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Illicit financial flows in Latin America

The disclosure of the Pandora Papers

29 November 2022

With over 10% of the population accounting for more than a half of the national income - 54%, Latin America has proven to be one of the most vulnerable regions facing inequality in the world.[1] Since the COVID-19 pandemic began, the region has struggled on several fronts due to the lack of resources available. Specifically, on meeting the challenges caused by high unemployment rates, augmenting inflation, and the overall collapse of the public health system. In some countries, such as Colombia and Cuba, discontent has been expressed through massive protests. In others, like Brazil, a parliamentary commission has been investigating to scrutinise the government’s overall management of one of the worst COVID-19 pandemic outbreaks registered.[2]

While opposition and citizens might have been looking for accountability for the disasters they have been facing within their own territorial limits, experts agreed that illicit financial flows (IFFs) played a crucial role in terms of economic development and crisis management. According to the latest Organisation for Economic Co-operation and Development (OECD) report; illicit financial flows are impacting the region´s ability to face the challenges brought by the COVID-19 pandemic; “IFFs drain large amounts of financial resources from the region, with a severe and negative impact on the fulfilment of the Latin American development agenda, especially in the COVID-19 pandemic context”.[3]

The UN Economic Commission for Latin America and the Caribbean has stated that Latin America and the Caribbean account for a significant share of trade-based IFFs. The latest numbers registered by the Tax Justice Network, an organization specializing in tax evasion, have shown that due to tax non-compliance and overall global cross-border tax abuse, the Latin American region loses around USD 43 billion, representing 20.4% of the national public health budget.[4] Brazil is the country with the most taxes falling annually in the region, with USD 14,600 million, followed by Colombia, with USD 11,600 million, and Mexico, with 8,250 million.

The Latin America Elite at the Epicentre

The International Consortium of Investigative Journalism (ICIJ) has revealed the actual owners of more than 29,000 offshore companies.[5] In terms of data volume, it is considered to be the biggest leak related to offshore accounts. Known as the Pandora Papers, the leak exposes over 11.9 million confidential files from 14 consultants for offshores worldwide. One of the major concerns posed by ICIJ is what the secret documents have revealed about the political elite; the investigation has demonstrated offshore dealings and financial activity from 35 current and former leaders, more than 330 politicians, and public officials in 91 countries and territories.

In its findings ICIJ claims the following; “the leaked records reveal that many of the power players who could help bring an end to the offshore system instead benefit from it – stashing assets in covert companies and trusts while their governments do little to slow a global stream of illicit money that enriches criminals and impoverishes nations”.[6]

The Pandora Papers revelation has put Latin America into the spotlight. The region was one of the most represented regions in the Pandora Papers, exposing how deepening inequality still exists in its countries. The investigation has revealed that, out of the 35 presidents or former presidents mentioned in the documents, 14 belong to this region; three are currently presidents, and the rest have already left their positions.

Sebastián Piñera, from Chile, Guillermo Lasso, from Ecuador, and Luis Abinader, from the Dominican Republic, have been listed as the three current presidents exposed by the Pandora Papers. The following names have emerged from the list of former leaders: The Colombians César Gaviria and Andrés Pastrana; the Peruvian Pedro Pablo Kuczynski; the Paraguayan Horacio Cartes and the Panamanians Juan Carlos Varela and Ricardo Martinelli.

The offshore companies assigned to the current presidents - Lasso, Piñera, and Abinader - predate the arrival of these leaders to power, which is one of the main arguments used in their defence. According to the documents, Lasso has had ties to 10 offshore companies and trusts, while the children of Piñera used an offshore company to sell shares of a mining project planned for Chile’s north-central coast in 2010, during a previous Piñera presidency. The report also linked Dominican President Abinader to two offshore companies.

The findings also show that the top authorities of the countries are only a part of the whole leak regarding the political sphere. Amongst the 35 presidents or former presidents, the Pandora Papers has exposed the undisclosed finances of more than 330 politicians and public officials, making Latin America the region with most of the names.


Source: International Consortium of Investigative Journalism


This involves 90 high-ranked authorities such as Paulo Guedes, Brazil's Economy Minister, and Roberto Campos Neto, head of the country's Central Bank. As for the political relevance of the disclosure in Latin America, Bruce Zagaris, a legal expert, explains the conflict of interest arises in the ruling political elite -who should be implementing or pushing for tax transparency- is actually benefitting from the tax heavens with their offshore accounts. “The Pandora Papers illustrate the lack of a level playing field in the regulation of international financial secrecy, money laundering, and taxation”.[7]

If Offshore Accounts are not Illegal, why the Controversy?

In Latin American countries, having offshore assets and companies for business abroad is not illegal. These societies allow for lower costs and greater facilities for the financial flow. The suspicions, and significant controversy, rely on the attempted tax evasion by businessmen and corruption by politicians. The legality of moving money offshore—where it often qualifies for lower to no taxes at all— unchains the controversy, as many experts have indicated. "When we are talking about political elites, presidents or ex-presidents, they are the ones who can change regulations, the ones who are benefiting from this offshore system, and then we may wonder how it can affect citizens on issues of taxes and transparency"[8], ICIJ coordinator for Latin America Emilia Díaz-Struck evaluates, when asked by the BBC. Illegality arises when assets are not fully declared or have been done partially. In this case, they may be illicit instruments of tax and criminal offenses

However, the Pandora Papers have also demonstrated how effective regulations can make a difference. The report revealed that Lasso had dissolved eight of his offshore companies by 2017, resulting from a new Ecuadorian law against elected officials holding investments in countries considered tax havens. The law was proposed after the leak of the Panama Papers in 2016. In a referendum, Ecuadorians approved it by 54%.

By definition, the offshore accounts are based on where the individual resides outside the jurisdiction where the bank is located. Joint efforts between the Latin American countries are essential to push for tax transparency and determine which of those accounts are part of illicit financial flows. According to Zagaris and promoted by the OECD, the most appropriate and effective resource available amongst countries is the exchange of tax information.

By ensuring the availability of legal ownership information regarding the accounting and banking information for such accounts, the access to that information provided by the exchange with foreign partners allows tax authorities to have a complete picture of their taxpayers’ global affairs and ultimately address the issue of tax evasion and enhance domestic resource mobilisation which means “the process through which countries raise and spend their own funds to provide for their people”.[9]

The implementation of the exchange of information across the region plays “a key role in the detection of possible non-compliance cases in relation to cross border transactions and assets held offshore”,[10] assures the OECD report published in July 2021. Called the Tax Transparency in Latin America 2021, the report provides an overview of the progress and challenges still ahead in the region. The exchange of information has enabled the collection of additional tax revenue in Latin America throughout the years. At least six countries within the region have reported collecting additional revenue due to the exchange of information throughout 2014-2020, accounting for a total of EUR 298 million.

However, the lack of political support has been expressed regarding the effort to cooperate and priority management. Although Latin American countries have significantly expanded their exchange of information networks by increasing the amount of bilateral relationships, the majority of them still need to make more requests for information; the report has demonstrated.

Additionally, the findings have also shown that only 31% of the countries involved consider the implementation of the exchange of information a “very high” priority to tackle tax evasion. As the OECD warns, priorities such as facing the COVID-19 pandemic have had an impact in fighting the illicit financial flows agenda; “While the COVID-19 crisis reinforced the need for additional revenue, the ongoing health situation may disrupt the efforts of authorities to tackle tax evasion and other forms of IFFs, as they face competing priorities”.[11]

Political support has proven vital to combating illicit financial flows using the means to combat tax evasion. However, political will in such cases often collides with private interests. While the COVID-19 pandemic has indeed redirected the focus, the Pandora Papers have also demonstrated that conjunctural issues are the reason why tax transparency is not moving forward.


Sabine Kurtenbach, from the Hamburg-based Giga Institute of Latin American Studies, highlights the intertwining of politicians with private business is widespread in the region. Last June, Brazil's Economy Minister Paulo Guedes proposed a tax reform package with 30% tax on revenues earned abroad. Experts consulted by the newspaper El País11 estimate that Brazil's most affluent individuals hold nearly USD 200 billion in untaxed resources outside the country. "You can't be ashamed of being rich," Guedes said. "You have to be ashamed of withholding".[12] After bankers and businessmen objected to the tax increase provided for in the package, Guedes agreed to withdraw taxation on revenues earned abroad. Negotiations have not yet finalised.

Argentina and Brazil, Impact beyond the Elites

Apart from the political elite being exposed, major private businesses were disclosed as having offshore accounts, directly impacting the country. For example, Argentina stands out as the leader in the opacity ranking leaked by the Pandora Papers. Even though several former public officials are disclosed on the list, such as Jaime Durán Barba, a political consultant who worked on Mauricio Macri's presidential campaign in 2015, the number of beneficiaries is the highlight or the reveal. The Pandora Papers positions Argentina in third place with 2,521 final beneficiaries, behind Russia (4,437) and the United Kingdom (3,501).

According to calculations provided by the Central Bank of Argentina, Argentinian citizens have an overall US$220 billion undeclared. The amount represents 55% of the country's Gross Domestic Product (GDP) and 10% of all the American currency circulating in the world. This positions Argentinians' dollar per capita amount above the average rate amongst US citizens.

Regarding Brazil, which also leads in terms of beneficiaries, the country ranked fifth in the Pandora Papers. The documents show that 66 of the biggest Brazilian tax evaders sum a total debt of USD 2.96 billion, keeping offshore with millions deposited in tax havens.

Average tax revenue as a percentage of GDP varies considerably across Latin America, ranging from 13.1% in Guatemala to 33.1% in Brazil, the highest amongst the region. The comparatively low tax-to-GDP ratio in the region makes the issue of tax evasion even more pressing. The graphic shows how dependent both Argentina's and Brazil's GDPs are on tax revenues and yet are the ones with more offshore accounts beneficiaries, as the records of Pandora Papers demonstrate.

Source: OECD Tax Transparency in Latin America 2021


Although tax transparency relies on decision-makers and initiatives carried out by the government, effective change comes from the coherence of everyone involved. "Ultimately, things like transparency and accountability depend on the power relations between the ruling elites, civil society and justice”,[13] highlights Kurtenbach.

[1] World Inequality Database. (2021, October 20th) “Top 10% national income share”. https://wid.world/world/#sptinc_p90p100_z/US;FR;DE;CN;ZA;GB;WO/last/eu/k/p/yearly/s/false/23.469/80/curve/false/cou ntry

[2] Reuters. (2021, September 23th) “Brazil approaches 600,000 COVID deaths in second-deadliest outbreak”. https://www.reuters.com/world/americas/brazil-approaches-600000-covid-deaths-second-deadliest-outbreak-2021-09-23/ 

[3] The Punta del Este Declaration. (2021, July 12th) “Tax Transparency in Latin America 2021: Punta del Este Declaration Progress Report”. OECD. https://www.oecd.org/tax/transparency/documents/tax-transparency-in-latin-america-2021.htm

[4] Tax Justice Network. (2020, November 20th) The State of Tax Justice 2020: Tax Justice in the Time of COVID19. https://taxjustice.net/wp-content/uploads/2020/11/The_State_of_Tax_Justice_2020_ENGLISH.pd

[5] ICIJ. (2021, October 3th). “Pandora Papers”. https://www.icij.org/investigations/pandora-papers/

[6] Tayma, Ben Ahmed. (2021, October 3th) “Offshore havens and hidden riches of world leaders and billionaires exposed in unprecedented leak”. ICIJ. https://www.icij.org/investigations/pandora-papers/global-investigation-tax-havens-offshore/

[7] Zagaris, Bruce. (2021, October 7th). “Will the release of the Pandora Papers lead to any change?”. Global Americans. https://theglobalamericans.org/2021/10/pandora-papers-change/

[8] BBC News Mundo. (2021, October 4th) “Pandora Papers: los 3 presidentes latinoamericanos (y los exmandatarios) que aparecen en la investigación sobre paraísos fiscales y riquezas ocultas” https://www.bbc.com/mundo/noticias-america-latina-58783391

[9] U.S. Agency for International Development. (2021, October 7th). “Domestic Resource Mobilization (DRM)” https://www.usaid.gov/what-we-do/economic-growth-and-trade/domestic-resource-mobilization

[10] The Punta del Este Declaration. (2021, July 12th) “Tax Transparency in Latin America 2021: Punta del Este Declaration Progress Report”. OECD. https://www.oecd.org/tax/transparency/documents/tax-transparency-in-latin-america-2021.htm

[11] Ibid

[12] ICIJ. (2021, October 3th) “Paraísos fiscais, riquezas ocultas de líderes mundiais e bilionários, expostos em um vazamento sem precedentes”. El País.


[13] Ibid