The Fuse

Panama Papers Perfectly Exemplify Exploitation of Wealth and Power in Petro States

by Matt Piotrowski | April 06, 2016

Revelations from the Panama Papers data leak have had a major fallout across the globe, and in particular, a number of oil-producing states and officials tied to oil have been exposed for financial arrangements to hide accounts and assets offshore. The news this week, which came as a bombshell, is another reflection of the corruption, malfeasance, and opaqueness which is common to many countries that rely on oil revenues and whose officials use the countries’ resources to build their own wealth rather than develop them for the greater good. Of course, while those listed might not have necessarily committed illegal activity, the data shows how those with close ties to the oil sector in producing countries have exploited loopholes and tried to avoid accountability.

The news this week, which came as a bombshell, is another reflection of the corruption, malfeasance, and opaqueness which is common to many countries that rely on oil revenues.

In the more than 11 million documents leaked, high-ranking officials in Russia, Saudi Arabia, Brazil, Venezuela, Nigeria, Angola, Qatar, Sudan and Congo have been named as part of the global elite who have shielded their wealth from oversight.

“A lot of this comes down to how wealth and power are exercised in rentier states,” David A. Weinberg of Foundation for Defense of Democracies (FDD) told The Fuse. “Rentier states, in a nutshell, end up with a strong concentration of wealth in a few hands. There’s a tendency toward sustained authoritarianism, and those who exercise power seek to protect their wealth from certain kinds of oversight in their own system, because power can be exercised capriciously and vindictively.”

The Panama Papers, a project of Washington-based International Consortium of Investigative Journalists and German newspaper Sueddeutsche Zeitung, expose not just authoritarianism and corruption throughout petro states. Using secretive offshore accounts, which may or may not be used for criminal activity, is an activity that runs deep among the global elite from countries of all different varieties, as the resignation of the Prime Minister of Iceland as a result of the Papers and the exposure of soccer player Lionel Messi show. But there is indeed a greater concentration of this activity in oil-heavy economies.

“A lot of this comes down to how wealth and power are exercised in rentier states.”

Not only do the elite use offshore havens to avoid scrutiny and taxes in their home countries; they also seek to protect their assets against the risk of power changing hands. With the desire to hold onto their wealth when and if they lose power, they distribute their holdings in safe havens offshore. For instance, both the King of Saudi Arabia and its Crown Prince used offshore accounts, and both have faced the possibility at certain points that they would be disinherited. King Salman stashed assets with overseas shell companies used for real estate assets and a yacht. According to FDD’s Weinberg, Saudi Arabia has long demonstrated such opaque ownership dynamics. For instance, Saudi Arabia, the world’s largest producer of crude oil, as a state has sought secrecy regarding its massive investments in U.S. debt, while the Kingdom’s central bank’s overseas holdings are heavily but discreetly invested in conservative U.S. assets and considered “one of the region’s most secretive investment funds,” according to a CNBC commentator.

Leaders in other oil-producing states have acted similarly. Former Iraqi Prime Minister Ayad Allawi, former Qatari Prime Minster Hamad bin Jassim a-Thani, and former Sudanese President Ahamad Ali al-Mirghani all used offshore companies for their own purposes.

“It’s not surprising that they set up these overseas accounts given the risks to their positions of power,” said Weinberg, noting that all of the three regimes have a history of coups as well as turning on former officials who have fallen out of favor.

One of the main figures exposed in the whole Panama Papers ordeal is Vladimir Putin of Russia, another of the world’s top oil producing states. Critics of President Putin, who is almost universally demonized in the West, have more ammunition to show how he and those close to him have thrived with wealth, assets and luxury at a time that his country is undergoing economic turmoil and political repression. Associates of Putin, according to the leaks, have moved as much as $2 billion through offshore havens.

Beyond the Middle East and Russia

The activity goes beyond the Middle East and Russia in regards to oil. In Africa, Angola’s former oil minister, a key official previously with Congo’s national oil company, and a former governor of the oil-rich Delta state in Nigeria have all been connected to the Panama Papers. Major officials in sub-Saharan African countries that are flush with hydrocarbon resources have become massively wealthy from oil money, further exemplifying the disconnect between the powerful elite and impoverished citizens in many parts of the continent.

The one place where the leak may be connected to actual corruption, rather than only sheltering money, is Brazil. Many who are embroiled in the scandal surrounding the country’s oil company Petrobras have also been entangled in the mess surrounding offshore documents.

“Political backlash won’t be as big as elsewhere. There have already been so many corruption scandals in Latin American that have come about recently.”

In the country’s largest scandal in decades, Petrobras contractors effectively overcharged the state-owned oil company for work, and then channeled kickbacks to pay politicians. The scandal sparked outrage at the country’s business and political establishment, with officials at the top of both Petrobras and the government implicated. President Dilma Rousseff has not been directly involved, although there are allegations her campaign benefited from bribes related to the Petrobras scandal—a vote to impeach her for other charges will occur on April 17. The future of Petrobras is currently up in the air because the country is in a state of paralysis due to political turmoil and lack of leadership. Even if Rousseff is forced out of office, the current Vice President, who would take over, is also facing impeachment charges over accusations of manipulating government accounts, similar to allegations against Rousseff.

The Panama Papers, however, will not likely cause a firestorm in Brazil since most what was leaked was already known.

“Investigators had a lot of the information even before the Panama Papers were made public,” Lisa Viscidi, Director of the Energy, Climate Change and Extractive Industries at the Washington-based Inter-American Dialogue, told The Fuse. “It gives a little more evidence such as some extra details and new names, but no one was too surprised.”

In Venezuela, the situation is similar, with officials from PDVSA implicated in document leaks, but no widespread outrage. Corruption has been rampant at PDVSA for some time and the U.S. government launched an investigation into misconduct at the Venezuelan company.

“Political backlash won’t be as big as elsewhere,” said Viscidi. “There have already been so many corruption scandals in Latin American that have come about recently.”

Long-term impact unclear

It’s unclear what the overall fallout from the Panama Papers will be. The fact that the global elite bend the rules for their own gain is no surprise, nor is it all that shocking that leaders in petro states hold a large concentration of wealth, and seek to hide it from their own systems. However, the trove of specific names and data surrounding the dealings of the rich and power that has been thrown into the public eye should enable some movement towards greater global transparency and integrity.