EXPLAINER | From Panamagate to Panama Papers

What are the Panama Papers?

It is a cache of files, memos, documents and emails from Mossack Fonseca, the biggest leak ever of confidential tax information – larger than Wikileaks’s diplomatic cables or the secret intelligence documents leaked by Edward Snowden; 11.5 million documents and 2.6 terabytes of information drawn from Mossack Fonseca’s internal database, which took 370 journalists an entire year to comb through the information.

What have we learnt about the Maltese connection to Panama?

It confirmed energy minister Konrad Mizzi’s company Hearnville Inc, but it also revealed that both Mizzi and the Prime Minister’s chief of staff Keith Schembri opened an offshore company at the same time; Schembri’s is Tillgate Inc.

Both companies were purchased from a Mossack Fonseca related firm, ATC Administrators – Hearnville was opened back in 2013 for another owner but never traded.

The two offshore companies are designed to hide Mizzi’s and Schembri’s beneficial ownership.

They were also owned by Orion Trust of New Zealand, which are the trustees of the two men’s New Zealand trusts, respectively ‘Rotorua’ for Mizzi and ‘Haast’ for Schembri. They also tried opening a bank account in Dubai, and later in Panama; both were refused because they are politically exposed persons (PEPs).

READ MORE • Konrad Mizzi interviewed on his Panama offshore company

Why did they open the offshore company?

Both Mizzi and Schembri are not ‘average Joes’. Schembri was a successful businessman and paper merchant before managing Labour’s election campaign and becoming the prime minister’s chief of staff. Mizzi was a very well-paid consultant on energy affairs.

Both would have had enough reason to want to park a substantial amount of wealth offshore and minimise their tax exposure back home. The Panama shell company would be used as a ‘front’ to manage any business affairs, concealing their identity as owners and managed by their New Zealand trustees, who on instructions of the owners put the money in the offshore trusts at the other end. The foreign bank account would be necessary so that any money from the trust can be withdrawn at will.

Is this illegal?

It’s not illegal, but questionable given that the European Union recently introduced the European Savings Directive (ESD) to stop people hiding money from the tax authorities. The ESD made it much more difficult to hide your money in Europe because EU banks have to disclose information on any depositor from any member state. Which justifies the interest in using places like Panama and the British Virgin Islands.

Is there more information to come on Malta?

Yes. The files will be fully published, according to the ICIJ, and they date from 1977. That means that there will be more Maltese names; in fact there are over 600 Malta-linked companies with some 58 beneficiaries. MaltaToday has previously reported two offshore companies opened by Fenlex, a legal firm whose partners include Nationalist executive committee presiden Ann Fenech. The company is not hers; it's the firm that facilitates the set-up for clients, a fact keenly exploited by the Labour Party in a bid to divert attention from its own dirty linen.

Who has leaked the information?

The information came from an anonymous source to the German newspaper Suddeutsche Zeitung, who worked first with The Guardian and the BBC, and the International Consortium of Investigative Journalists. The newspapers worked with 100 partners in the world press. 370 journalists combed the data for the past year.

So how did Daphne Caruana Galizia break the Panama story?

The blogger and Malta Independent columnist was aware of both the Panama company and New Zealand trust well in advance of the release, because Konrad Mizzi felt compelled – from hints dropped on Caruana Galizia’s blog – to reveal his NZ trust in February. He did not reveal the Panama firm.

She then alleged that Adrian Hillman, the now former managing director at Allied Newspapers could have been on the take on the supply of newsprint from Schembri’s firm Kasco Ltd, because in 2011 he opened a British Virgin Islands offshore company just four months after Keith Schembri opened his own BVI company. Both men deny this allegation, but the BVI companies were confirmed by an Australian financial newspaper that worked on the Panama Papers leaks.

Originally, the Labour media tried advancing claims that the information was leaked from Nexia BT, the Mossack Fonseca agent in Malta, to a “disgruntled businessman”. This was never confirmed. But it is also true that Daphne Caruana Galizia’s son is the ICIJ’s web applications developer, and has worked on the Panama Papers.

What is Mossack Fonseca?

It is a Panama-based law firm whose services include incorporating companies in offshore jurisdictions such as the British Virgin Islands. It administers offshore firms for a yearly fee. Other services include wealth management. Nexia BT in Malta, an audit and advisory firm, is its agent. Mossack Fonseca is the world’s fourth biggest provider of offshore services. It has acted for more than 300,000 companies.

Is it legal to have an offshore structure?

Yes: legitimate reasons include putting your assets offshore for reasons of inheritance or estate planning. For example, you can ‘park’ your assets offshore to reduce taxes on it, or so they cannot be reached by creditors if your business goes bankrupt, or so that it can distributed to your heirs according to a trust agreement should you pass away.

But while tax avoidance is not illegal in itself, it is also immoral in the context of global disparities where the rich use offshore to hide earnings from corruption or to pay little tax in other countries and not at home.

What will happen to Konrad Mizzi and Keith Schembri?

Prime Minister Joseph Muscat said he will not sack either of them. In the case of Mizzi, an independent audit by a Big Four company and an audit by the Commissioner for Inland Revenue is establishing whether his offshore structure was used to hold any ‘cash or assets’. Mizzi said he will close his offshore company. But pressure will mount again on Muscat now that Mizzi has been shown to be, so far, the only EU minister with an offshore company.

Mizzi has however said he will close down the Panama company. Oh, and he failed to declare it in the first place with the taxman, which means he will be fined.

The Opposition Nationalist Party, Alternattiva Demokratika, and a veritable section of civil society have called for both men’s resignations. Simon Busuttil led a protest on 6 March that attracted thousands in a demonstration ‘against corruption’.