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 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 and the rest of the public

to really get a vision of how this system works

and how big it is, how all-encompassing.

It's gonna take people being aware

that the reality is we don't have to accept the austerity

that is being forced on us.

The Europeans are ahead of us on this because they got hit

very hard after the financial crisis.

There were major cutbacks in multiple countries.

And so when these leak investigations started coming out

and they found out that the mega wealthy amongst them

were not paying their fair share, people got very upset

about that and it really hasn't penetrated

in the United States quite as much

but I suspect that it will in the future.