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What Are the Pandora Papers and How Do They Affect You?

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When news of the Pandora Papers broke in early October 2021, many people thought, “Oh, just another massive document leak.” The release of the Pandora files is the fourth major leak of its kind in the last eight years, after all, so maybe we’re just getting used to it by now.

But the Pandora Papers are different. They show that countries like the US and the UK have become tax havens for politicians and business people worldwide. The Pandora Papers may very well be the shock that the global financial system needs to reform — or things just might continue as they are. Either way, how will the fallout from these files affect you and your daily life?

Things uncovered by the Pandora Papers

The Pandora Papers consist of 11.9 million files revealing the flows of money, property, and assets through offshore financial systems. The International Consortium of Investigative Journalists (ICIJ) obtained these files and organized an investigation with several media outlets over two years.

The Pandora Papers come from 14 sources, and the 11.9 million files are broken down as follows:

  • 6.4 million documents
  • 2.9 million images
  • 1.2 million emails
  • 460k spreadsheets
  • 900k other files

What are the biggest takeaways from the Pandora files?

  • Some US states such as South Dakota, California, Florida, and Delaware are home to shell companies where billionaires hide their assets.
  • Czech Prime Minister Andrej Babis did not declare an offshore investment company, which he used funds from to purchase two French villas.
  • The Qatari ruling family avoided more than $15 million in taxes on a London super mansion.
  • Former UK Prime Minister Tony Blair and wife Cherie Blair avoided $423,000 in property taxes on a building in London.
  • The family of Kenyan President Uhuru Kenyatta owns at least seven properties in known offshore tax havens such as the British Virgin Islands and Panama.
  • King Abdullah II of Jordan has 14 homes worth more than $106 million in the UK and the US, purchased with front companies registered in known tax havens.

Ultimately, the Pandora Papers expose just how widespread using offshore financial systems is, among world leaders and billionaires.

How does the Pandora leak compare with previous leaks?

The Pandora Papers leak is the fourth major investigation of secretive financial documents in eight years. Other leaks have revealed as much if not more files than the Pandora Papers leak.

  • Paradise Papers in 2017: 13.4 million files
  • Panama Papers in 2016: 11.5 million files
  • Offshore Leaks in 2013: 2.5 million files

What are ‘offshore’ accounts?

The central focus of the Pandora Papers is offshore financial systems. What exactly does ‘offshore’ mean in this context?

When you set up an account or asset, or buy property offshore, it’s in a country or territory you don’t normally reside in. You also typically don’t hold these assets in a transparent way. Say you own property in the UK, for example, but you don’t own it directly. Instead, you own it via a chain of companies that are registered in other countries, or ‘offshore.’

Some countries or territories are known for being tax havens because:

  • They make it easy to set up companies there
  • Laws make identifying the owners of companies difficult
  • They have low or no corporate tax

Well-known tax havens include the British Virgin Islands, the Cayman Islands (British overseas territories), Switzerland, and Singapore.

Is hiding money offshore illegal?

It sounds illegal to keep money in another country without putting your name on it, but it’s not. It is considered unethical, but that didn’t stop world leaders and billionaires around the world from doing it. The key to using tax havens is taking advantage of loopholes in laws so you can avoid paying some or all of your taxes. Those who use offshore accounts this way are technically following the law, but still creating an unfair advantage for themselves.

Secret offshore assets are not illegal in themselves, but they are often used to hide criminal activities. The ability to move money secretly allows for money laundering and tax evasion.

What are governments doing about it?

  • UK: The UK currently has draft legislation that would require the owners of UK properties to be publicly declared, but this law hasn’t gone before Parliament yet. The British government will also crackdown on money laundering and eventually create a register of offshore companies that own UK property.
  • US: The US has strict laws about US citizens holding financial assets abroad, but the system is less stringent against foreign nationals holding assets within the US. Several states were revealed to be sort of tax havens for foreign individuals. The Corporate Transparency Act that went into effect on January 1, 2021, may help promote more financial transparency, but it’s still too soon to tell.
  • EU: The European Commission (The European Union’s executive body) plans to present new legislative proposals tackling tax avoidance and tax evasion before the end of 2021. The European Parliament (The EU’s legislative body) held a debate shortly after the Pandora Papers were released, and members of the parliament criticized European governments’ inadequate responses to tax evasion.

Once the Pandora Papers leak went public, several governments around the world pledged to launch inquiries as well. Officials in Pakistan, Mexico, Spain, Brazil, Sri Lanka, and Panama all announced they would start investigations of individuals implicated in the Pandora Papers that are linked to their countries.

The Pandora Papers came at an especially bad time for Czech Prime Minister Andrej Babis — they were released one week before a national election. Babis ended up losing the election and said the Pandora Papers’ release was an electoral ploy to ruin his chances of reelection.

How do the Pandora Papers affect you?

Now that you know what the Pandora Papers are and why they’ve caused such a stir, you’re probably thinking, “What does this have to do with me?” If you don’t have money or assets in banks or companies outside the country you reside in, you don’t really have anything to worry about (other than the knock-on effect of offshore accounts raising taxes for everyone else). If you’re an ex-pat and have money in more than one country, especially the US or the UK, then you might see more restrictions and tighter regulations about declaring that money.

There’s a difference between hiding your money from the government and keeping your finances secure. You don’t have to set up offshore accounts to keep hackers or criminals from accessing your bank or financial information. Follow some basic cybersecurity tips and you can keep your assets safe.

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