A year ago, an anonymous source contacted the editors of the ‘Süddeutsche Zeitung’ delivering a huge amount of confidential documents of the Panamanian law firm ‘Mossack Fonseca’, who sells anonymous identities to thousands companies in tax havens around the world. The result was the ‘Panama Papers’ investigation, carried out by ‘The International Consortium of Investigative Journalists’.
On the ICIJ website is it possible to read: ‘The Panama Papers is a global investigation into the sprawling, secretive industry of offshore That the world’s rich and powerful use to hide assets and skirt rules by setting up front companies in far-flung jurisdictions. Based on a trove of blackberries than 11 million leaked files, the investigation exposés to cast of characters who use offshore companies to facilitate bribery, arms deals, tax evasion, financial fraud and drug trafficking.’
The authorities of each country that has seen the involvement of people or national companies are starting to investigate. The reaction was immediate in some cases, such as in Iceland where citizens demanded the resignation of Prime Minister David Gunnlaugsson.
Panama is the second tax haven for number of companies involved (48.360). On the first place there are the British Virgin Islands with 113.648 companies.
The list of names involves David Cameron, Marine Le Pen, Vladimir Putin, Xi Jinping and many others. Into the list of those who have used offshore companies to evade taxes appear also many banks, such as Credit Suisse, HSBC, Unicredit and Ubi Banca.
In total, the registered offshore companies for fraudulent purposes seem to be at least 214.000. Banks, in particular, seem to have put in place a sophisticated system for companies to not be traced.
What seems the biggest round of tax evasion ever seen in history, however, it is proving to be a time bomb for the financial markets. What can happen if the names that appear in Panama Papers will be confirmed?
Apart from the penalties people and institutions involved may incur, there is only one thing that could blow up the chaos on all major financial markets: the loss of confidence.
The volatility and lack of global economic growth alternating with politicians and institutions that attract the confidence of citizens talking about missing signs of recovery
In Europe there is the monetary policy of the ECB and the call to austerity of the EU; the US is trying to make a monetary tightening after years of accommodation with an economy still very uncertain.
Japan fighting the recession while China has lost the pace of economic growth lasted 25 years. The emerging countries are on the brink of a crisis, the collapse raw materials and nations compete to devalue its currency.
The Panama Papers therefore weigh on the lack of confidence that markets have on the real capabilities of Central Banks, politicians and institutions to discover the path to economic recovery.
The reversal in the first months of the year in the equity market by more than 20% is evidence that the markets are struggling to believe that things can go well.
If the involvement of politicians, executives and banks will be confirmed, the risk is an unprecedented stock market crash. Everything would be generated not by fines, arrests or whatever but the simple lack of confidence.