Q&A: Panama Papers' fallout has only just begun

Mossack Fonseca's doors have been open to the wealthy for 40 years.
BOBBY YIP/REUTERS

Mossack Fonseca's doors have been open to the wealthy for 40 years.

The "Panama Papers" have exposed how the rich and famous secretly move their money around the world.

The treasure chest of 11 million documents was leaked from Panamanian law firm Mossack Fonseca.

Journalists around the world are now raking over the shenanigans masterminded by lawyers in the loosely-regulated Central American state for 40 years.

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What kinds of activity have been uncovered?

About 150 political figures were named in the papers, which have left some of them struggling to explain complex financial arrangements and undeclared conflicts of interest.

Mossack Fonseca specialised in setting up offshore companies for clients. While there can be legitimate reasons for such companies, they can also be used to evade tax and launder money.

Who's been named and what impact have the leaks had?

Associates of Russian president Vladimir Putin, Argentine president Mauricio Macri, a daughter of former Chinese premier Li Peng and Icelandic prime minister Sigmundur Gunnlaugsson have all been identified by the International Consortium of Investigative Journalists (ICIJ) as "power players" in the leaked documents.

There have been no admissions of wrongdoing, but Gunnlaugsson became the first casualty. He resigned in the wake of massive public protests after it was revealed his wife owned an offshore company with big claims against Icelandic banks, which represented an undeclared conflict of interest.

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Is there more to come out?

Almost certainly. Journalists associated with the ICIJ had about a year to trawl through the documents before the first results of their work was published on Sunday. Much of their focus so far has been on Mossack Fonseca's political clients.

But the papers contain details of about 214,000 shell companies, trusts and foundations and it is expected to take years for all the data to be raked over. The documents are not and may never be put online in their entirety.  

What has this got to do with New Zealand?

No New Zealand clients of Mossack Fonseca have been named, but it would be surprising if there weren't any.

The Inland Revenue Department is trying to negotiate access to the Panama Papers and has advised anyone with dodgy dealings that may be exposed to come forward before it knocks on their door. New Zealand journalists are also seeking access to the documents.

Anything else New Zealand needs to worry about?

New Zealand features as one of the 21 "tax havens" used by Mossack Fonseca and its clients, though Prime Minister John Key has rejected that label.

The issue is that New Zealand is the only country in the OECD where foreigners (other than Australians) can set up trusts without having to register their own identity or any material details of their trust's affairs, and they don't' have to pay tax here on their overseas profits. 

What are the implications of that?

There are 11,645 foreign trusts registered in New Zealand. Money-laundering expert Ron Pol, a former president of the Corporate Lawyers Association, said he would not be surprised if thousands were engaged some form of illicit activity, such as tax evasion or money-laundering.

Though it was not related to the Panama Papers, a Monaco company at the centre of a global oil industry bribery network, Unaoil, also used a New Zealand trust as part of a chain of companies through which it conducted its affairs.

Is the Government going to tighten the rules around foreign trusts?

After initially denying a problem, there were signs this week the Government might bow to public pressure and act. Revenue Minister Michael Woodhouse said the Government wouldn't rule out a law change, but wants to wait for an OECD report.

Auckland University law professor Michael Littlewood has suggested Inland Revenue could randomly audit foreign trusts. That would not would require a law change as foreign trustees need to register a local trustee who must keep records of the trust and provide them to Inland Revenue on request. 

What's the downside of a clampdown?

Any clampdown could threaten a cottage industry worth more than $24 million a year to local law firms and accountants who help foreigners set up trusts here.

Random audits would cost money without bringing in extra tax revenue for the Crown as foreign trusts don't pay tax here. The trusts could simply move to non-OECD jurisdictions with equally accommodating rules such as Hong Kong.

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