It’s a “private matter” the spokesperson said, when responding to calls for British Prime Minister David Cameron to come clean about his financial matters. His late father, Ian Cameron, along with many others, have been implicated in a massive leak of files from the Panamanian legal firm Mossack Fonseca.

The size of the leak is unparalleled, the leak contains 11.5 million documents relating to offshore companies based in 21 offshore jurisdictions and naming over 14,000 middlemen whom the legal firm had worked with. The findings show that the firm had helped clients evade or avoid taxes in their resident countries, launder money and mask its origins. Some powerful figures implicated in the leak include Russian President Vladimir Putin and the, now former, Icelandic Prime Minister Sigmundr Gunnlaugsson.

In an increasingly globalised and borderless world, tax evasion is becoming ever more prevalent. But how does someone mask their wealth from the tax inspector.

An individual or company transfers assets or cash to the nominal ownership of an offshore company, with the transaction being facilitated by a legal firm like Mossack Fonseca.

The offshore company is then registered in a tax haven like the British Virgin Islands. Tax-havens like these Islands have tight rules surrounding the secrecy of company ownership, do not cooperate with other tax authorities and tax foreign individuals and companies at low, or non-existent rates. So the owner of the transferred assets can avoid national taxes in their resident country – be it income, capital gains, or corporation tax. This is a trick of accounting, the individuals never move to the tax haven and the company’s employees can be based anywhere in the world.

To access the money, the offshore company could lend money at zero interest to a company based in the home country of the asset owner that said owner controls. The individual can then extract cash from the recipient company while paying minimal tax.

With these tax evasion schemes it has become difficult for the public to know the true wealth of some powerful figures.

Vladimir Putin, for example, may control a fortune of £140 billion, making him the richest man in the world. Putin has been implicated in the Panama Papers leak through his close friend, Sergei Rodulgin. Rodulgin is the godfather to Putin’s daughter and is the artistic director of the St Petersburg House of Music. Through a bank run by Yuri Kovalchuk, another friend of Putin, funds were transferred to an offshore company – Sandalwood Continental Ltd. – which is registered in Rodulgins name and is based in the British Virgin Islands, with Mossack Fonseca signing off the transfer of funds from the bank to this offshore company. Sandalwood Continental has since invested £8.5 million into a ski resort which hosted the wedding of Putin’s daughter. Rodulgin has since replied saying his financial matters were “delicate”.

The size of this secret economy is striking. A report from July 2012 estimates that between £13 and £20 trillion – a sum equal to the GDPs of the USA and Japan combined, the world’s first and third largest economies respectively – is held offshore in secretive jurisdictions including the British Virgin and Cayman Islands. 92,000 people, or a thousandth of a percent of the world’s population control these hidden fortunes. An internationally mobile elite, originating in developing countries in particular, have moved money offshore rather than investing it at home. Since the collapse of the USSR £500 billion has flowed out of Russia, £197 billion has left Saudi Arabia since the oil boom of the 1970s and Nigeria has lost £196 billion.

After the Panama Papers leak, and with the promise of more revelations to come, the public may be about to learn just how widespread this secret economy is.

– Cameron Martin, Correspondent (Politics)