Panama has always been one of the best tax havens in the world - both during and after the reign of  General Manuel Noriega - and Mossack Fonseca (run by a Swiss tax expert named Jurgen Mossack and his Panamanian partner, Ramon Fonseca) is one of the dominant players in the parallel world of tax havens.

In this sense, the unprecedented leak of nearly 40 years' worth of documents (more than 11 million documents on more than 210,000 companies, trusts, foundations, and world leaders), revealing that Mossack Fonseca offered its services to facilitate money laundering, tax avoidance, and criminal activity should surprise no one.

Offshore entities of this kind have been created precisely for fulfilling such roles for the rich and powerful that rule the world.

Panama Papers: Huge leak alleges elites hiding money

Indeed, as Mark Hays, senior adviser of Global Witness (a non-profit organisation that acts as watchdog against international corruption) told International Business Times: "What is surprising is that this is just one law firm involved in this practice, but there are thousands of companies involved in orchestrating these schemes…"

What will be done?

Nonetheless, one of the main questions behind the biggest leak of private documents seen on the internet is whether we should care at all about the existence of a global web of corruption, and whether something will be done about it.

The answer is positive on both counts.


READ MORE: Panama Papers - huge leak alleges elites hiding money


In a world of extreme inequality and massive social problems such as ours, the economic, social, and political effects of tax avoidance due to the existence of tax havens are enormous.

In a world of extreme inequality and massive social problems such as ours, the economic, social, and political effects of tax avoidance due to the existence of tax havens are enormous.

 

Without taxes, societies will struggle to function as they will be unable to provide essential public services.

But while workers and small-to-medium-sized businesses are paying the full tax rate, global corporations and the super-rich have been paying fewer and fewer taxes over the years with the concomitant growth of the world economy and the spread of offshore tax havens. 

Welcome to global capitalism, tax injustice, and the undermining of democracy.

According to Tax Justice Network 2012 estimates, some $21 trillion to $32 trillion is hidden away by the super-rich in offshore entities.

Just imagine how many schools and hospitals could have been built in various countries by the tax proceeds of this enormous amount of black money.  

Just imagine how much less inequality there would be both inside and between countries if the mammoth problem of tax avoidance could be avoided.

New era may dawn

Just imagine how less severe and painful the refugee problem could have been if this hidden wealth were available today. 

These realities are, of course, all too well-known to the global community, which is why the leaders of the G20 nations agreed a couple of years ago to put the issue of tax avoidance and tax havens at the top of their to-do list.

A Mossack Fonseca law firm logo is pictured in Panama City [Reuters]

However, nothing has been done since then and the problem of offshore tax havens remains unresolved, although it is quite possible now that the Panama leaks will have a significant effect on the future ability of the super-rich to hide their money.

Indeed, a new era may dawn as a result of the Panama Papers leak.

The involvement of influential names in the leak, such as that of Russian leader Vladimir Putin and the sitting presidents of Argentina and Ukraine, and the prime minister of Iceland, to name just a few of world leaders implicated in the Mossack Fonseca scandal, will undoubtedly produce global political shocks and may lead, one hopes, to a global spring on global governance.

Not confined to authoritarian regimes

In Iceland, there are already calls for the resignation of Gunnlaugsson and it is highly likely that Vladimir Putin had a sleepless night upon hearing of the Panama Papers leak, and is probably already thinking of how to counter political agitation inside Russia and the damage to his image abroad.  

The Panama Papers leak reveals that offshore companies such as Mossack Fonseca need to come under very close scrutiny as they are not illegal in themselves but aim to conceal the identity of the true company and fund owners. They prove beyond doubt that corruption and massive tax avoidance are pervasive throughout the world, not confined merely to lands where only authoritarian and oppressive regimes exist.

Finally, the Panama Papers leak reveals that it is not just the global tax system that is broken, but global governance itself.

The ultimate challenge now is to change global capitalism itself.

C J Polychroniou is a political economist/political scientist who has taught and worked for many years in universities and research centres in Europe and the United States.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy. 

Source: Al Jazeera