Ethics Paper: Ethical Issues Surrounding Mossack Fonseca Law Firm

The Panama Papers refers to a massive leak of confidential documents from an offshore law firm called Mossack Fonseca (MF), based in Panama. The documents were released on April 3, 2016 by a German Newspaper Süddeutsche Zeitung (SZ), calling them “the Panama Papers”. The leak revealed how MF helped their clients set up shell companies in countries that were lenient with tax deductions, and provided tax benefits. Over 11 million documents related to over 200,000 offshore entities were leaked. Some of the documents referred to activities from the 1990s, and included names of world leaders, politicians, drug lords, and criminals. As a result of this leak, $1.2 billion has been recovered by countries worldwide, with penalties and back taxes.

The documents were sent to Frederik Obermair and Bastian Obermayer, journalists for SZ, by an anonymous whistleblower who called himself John Doe. They conducted research and presented their findings to the International Consortium of Investigative Journalists (ICIJ), which then formed a team of about 350 journalists worldwide, to investigate the firm. (Fitzgibbon, THE PANAMA PAPERS FAQ: All You Need To Know About The 2016 Investigation, 2019) said in a report, that the Panama Papers documents, in collaboration with one year of reporting, revealed how more than 140 world politicians, celebrities, drug lords, and arms traffickers obscured their wealth and business deals, legally and illegally through shell companies and tax havens. (Chohan, 2016) stated in an ethics paper that the Panama Papers initiated an uproar among people worldwide and raised questions regarding the low level of transparency involved in keeping a watch on the wealth of the rich and elite.

The Panama Papers is one of the biggest scandals and document leaks the world has ever seen. The leaked data spanned a time period of 40 years from the 1970s to 2016. The cases that have come to light as a result of the leak, are in abundance. Several national leaders including Iceland’s Prime Minister Sigmundur Gunnlaugsson resigned, after their names surfaced in Panama papers documents. (Henley, 2017) said that the Gunnlaugsson and his wife bought an off-shore company to invest in her father’s business. The Icelandic prime minister was the first of many leaders who stepped down from their positions for similar reasons.

Even though the leak has revealed activities and unethical practices of Mossack Fonseca and has negatively impacted the reputations of many people, it has not stopped similar wrongdoing across the world. (Rubin, 2017) reported that the large U.S. companies profited nearly $206 billion from offshore assets and as of now, total offshore profits are over $1.95 trillion (which is much more than almost every country’s GDP). He also stated that these companies will continue to do so, until governments across the world give them a reason not to.

As a result of the Panama papers, it was discovered that MF worked with a convicted arms trafficker named John Knight, who admitted to supplying arms to Sudan for attacks related to genocide in Darfur. Knight bought a shell company named Endeavour Resources, that he used to illegally traffic arms and ammunition across the Middle East. MF took a step back as Endeavour’s agent after UK forces arrested Knight and imprisoned him for four years, when it was discovered that he bought weapons from Iran and sold them to Kuwait. However, MF kept its partnership with notorious individuals, despite their well-known criminal records and sanctions.

Setting up off shore entities is not a legal offence but has an ethical boundary attached to it, since these entities are mostly used for illegal activities such as laundering money, hiding assets, and evading income taxes and sanctions. There are some people across the world however, who have advocated tax evasion and hiding assets as ethical. (Mcgee, 2017)stated that hiding assets can be viewed as ethical, if people are trying to hide and protect their property from greedy, evil and corrupt governments. He also states that if someone is hiding assets from their government, it doesn’t necessarily mean that they are following unethical practicum. On the other hand, (Lee, 2017) said setting up an off-shore company is legal, but irrespective of the amount of knowledge a firm has regarding the client, assisting them with money laundering, and tax evasion is highly unethical.

Mossack Fonseca helped their clients to hide assets from the authorities and launder money, especially in cases involving divorce and alimony. (Fitzgibbon, Russian billionaire’s bitter divorce shows how wealthy shield assets from soon-to-be exes, 2016) said for decades, mostly males belonging to the world’s elite one percent, have hired Mossack Fonseca to hide their assets from their spouses to avoid paying more alimony. Mossack Fonseca helped these people hide their wealth by setting up off-shore shell companies, and trusts. This is highly unethical because a lot of spouses never received what was legally theirs and as a result, were denied of their rights.

Mossack Fonseca was also responsible for setting up shell companies for arms traffickers. (Obermayer, Giant Leak Of Offshore Financial Records Exposes Global Array Of Crime And Corruption, 2016) reported that the leaked documents showed MF in ties with 33 different organizations that were blacklisted by the US government, as these organisations were believed to be in ties with terrorist outfits like Hezbollah. They helped them keep track of their money coming from unknown sources and helped them prevent that money from being seized or discovered by law enforcement. They assisted these offenders to track money that was being used to create a state of unrest in the world. As a result, because these arms traffickers were at large, they illegally transported arms to illegal and terrorist outfits in Africa and the Middle East, which consequentially led to the deaths of several thousand people. In Syria alone, over 400,000 people lost their lives during the war. Had Mossack Fonseca realised its ethical and social responsibilities, it might have helped to halt their operations and save lives.

(Obermayer & Obermaier, The Downfall of a Scandalous Firm, 2016) reported that investigations related to Mossack Fonseca and the Panama Papers is ongoing in more than 80 countries. There are several cases involving money laundering, hiding assets, bribery, and international criminal activities for which Mossack Fonseca is legally liable and each of those cases hold MF ethically liable as well. They failed to recognize their ethical duties, and didn’t account for either legal or ethical obligations pertaining to their activities.

MF helped politicians steal money from people of their own countries and denied those people their fundamental rights. (Obermayer, Giant Leak Of Offshore Financial Records Exposes Global Array Of Crime And Corruption, 2016)reported that leaked documents revealed that the Icelandic Prime Minister Gunnlaugsson, covertly owned an offshore firm that held millions of dollars, while the country itself was in financial crisis.

The Mossack Fonseca law firm was unethical in its practices. It helped politicians steal from its people, helped global elites hide their assets (especially during alimony cases), and it helped international criminals, responsible for disruption of peace, keep track of their money.

(Canadian Public Relations Society (CPRS)) code of professional standards (3) states “A member shall practice the highest standards of honesty, accuracy, integrity and truth, and shall not knowingly disseminate false or misleading information”. Mossack Fonseca failed in all aspects: they were not honest or truthful and knowingly disseminated false and misleading information. There is nothing more ethically wrong in this world than denying someone of their rights and MF shall be held responsible for their part. Robert Mazur, author of The Infiltrator: My Secret Life Inside the Dirty Banks Behind Pablo Escobar’s Medellín Cartel, said “They (Mossack Fonseca) are the gasoline that runs the engine.” “They’re an extraordinarily important piece of the formula of success for criminal organizations.”

Bibliography

1. Canadian Public Relations Society (CPRS). (n.d.). Code of Professional Standards. Retrieved from Canadian Public Relations Society: https://www.cprs.ca/About/Code-of-Professional-Standards

2. Chohan, U. W. (2016, April 6). The Panama Papers and Tax Morality. Retrieved from SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2759418

3. Fitzgibbon, W. (2016, April 5). Russian billionaire’s bitter divorce shows how wealthy shield assets from soon-to-be exes. Retrieved from The Star: https://www.thestar.com/news/world/2016/04/05/russian-billionaires-bitter-divorce-shows-how-wealthy-shield-assets-from-soon-to-be-exes.html

4. Fitzgibbon, W. (2019, August 21). THE PANAMA PAPERS FAQ: All You Need To Know About The 2016 Investigation. Retrieved from ICIJ: https://www.icij.org/investigations/panama-papers/panama-papers-faq-all-you-need-to-know-about-the-2016-investigation/

5. Henley, J. (2017, April 5). Iceland PM steps aside after protests over Panama Papers revelations. Retrieved from The Guardian: https://www.theguardian.com/world/2016/apr/05/iceland-prime-minister-resigns-over-panama-papers-revelations

6. lee, A. (2017, March 30). Ethics Analysis: The Panama Papers. Retrieved from Seven Pillar Institute: https://sevenpillarsinstitute.org/ethics-analysis-the-panama-papers/

7. Mcgee, R. W. (2017). The Panama papers: A discussion of some ethical issues. Journal of Insurance and Financial Management 3(3), 1-43.

8. Obermayer, B. (2016, April 3). Giant Leak Of Offshore Financial Records Exposes Global Array Of Crime And Corruption. Retrieved from ICIJ: https://www.icij.org/investigations/panama-papers/20160403-panama-papers-global-overview/

9. Obermayer, B., & Obermaier, F. (2016). The Downfall of a Scandalous Firm. Retrieved from Süddeutsche Zeitung: https://panamapapers.sueddeutsche.de/articles/e344090/

10. Rubin, R. (2017, March 12). Cash Abroad Rises $206 Billion as Apple to IBM Avoid Tax. Retrieved from Bloomber: https://www.bloomberg.com/news/articles/2014-03-12/cash-abroad-rises-206-billion-as-apple-to-ibm-avoid-tax