and structural than we can imagine, or than the press tells us. It is necessary for workers, exploited and oppressed peoples of the world, to consciously organize ourselves internationally, to change the bases of this society that is not ours and that exists at our expense.

While we organize and fight in the streets against governments’ hypocritical austerity plans; while we denounce corruption and demand immediate cancellation of external debt payments in underdeveloped countries; while we build an alternative leadership for all workers in defense of jobs, public investment, etc., we demand the immediate opening of the books of all companies involved in the Panama Papers scandal, and the dismissal and prison of all the corrupt individuals linked to Mossack Fonseca and the offshore companies. We also demand an investigation of all positions under suspicion and a deeper analysis to make sure everyone involved is accountable for it.

Icelandic Prime Minister has already resigned, and in the U.K. the people demand Cameron’s resignation. We also demand Argentinean President Macri’s resignation, and of all politicians involved in the scandal.

We demand the expropriation of the property of companies founded with illegal capital, and that these assets be allocated to meet basic needs of the population  in the country to which they relate.

Jail to all the corrupt politicians! Sanctions against all the involved! Expropriation of secret property and illegal capital companies! Let nobody go unpunished!



[1] Currently, there are 49 tax havens, mostly located in the Caribbean (Bahamas, Barbados, Panama), Pacific Islands (Marshall and Cook Islands, Samoa) and Europe (Luxembourg, Switzerland, Monaco, Andorra, among others).

[2] http://www.infobae.com/2016/04/10/1802937-cuanto-dinero-se-fuga-los-paraisos-fiscales


[4]  http://www.huffingtonpost.com/entry/biggest-corporations-hiding-over-trillion-overseas_us_57100f97e4b0060ccda2c625

[5] Scott Thurm; Kate Linebaugh (March 10, 2013). “More U.S. Profits Parked Abroad, Saving on Taxes”. Wall Street Journal. Retrieved March 19 2013.

[6] In Brazil alone, more than 130 politicians were involved in an electoral funding scandal, in addition to 107offshorecompanies. They are connected to companies and politicians involved in the “Lava Jato” Operation’s investigation, including Chamber of Deputies’ President Eduardo Cunha, who has just implemented an impeachment process against President Dilma, precisely because of corruption charges. http://www.bbc.com/portuguese/noticias/2016/04/160405_panama_papers_america_latina_lab


Translation: Hermano Melo