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The Panama Papers prove: It is time for action!

The Panama Papers constitute a massive leak of 11.5 million documents which are related to the law firm Mossack Fonseca based in Panama. Reports on the Panama Papers were first published on 3 April 2016; a large part of the data set has now been made publicly accessible. The volume of the Panama Papers exceeds the combined total of the Wikileaks Cablegate, Offshore Leaks, Lux Leaks, and Swiss Leaks, and has important implications for development cooperation. A holistic approach is needed to address the various dimensions of IFF.

By Johannes Köckeis & Dr. Christiane Schuppert The Panama Papers have brought the issue of illicit financial linked with the revelations. In the case of Peru, both run-off flows (IFF) to the heart of public and political debate. The docu- presidential candidates were specified in the documents. ments reveal how the Panamanian law firm Mossack Fonseca facilitated the creation of about 214.000 anonymous shelf com- The role of secrecy jurisdictions panies. 140 of these companies are connected to politicians or Financial centers that offer far reaching private protection rules public officials, such as Sigmundur Davíð Gunnlaugsson who was and allow the creation of shelf companies and similar legal enti- forced to resign as Prime Minister of Iceland due to the revela- ties are frequently referred to as secrecy jurisdiction. The benefi- tions of the Panama Papers. cial owner, that is the individual or entity that actually benefits

from the funds, remains unknown. Many secrecy jurisdictions Within the context of the Panama Papers, several connections offer little or no tax liability to foreign individuals and businesses between partner countries of German development cooperation and are accordingly also referred to as tax havens. and the firm Mossack Fonseca were detected. The documents Secrecy jurisdictions are not illegal; however, they can be misused include names of active leaders of partner countries of German for tax evasion and avoidance, corruption, money laundering and development cooperation such as Armenia, South Africa, Tunisia other criminal activity. Therefore, secrecy jurisdictions provide and Ukraine. For example there are indications that the South possibilities to transfer and hide IFF. African Revenue Service and the South African Reserve Bank are

Fostering a holistic approach towards IFF IFF undermine sustainable development In 2015 BMZ commissioned a global project to address the var- ious dimensions of IFF in a holistic approach. The GIZ project IFF, whether they are related to tax evasion, corruption, terrorism "Combatting Illicit Financial Flows" aims at improving the inter- or organized crime, are especially devastating for the developing sectorial, inter-state and inter-regional fight against IFF, both world. The most immediate impact of IFFs in developing coun- tries is a reduction in domestically available resources for devel- within and out of developing and emerging countries. In coop- opment-oriented expenditure and investment, resulting in noth- eration with partner countries, regional networks, international ing less but fewer hospitals, schools, and roads. Global Financial organizations and NGOs, the project addresses issues related to Integrity (GFI) estimated that in 2013 about US$1.1 trillion IFF financial investigation, money laundering as well as law en- left developing and emerging economies. This amount is by far forcement and international legal assistance. In Kenya, GIZ exceeding worldwide funds provided for development coopera- strengthens the identification, tracing and repatriation of IFF by tion. In Africa, IFFs are three times the amount of official devel- promoting international exchange of information and mutual opment assistance. legal assistance. For this purpose a data information system for In offering favorable conditions for IFF, secrecy jurisdictions, suspicious transactions will be set up. In Peru, the project sup- therefore, undermine the efforts of legitimate states to raise ports risk analyses in different sectors as well as other efforts to taxes, enforce the law and fight corruption. They contribute to implement Peru’s national anti-money laundering plan.

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Photo: GIZ/Name of photographer Photos: left © iStock/ GeorgiosArt, centre © Chris Potter, right © GIZ

the destabilization of societies and political systems in developing A more direct approach to reduce IFF comprises anti-money- countries and give rise to fragility and conflict. The devastating laundering approaches on the one hand and to detect, trace and effects of IFF for development have received increased attention repatriate IFF on the other hand. This entails supporting the at the political level. Accordingly, combatting IFF and the activi- legislative framework but also strengthening the capacity of ties related to them is an integral part of the Addis Ababa Action relevant institutions and oversight bodies. Equally important is Agenda as well as the Sustainable Development Goals. the aspect of inter-institutional as well as international and re- gional cooperation: in order to effectively reduce IFF, various Worldwide support from German Development Cooperation stakeholders involved such as tax administrations, anti-corruption German Development Cooperation supports the establishment agencies, financial intelligence units and public prosecutors need of transparent, service-oriented tax systems as well as the set- to work together effectively both at the national level as well as ting up of effective structures to combat corruption and money across borders. laundering worldwide. Contact GIZ Anti-Corruption & Integrity Programme: Dr. Christiane Schuppert ([email protected]) What needs to be done? Contact GIZ Good Financial Governance Programme: One approach to combat IFF is certainly to fight the sources of Helen Haile ([email protected]) these funds, especially tax evasion and avoidance, corruption and Contact GIZ Combatting Illicit Financial Flows Project: organized crime. Fabian Klemme ([email protected])

Published by Deutsche Gesellschaft für On behalf of Federal Ministry for Economic Cooperation and Internationale Zusammenarbeit (GIZ) GmbH Development (BMZ)

Registered Offices Division 301- Governance; democracy; rule of law; freedom of Bonn and Eschborn speech and of the press

Anti-Corruption and Integrity Programme Postanschrift der BMZ Bonn BMZ Berlin | Im Europahaus Dag-Hammarskjöld-Weg 1-5 BMZ-Dienstsitze Dahlmannstraße 4 Stresemannstraße 94 65760 Eschborn 53113 Bonn 10963 Berlin T +49 (0)228 99 535-0 T +49 (0)30 18 535-0 [email protected] F +49 (0)228 99 535-3500 F +49 (0)30 18 535-2501 https://www.giz.de/expertise/html/5392.html [email protected] Authors Johannes Köckeis & Dr. Christiane Schuppert, GIZ www.bmz.de Anti-Corruption and Integrity Programme

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