Panama Papers, ‘pirates,’ and an argument for how (some) data leaks can make the world a better place

Smari McCarthy, information activist, cofounder of Iceland Pirate Party, helped process Panama Papers, as chief technology officer for the Organized Crime and Corruption Project

Even in an era of citizen leaks, the Panama Papers stand out.

“I mean, this was the biggest leak in history. It was terabytes of data, says Smari McCarthy, chief technology officer for the Organized Crime and Corruption Reporting Project.

panama papers data size comparison

That group, along with the International Consortium of Investigative Journalists and a German newspaper called Suddeutsche Zeitung, processed the Panama Papers — 11.5 million documents handed over to the German newspaper by an anonymous whistle-blower, showing how the wealthy stash their cash offshore. The impact has been seismic — investigations, resignations and reverberations around the world — likely to continue for a long time to come. 

When Julian Assange and Wikileaks kicked off the age of the digital leak — in the form of a massive dump of State Department cables — it seemed audacious. Then came Chelsea Manning and Edward Snowden, criminals to some, heroes to others. Each has reminded us, in different ways, that we live in a century of technological promise and peril. Many of us live on our phones; that makes our lives easier. It also makes it easier for our lives to be hacked, by criminals and by the government.

But it also makes it harder for those who are trying to hide something to hide it. And many of the world’s wealthiest — not all, but a good number — aren’t above shoveling their money into off-shore accounts so they won’t have to pay tax — or account for how they got all that money.

“Probably around $32 trillion is being hidden in offshore tax havens at the moment,” McCarthy says. “We are now watching probably the largest transfer of wealth from developing countries to developed countries since the Spanish armadas were moving around.“

Panama Papers leak documents types

This episode comes at the question “Whose Century Is It?” by looking at power — traditional power, like wealth and political clout — and the asymmetrical, realigning power that has come from citizen leaks and large data dumps, and is likely to play a bigger role in this century.

McCarthy: So we’re talking about the Panama papers, and that was a big collaborative effort between about 400 different journalists working at 107 different news agencies.

Magistad: How do 400 journalists in 107 news organizations in something like 80 different countries, work together for a year, in secret, without anyone leaking?

McCarthy: Yeah. It was probably one of the largest and most successful conspiracies in recent history, a conspiracy to inform the public, right? And it was really funny. I went to the global investigative journalism conference in Lillehammer, Norway, last autumn. There were 900 people there, of which I’m going to guess probably about a full third were involved in this project. So all of the conversations there had this interesting vibe of people going, ‘hmmm, yeah, I’m working on something big, but I can’t tell you about it.’

Magistad: And did people know who else was involved?

McCarthy: In many cases, but not all. So I couldn’t tell you the names of more than 10 or 15 people who were directly involved, not because it was secret. ICIJ (International Consortium of Investigative Journalists) has a kind of communications system internally, and they did a really good job of curating, and getting all these people who have a professional interest to not tell anybody what they’re working on, to work together and pull in the same direction. So many people knew, but I just do the technology stuff.

Magistad: That’s a pretty important component.

McCarthy: So I just work with journalists and try to make sure that their needs are met.

Magistad: What sorts of things were they coming to you with?

McCarthy: Near the end of the investigation, my primary role was making sure everything was ready for publication. And it’s the fate of every technologist to design websites, now. That’s just what life is. But there was also the component of our researchers having a bunch of documents, and wanting to know if there are any connections between people in them, or wanting to find efficient ways of pulling out certain names.  It turns out there are things that computers are really good at, that humans are really bad at, and types of problems that humans are really good at, that computers are really bad at.

Magistad: For instance?

McCarthy: Well, pulling a lot of similar data out of similarly structured documents, and putting them into a list, is something that humans would take a long time to do, and computers can do in a matter of seconds. Unfortunately, a lot of humans still try to do it the traditional way, and also end up injecting a lot of errors, just by being hasty. If you’ve got 20,000 documents, and they’ve all got exactly the same formatting, and you just want to copy a number out of each one, having an intern do it is a terrible waste of the intern’s time. But having a techie sit down and write a little script, might take an hour or two, or maybe less, depending on the techie. But you’re going to get the results within seconds, once it’s done. On the other hand, there are still things computers are really bad at, like pulling the same numbers out of 20,000 documents that are all different, and where the number or the name is in some kind of context, grammatically, where a computer’s ability to understand human grammar is somewhat limited, still.

Smari McCarthy, who helped process the Panama Papers, speaking at the Institute for the Future in Palo Alto, CA

Magistad: So from your perspective, what did you see as the most challenging aspects of this project?

McCarthy: It is a relatively small number of people who are controlling the vast majority of wealth in the world. So looking at something like the Panama Papers, you come at it thinking, ‘ok, here’s a really large set of documents, 11 million documents. And in there are many of the paths that explain where this money went. Now, Mossack Fonseca (from which the Panama Papers were leaked) is only one of hundreds or thousands of law firms that do this kind of service. And you’re not going to find all the mega-rich people working through the same companies. In fact, they’re probably diversifying, doing things through multiple companies, because that’s what you do if you’re being sensible about this kind of thing. But on the other hand, that leak probably has information about tens or hundreds of billions of dollars that are being hidden. So far, in Iceland alone, there are over 180 different cases that have been opened by the tax authorities after the Panama Papers leaks, to investigate people in Iceland who have been doing things in a slightly different way than the tax authorities would have liked. On the other hand, you’re looking at these 11 million documents, and you say, ‘ok, how can we go from this set of emails and all these PDF documents to results? And it’s just not intuitive. The journalists say they have the tradition of just sitting down and reading everything and trying to memorize it all, until they see a pattern in their mind, and then they say, ‘aha! We just nailed this guy.’ As a technologist, my approach is, ‘can we write a short little program that will read through all the documents and figure it out?’ For certain kinds of things, yes. But for other kinds of things, no.

Magistad: Were you expecting the kind of impact that the papers have had? Were you expecting more?

McCarthy: I don’t know. I think the length of the project led to everyone being somewhat relaxed about it. And it was funny, when we released it, we expected a lot more traffic on our website than we normally got, so we kind of beefed up our servers a little bit. We said, ‘ok, we’re going to get probably eight times more, maybe 10 times more traffic than usual.’ So we prepared for that, and we did some simulations. And then we got something like 50 times more traffic. So there was a moment there where we were saying, ‘oh no! Everything is going to collapse!’ And it didn’t. It worked out fine. But, you know, the immediate impact was gargantuan.

Magistad: In your own biography online, you say you live at the intersection of politics and technology. You’ve been very busy this past decade. You’ve cofounded Mailpile. You’ve been involved in the Icelandic Pirate Party – you founded it, right? Cofounded it?

McCarthy: I was one of the founders, yeah.

Magistad: And now the European Pirate Party?

McCarthy: I kind of ended up chairman of that, mostly by accident. I was asked whether I was willing to be on the board, and I said yes, and then I couldn’t make it to the meeting. (Laughs) So I kind of got Shanghai’d into that situation.  Very pirate-like, I guess.

Magistad: So the ‘Pirate Party’ concept has been around for about a decade, started in Sweden. But I think a lot of people don’t really know what it is, and kind of chuckle when they even hear the term ‘pirate party.’

McCarthy: Yeah. The name is a bit silly, and very intentionally so. There were some Hollywood lobbyists who decided that copyright infringement in Sweden was a big problem. So they set up a thing in Sweden called the Anti-Piracy Bureau. And some people there thought, that’s really interesting. They’re having this one-sided conversation with stakeholders and government about downloading things on the internet, and we have this other approach. So they went and started this thing called the Pirate Bureau, just kind of as a counterpoint to the Hollywood lobbyists. And that kind of mushroomed, first into the Pirate Bay, and then later people started to think about a political party around it, to try to approach the political side of the debate a bit more directly, and possibly with a bit more seriousness.

Magistad: There’s a very piratey vibe to this whole (Panama Papers) project. You’re going after the rich and the powerful, not taking their money, but taking their privacy, taking what they’re trying to hide, and trying to change the power equation.

McCarthy: I don’t think we’re taking their privacy, because piracy is a very specific thing. Privacy is the way I choose to expose myself to society. But my financial dealings are actually part of a conversation that each person has with society. The existence of a company or a corporation is a contract with the rest of society, that they’re going to allow you to do certain things, as long as you comply with certain rules. So what we’re doing in this case is not taking away people’s individual privacy. I don’t know what Vladimir Putin gets up to in his free time. I don’t know what Ilham Aliyev gets up to in his free time, nor do I want to. It’s just none of my business. But when they are doing things through proxies, through their family members, that are in violation of the social contract, and they do so in ways that lead to massive theft from the public, that lead to dodging taxes and doing all sorts of things that are just bad for society — that’s not their private business. And everybody should know about it. And I’m fine with exposing that.

Magistad: It’s a very refreshing point of view, particularly after the last election, where there was pushback against President Obama having said, ‘if you have a company, and you have a right to run it however you want to, and profit from  it, you didn’t build that on your own, you built that within a society.’ And then the Republicans said, ‘no, I built that! It’s mine! And I have the right to do with it whatever I want.’ And now you have Trump, saying ‘I don’t have to release my tax returns. You don’t have the right to see that information.’

McCarthy: Yeah, and I think in tax returns, you have some information like your address, and the names of your family members, which totally are private. But your financial transactions as a person, and in particular your communication with the tax authorities…How is a government supposed to be open and transparent, and accountable to the electorate and to the public, if the most important part of how that government collects money to fund its operations is completely untransparent, and there’s no way to see what’s going on? It’s ridiculous, in the same way that if the budget were secret, we’d say ‘no, no, that’s not ok.’ So there have been these waves of discussion in transparency circles, starting with the Freedom of Information Act in the US in 1970, and in different countries. Sweden actually was first, back in the 1700s, they started to move in that direction. And nowadays, most Western countries, and most countries in the world, have Freedom of Information Acts of one sort or another. But that’s kind of moved along, in that, initially, the first generation of such laws said, ‘you are allowed to request any kind of document you want, but you need to know what kind of document it is, and  you need to ask specifically for that document, and not too many. The second generation said, ‘ok, you can ask for any document, and here’s a list of the documents that we hold, and that changes the game quite a bit.

Magistad: Because you can look at the list and say, ‘hey, what’s that? That’s interesting. Let me take a look at that.’

McCarthy: And then, you’ve got the third generation, which is saying, ‘ok, we’re not only going to provide you with a list, we’re going to put the list on the internet, and you can click the names and just download the documents. And if the document is secret for national security reasons or privacy reasons, or whatever reasons there are, then it’s not available and you can ask for it. And then, a future improvement on that would be, if a document is held back, it says why it’s held back, and who authorized it, and when that authorization is rescinded. A similar thing is happening with budgets. In some countries, parts of the budget are secret. In Morocco, for instance, I had this really fun time in Morocco once, when me and some Moroccan activists were going around, trying to see if we could find the parts of the country’s budget that are secret, that pertain to the king, and his many, many, many palaces. We didn’t succeed, but it was an interesting experiment. There was a place where taxes are coming in, taxes are going out, in the form of budgetary allocations, but then there’s this big black box of stuff that’s happening, and no one’s allowed to know exactly what. And black budgets are bad, pretty much because you can’t run a democracy if people don’t know what’s going on.

Magistad: So you’ve had a commitment since your college days to transparency, accountability, and distributed democracy. Where did that come from? Did you just grow up thinking, ‘these are important values for me’?

Somewhere on the Eyjafjörður Fjord in Northern Iceland
Somewhere on the Eyjafjörður Fjord in Northern IcelandTamar Charney

McCarthy: Yeah. I’d say I’m very much a child of the internet. Growing up on a very small island off the south coast of Iceland, with 400 people and 10 million birds, I found it very difficult in my teens to relate to people there. There were only a few people who I could kind of fit in with. But I found these online communities when I got this little modem, when I was about 13. I connected to the internet, and there were all these communities, and everybody was talking about all sorts of things, and I thought, ‘this is the best thing ever.’ But as I got more into it, I started hearing about all these problems that existed around the internet, with people wanting to do censorship, people wanting to limit which groups were allowed to participate. There were people being arrested for all sorts of things, everything from reading manuals they weren’t supposed to read, to sharing documents they weren’t supposed to share. And I kind of fell into this political world entirely by accident. I never really intended to get political. But when things started to move in that direction, in Iceland in particular at one point, there was a levy placed on empty CDs. And that was one of the first times I attended a protest. They wanted to put a surcharge on all empty CDs that were writable, that would go to the music industry. But I was thinking at the time, ‘well, I don’t use CDs to write music. I use CDs to back up my documents, to share copies of Linux, a free, open-source operating system, with people. And I thought, ‘why should we be paying the music industry for that?’ From there, it just steamrolled. Transparency is an obvious extension of the mindset of the internet.

Magistad: So by the time Wikileaks came around, what kind of impact did that have on you? Were you already thoroughly engaged in this set of issues?

McCarthy: Pretty much. Me and a few friends had started this thing that we called the Icelandic Digital Freedom Society, a few years earlier. And we’d mostly been using it to occasionally talk to the government about different topics, like Creative Commons, and free software in schools, and things like that. And we also organized an annual conference. And in 2009, when Wikileaks released…a set of slides from the Icelandic banks that had collapsed (in the global financial crisis that began in 2008), that showed this set of uncollateralized loans that the banks had been giving out to essentially friends of the owners, really large denomination loans, and this sent shockwaves throughout Icelandic society. So we thought, ‘ok, we’re doing this conference, again. We need some keynote speakers. Why don’t we invite Wikileaks over to do the keynote?’ And while they were in Iceland, we ended up, me and some of my friends, both helping Wikileaks with a couple of releases, but also opening up this broader conversation about, ‘how do we start changing laws in useful ways to protect free speech and freedom of information, and increase transparency and protect whistleblowers, essentially what one could call information politics? Like, how does one progress that to a higher point than it was at the time? After that came the IMMI project, which is now the International Modern Media Institute. And also, I ended up working with Wikileaks on the…video of an Apache helicopter attack in New Baghdad, and also the Afghan War Logs and onwards.

Magistad: And how receptive was the population in Iceland to some of these ideas, to the work you were doing?

McCarthy: It never really got a whole lot of media attention in Iceland, which was really weird, because all of the other world media kind of latched onto this, very, very quickly. And I guess it was a good lesson in the cynicism of Icelandic journalists, that if they hear something’s happening in Iceland, they kind of go, ‘oh, ok, that’s probably a waste of time, somebody being loud about something. Whereas all of the other world media kind of jumped onto it, both out of interest,  ‘ok, there’s something quirky happening in that little country up there, it might be fun to cover,’ but also, ‘hmmm. We really wish we could get that kind of thing in our country.’ So over many weeks, I was doing seven or eight interviews a day. It was pretty mad. At the same time, nobody in Iceland really cared at all.”

Magistad: So you continued working on issues of transparency, and accountability, and distributed democracy, and you see, as time goes on, Edward Snowden, coming out with all the information that he released, in coordination and cooperation with specific news media. Did it surprise you, the kind of reaction that came from the Obama Administration, in particular?

McCarthy: Yeah. I, like many others, was excited when President Obama was first elected. We thought, ‘yay! Finally, the United States is going to catch up with the rest of the world in terms of the basic liberal agenda. And then — both the drone striking, and there’s also how more people have prosecuted under the Obama Administration who, early on, had been very open to there being whistleblowers and informing about wrongdoing in the government. Once people started to inform about wrongdoing in the government, then people started being prosecuted. And it was pretty ridiculous. You had Chelsea Manning, who is the only person who’s been convicted of anything so far, after she exposed literally thousands of war crimes that had gone undocumented. And then Edward Snowden comes along and shows the world that not only the United States, but also its allied partners, were engaged in a global, essentially, conspiracy, to monitor the communications of everybody. And they’re doing so at a rough budget of $120 billion a year. And they’re monitoring everybody who has any kind of electronic communications capacity, so they’re monitoring roughly 3.5 billion people, which means they’re spending roughly 7 cents per person per day to monitor everybody. First of all, it’s kind of remarkable how cheap they managed to get it, but also that they managed to violate all of the human rights that people fought for through World War I and II. The amount of suffering that humanity had to go through to arrive at the Universal Declaration of Human Rights is huge. And that that entire thing should be essentially trashed, on a whim, by governments who claim national security interests, that have so far been entirely unproven. There are so far very few, if any court cases over terrorists. There’s this entire thing.

Magistad: Where do you think it went wrong, in terms of this diversion between what stated principles are, in terms of respect for human rights and human dignity, and how the US actually acts in the world?

McCarthy: That’s a hard question, because there are simplistic answers you can give. But if you look at the history of any country, there are going to be ups and downs. And it’s easy to go back to issues of slavery and ethnic cleansing in the early days of the US, and say it’s always been kind of bad, but that’s kind of unfair as well. I think, more recently, the thing that’s been particularly problematic in this country has been the way in which politics, and the military-industrial complex, and large corporations in general, are interacting through things like campaign financing, and the revolving door. Really, everything that Eisenhower predicted has come true. But there’s an entire technological aspect to it that he didn’t really predict, where you have mass surveillance and, essentially, unlimited processing capacity. So if the US really wants to get back on the track to being a global center for respect of human rights and human dignity, shutting that down to some extent, or at least reducing it, would be one of the obvious steps.

Magistad: So as there are interventions like the Panama Papers, and like Edward Snowden’s efforts, and Wikileaks, are you seeing the kind of changes that redistribute power, that allow citizens to have more of a say, to try to pull institutions back to their original purpose, if they have gone off the rails? Or are you feeling like it’s not really having the kind of impact you’d like to see?

McCarthy: It’s been frustrating over the past five years or so, to see how much growth there’s been in far-right extremism, in particular in Europe, where you have Victor Orban’s government putting out a new media law that allows a ‘media committee’ to levy fines against media that are being ‘unfair,’ by some arbitrary definition, which has a massive chilling effect on media in Hungary. And under the cloth of that, they’ve changed their constitution, and redefined the Hungarian state, in ways that are very useful for far-right extremist tendencies. You can see the same thing happening in Poland, now, under Beata Szydlo’s government, where did essentially the same thing. And you’ve got people being sued in Luxembourg for having leaked documents, and so on. So, in many ways, I think the public have been very usefully enlightened by all of these leaks. And we’re in a much better position, in terms of public knowledge, than often before. But I also think that people are becoming afraid of their neighbors, becoming afraid of just everything.

Magistad: Is it afraid of their neighbors, or afraid of immigrants, afraid of the ‘other,’ afraid of people they don’t know well?

McCarthy: Well, both. Afraid of kind of the philosophical ‘other,’ most definitely. And this is fear that a lot of politicians on the far right, in particular, are benefitting massively from. There’s a feeling that a lot of people have, amplified by all of these disclosures, and this understanding that everything is a little bit off, plus the financial crisis. Everybody sees that there’s a problem in the world. And they’re not entirely sure what the cause of the problem is. So they think, ‘there’s a problem.’ And here are all these traditional politicians who are saying, ‘oh, no, no. There’s no problem. We’ll deal with this. It’s all fine. Everything’s fine. And then, some crazy nut-job shows up. Let’s just call him Donald Trump. And he says, ‘no, no. Everything is a mess. Everything is a mess. But don’t worry, I’ll take care of it. And I’ll tell you what’s wrong. It’s the immigrants. And it’s the such-and-such small minority, which can’t defend itself from the things I’m going to be saying. And you’ve got, even in Germany now, an essentially Nazi party, which has been doing really well in state elections. I think they got 20 percent in state elections in some of the German states. So this is really worrying to me.

Magistad: Although, ironically, if you look at the broad sweep of history, where we’re at today, globally — there are probably fewer wars. There are probably fewer people dying of hunger and other avoidable causes than at any point in human history, living longer. We have a clear and present danger in the form of climate change, and that is accelerating (the flow of) immigration to places where people can actually make a living. And at the same time, there’s a concentration of wealth in fewer and fewer hands, which is what the Panama Papers got at…

McCarthy: And it all interacts. And one of the ways that we’ve seen this play out, and you’re right, there’s been an incredible decline in deaths due to war and disease, over just the past 100 to 200 years. There’s never been fewer people dying from war. But in history, we’ve seen on multiple occasions, this kind of pattern where, first you have a financial collapse, then you have a massive rise in nationalism, and then you have a war. And we are at Step 2 of that now, and I don’t want to see what Step 3 looks like. So, we need somehow to back down from this nationalistic rhetoric, and start to actually address the problems properly, which are, yes, climate change issues, and wealth inequality. Those are the big issues that need to be dealt with right now. With those $32 that are sitting in offshore accounts, we could completely fix every healthcare system on the planet. We could probably eradicate two or three different diseases within this decade. It would be possible to eliminate so many of the social problems we have. And a lot of the financial crisis comes from that much money being piled up into one place. So, letting it out into the system in a calm and manageable way, would probably help a lot of societies.

Magistad: That’s probably a good place to end. Smari McCarthy, thanks for joining me on Whose Century Is It.

Magistad postscript:

I appreciate Smari’s idealism, and focus on a possible future that is fairer and more equitable. I agree that the current degree of wealth disparity is dangerous and unsustainable. But how do you get from having $32 trillion, give or take, in offshore accounts, to distributing that money in social programs? In an ideal world, it would be repatriated, taxed, and a responsible government would use it with the best interests of all citizens in mind. And if you live in northern Europe, you could actually see that kind of thing happening. In the United States, where Congress, of late, has been more interested in cutting spending on social programs? Harder. In kleptocracies like Azerbaijan? Harder still.

But — it’s an intriguing idea, this more equitable redistribution of hidden wealth, and one step toward getting there is to make it harder for people to hide money. That’s what the release of the Panama Papers did.

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