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Million files were leaked

from Mossack Fonseca, the

world's fourth largest

offshore law firm.

These were called the Panama Papers.

Hundreds of thousands of offshore entities

and shell companies connected

to over 200 countries

and territories appear in the papers.

Prominent world leaders,

politicians, business people

and the super wealthy were

exposed to have been using

offshore accounts for tax

avoidance and other purposes.

So, why should you care?

Every year, about 70 billion dollars

that the US could be

using for infrastructure,

law enforcement, healthcare

or education is missing.

It's hidden deep within shell companies

and anonymous entities

in places like the British Virgin Islands.

Now, let's back up.

What exactly is a shell company anyway?

• Setting up a shell company

is really quite easy.

You can go to a place like Panama

or the British Virgin

Islands or Delaware or Nevada

and usually the places

where you're doing it

have tough laws where they will not reveal

who the beneficial owner

is and they just layer on

different aspects of anonymity.

So for example, you

could have fake directors

where you pay a little bit

extra and someone pretends

to be the public face of this company.

Just because you have a

shell company does not mean

necessarily that you're

doing anything illegal.

Say for example, you wanna

have some business activities

but you don't want certain

business partners to know

what you're doing.

The more normal one is some

form of legal tax avoidance.

I think that a lot of people in the US

think that tax evasion and

tax avoidance is something

that happens in a far

off place with palm trees

and ocean breezes.

And the reality is it's a big deal here.

The US Treasury estimates

that something like 300

billion dollars a year

is laundered through the United States.

Foreigners are coming in

and buying up property

with anonymous shell companies

and some of that is perfectly legitimate

but some of it is clearly money laundering

and corrupt officials and

other people using their cash

to park it in property

and making it impossible

for the people who live

there to afford it.

And our government is claiming

that it doesn't have enough

money for infrastructure

or for healthcare or for

police or for education

and at the same time,

there's just huge amounts

of tax avoidance and tax evasion going on

through this secrecy world.

Worldwide tax authorities have collected

more than a half a billion dollars

based on the Panama Papers leak.

• Narrator] Of the

214,000 entities identified

in the Panama Papers, about

one half of them are located

in the British Virgin Islands.

How did this tiny area

become such a huge tax haven?

Mossack Fonseca is a Panama

based law firm founded in 1977.

After instability in Panama

was pushing clients away

during the '80s, the firm discovered

the British Virgin Islands

were ripe new territory

for anonymous shell companies.

• Their vision was to be McDonald's

of the offshore system, right?

It was high volume, low cost

and so they were going to pump out

these anonymous shell companies

and make them available

to a wider audience.

In the beginning, that's a

great business model, right,

because all you're doing is

you create this anonymous shell

company, you give it a name,

you don't care who actually

is behind it and you stick it

in a folder and you forget about it

until a year passes and

it's time to invoice

for the renewal.

Later on, there's more vetting.

Governments start to realize

that these are being used

by criminals and money

launderers and things like that

and so they say, "We

need more information."

And I asked Jurgen Mossack,

"Did you ever see that wonderful

"I Love Lucy episode where

she's in the chocolate factory

"and she's trying to keep

up with the conveyor belt

"and it's going faster and faster?"

And he said, "Yes."

It was very much like

that at a certain point.

• Narrator] So we know it's a big problem

but how is this still happening?

• There's a lot of bureaucratic

inertia and timidity

in the IRS for sure.

But another big part of it is

that Congress has eviscerated

the IRS and they've starved it

of funds, there's been a lot

of retirements and so you've

deliberately hobbled the IRS

and made it impossible for

them to go after this kind

of tax evasion.

A lot of this information

is being held in banks

and in jurisdictions where

they do not cooperate

with US authorities easily.

The only way that the.futufan.com

Irs can really figure out what's going on is through these leaks. And it's really these leaks in recent years that have allowed the Irs