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Panama Papers Open New Era of Megaleaks

Can Tax Havens be Rooted Out?


Can Tax Havens be Rooted Out?


The publication of the leaked Panama Papers, which shocked the wealthy and powerful around the globe, became possible thanks to reporters in almost 80 countries, coordinated by the International Consortium of Investigative Journalists (ICIJ). CommonWealth Magazine, which has twice participated in ICIJ investigations, presents a first-hand account of the epochal impact of the Panama Papers.



Can Tax Havens be Rooted Out?

By Yi-huan Du, Wei-lin Chen, Yi-shan Chen
From CommonWealth Magazine (vol. 595 )

April 3, 2016, will go down in history as a triumphant day for global journalism.

The 376 journalists from 109 new organizations in 76 countries around the globe who had painstakingly analyzed the Panama Papers in secrecy wanted April 3 to be a complete surprise, not unlike D-Day, the day when Allied troops landed on the beaches of Normandy in 1944.

On April 3, ICIJ, the Munich-based Sueddeutsche Zeitung, the Guardian newspaper and the BBC in Britain launched the first reports about their findings from the Panama Papers. A dozen incumbent or former heads of state or their close friends, including Iceland Prime Minister Sigmundur David Gunnlaugsson, the late father of British Prime Minister David Cameron, the brother-in-law of Chinese President Xi Jinping, and a close friend of Russian President Vladimir Putin were all found to have used the Panamian law firm Mossack Fonseca to register shell companies in overseas tax havens.

Like a relay team, the participating journalists kept publicizing information that they found in the huge amount of data dubbed the Panama Papers. The reporting continues worldwide, including in the United States.

The files from the biggest data breach in history total 2.6 terabytes or 11 million documents, 1,500 times as much information as Edward Snowden leaked from the National Security Agency six years ago. Never before have so many journalists joined hands in such a global project. Only around 60 journalists had worked on the offshore leaks database released by the ICIJ three years ago. CommonWealth Magazine is the only news outlet in the Chinese-speaking world to have participated in that investigation as well as the Panama Papers project.

Glory and Danger in 24 hours

Early on the morning on April 6, Gunnlaugsson stepped down, becoming the first head of state to fall from power because of the explosive leaks from the Panama Papers. For the 376 journalists who investigated the leaked information, this was a glorious moment. 

The Panama-based legal and trust services firm Mossack Fonseca has long been suspected of setting up offshore firms for the rich and powerful, many of which were used in an illegal fashion.(Source: Gettyimages)

Less than 24 hours later, however, ICIJ journalists received a sternly worded email. Apparently a Danish television station had filmed a website used for secret communication among the ICIJ journalists. The screenshot was immediately re-tweeted incessantly. Fearing that their security might have been compromised, the ICIJ immediately undertook countermeasures.

"The world puts eyes on us. There are a lot people want the data," warned ICIJ technology expert Marina Walker Guevara, reminding the participating journalists that such mistakes must not be allowed to happen again.

Technology played a crucial role in the global action on the Panama Papers.

Technology magazine Wired wrote that the significance of the Panama Papers lies in that it shows that "A New Era of Megaleaks has arrived."

Wired called the ICIJ's exposure of systematic global tax evasion "a whistleblower mega-leak on a scale never seen before." The fact that an anonymous whistleblower was able to send journalists such a huge amount of sensitive data for six months without being detected is itself an unprecedented story.

Bastian Obermayer, the Sueddeutsche Zeitung reporter who obtained the Panama Papers, never met the whistleblower in person and does not know his identity even today. It is quite astonishing that, as nearly 400 journalists around the globe made a concerted effort to analyze the leaked information over more than a year, nothing was released before the agreed-upon date.

The Panama Papers mark the fourth time since 2012 that the ICIJ has obtained large amounts of leaked information. Indeed, the privacy and secrecy of offshore tax havens had already been compromised early on. Screenshots of a letter to clients in which Mossack Fonseca lawyers admitted that the office's email server might have been hacked spread via the Internet, indirectly confirming the authenticity of the Panama Papers.

It all began with an encrypted e-mail. One day Obermayer, who had previously investigated tax evasion and money laundering scandals, received an email reading: "Hello, this is John Doe, interested in data?" The source then began to send Obermayer and his team all sorts of documents and data.

Obermayer communicated with the whistleblower via encrypted email, frequently changing the encryption and always deleting the history of their previous contacts. Like spies, they used predetermined questions and answers to verify the other's identity. "I'd say 'is it sunny?' and the other side would say 'the moon is raining' or whatever nonsense," notes Obermayer in describing the exchanges with John Doe. After all the data had been transferred, Obermayer took final precautions by destroying the hard disks and mobile phones that had been used in the process.

The Sueddeutsche Zeitung quickly realized that its five-member team was too small to handle the gigantic amount of leaked information. So they asked the ICIJ for help. CommonWealth Magazine was invited to join the investigation last July. It signed on to the project in August and dispatched reporters to participate in training at Sueddeutsche Zeitung headquarters in Munich in September.

New Passwords Every 30 Seconds

The newspaper had vacated an entire floor for the top secret project. Journalists who wanted to work on the project had to have a recommendation.

For many journalists, the September gathering in Munich was their first face-to-face meeting. Among the participants were reporters from major traditional news outlets as well as freelance journalists. The reports that led to the resignation of Iceland's prime minister were investigated by a freelancer.

It was in fact a formidable feat that all participating media outlets kept their promise to investigate the leaked documents in an agreed-upon order without publishing exclusive stories ahead of time. The ICIJ demanded that any piece of big news dug up during the investigation and analysis process remain unpublicized until the official release date. The concern was that any early release by a media outlet would alert the rich and wealthy in other countries and spark them to delete their records. With important evidence gone, the journalists' work there would become much more difficult, and their lives might even been placed in jeopardy as a result.

CommonWealth Magazine was also asked to refrain from contacting the Mossack Fonseca lawyer's office for comment until after the probe into the Panama Papers was over.

The Panama-based legal and trust services firm Mossack Fonseca has long been suspected of setting up offshore firms for the rich and powerful, many of which were used in an illegal fashion. (Source: Gettyimages)

Since it was impossible to skim through millions of documents by hand, data science played a big role in this project. ICIJ used pattern recognition and semantic analysis software to sort and archive the trove of leaked files. Even with computer assistance, it still took over half a year before the database was complete.

In order to enable the almost 400 journalists to communicate with each other, the ICIJ set up a chatroom and database, both of which were encrypted. On top of that, journalists had to obtain a temporary password that changed every 30 seconds to prevent any eavesdropping.

Contrary to what many people assume, the collaborating media were not given a complete list with the names of people to investigate. Over the past seven months, the CommonWealth Magazine reporters were given the task to dig through information from the Mossack Fonseca's database, including emails, financial statements, passports and other bits and pieces that could be relevant to Taiwan and the public interest.

The ICIJ prides itself on the fact that none of its previous investigations have led to legal disputes. The reports have never been challenged in court because all reporting must be backed up by documentary evidence such as passport files. Assumptions and speculation are out of question. If it is impossible to identify a person beyond doubt, for instance, because there are too many people with the same name, the ICIJ advises restraint.

Watertight Evidence

Step one of our work in Taiwan was to find offshore companies linked to Taiwanese companies or individuals. Since the ICIJ database was set up gradually, it had to be updated three times. After each update, the database had to be checked against a 'Who's Who' list of Taiwanese political and corporate heavyweights compiled by CommonWealth Magazine, or against listed company information such as board members. The 'Who's Who' list includes the English names of people who served as lawmakers or Cabinet members during the past two decades as well as those of their family members. The company names, addresses and names of the legal representatives of companies listed on the stock exchange or traded over-the-counter were also included.

However, when transcribed with the Latin alphabet, many Chinese names are identical, making it impossible to verify the identity of shareholders. As a result, further cross-checks must be performed such as by looking up registered addresses. Should these checks not yield any clear results, reporters are forced to search for further clues in the database. At a later stage in the investigation, the ICIJ managed to retrieve PDF files with passport and identity card information. Using the names listed in these documents, the journalists went back to look for links to offshore companies and then scrutinized the relevant company files.

Via the secret platform, journalists from different countries discussed how their search for information could become more efficient. They shared the meanings of the many abbreviations that Mossack Fonseca lawyers used in their correspondence, which was crucial to understanding their emails, as well as any specific groups that had been discovered within the Panama Papers.

Journalists from different countries also exchanged background knowledge about specific countries. Since an offshore company is often linked to the rich and influential in various countries, a concerted effort across borders is necessary to piece the puzzle together and complete the big picture.

Once the identity of a person to be reported on has been established, the next step is scrutinizing the company's actions. At this stage, the only way forward is going through the data base file-by-file. Some transactions can be gleaned from share transfers as well as spot check reports by the lawyers' office. But such a data base will not contain information on actual money flows.

The toughest part in such an investigation is that it feels like looking for a needle in a haystack, and you might come up empty-handed. This is particularly the case today, as cash-strapped media organizations can no longer afford devoting massive resources to such projects.

As far as Taiwan is concerned, there is a significant difference between the two ICIJ investigations in which CommonWealth Magazine has participated. In the previous investigation of leaked files of Singapore-based wealth advisory firm Portcullis TrustNet in 2013, the amount of information available was much smaller, but since the firm holds a large market share in Asia, its portfolio included nearly 16,000 Taiwanese clients. In contrast, among the much larger Panama Papers database, Taiwan-related files have so far proved rather scarce. Our search has led to just 3,661 clients in Taiwan.

Let the Truth Be Known

Yet, despite these setbacks, investigative journalists will leave no stone unturned and continue to sift through the mountain of data looking for leads.

After all, no one knows whether files will turn out to contain explosive information before they have been sorted through. That the current data base has not yet yielded any revelations about prominent Taiwanese does not mean that the next update won’t make headlines.

What has left us most deeply impressed is the Russian team of reporters who exposed the fact that Russian President Vladimir Putin might have been involved in money laundering. The small team included a young journalist under 30.

It is well known that journalists critical of the government in Russia risk being persecuted or even silenced. Yet when asked whether he worried that this project could cost him his life, this young journalist replied with a smile "Journalists cannot allow the truth to be buried."

The Panama Papers constitute a new record for data breaches. The cooperation of journalists around the globe to seek the truth will prevent the truth from being buried, and, hopefully, tax havens will be havens no more.

Translated from the Chinese by Susanne Ganz