Tom: Let’s start with the basics: what are the Panama Papers?

Mellody: They are 11.5 million internal files from a Panamanian law firm called Mossack Fonseca, which specializes in offshore accounts and tax shelters. They include emails, contracts, transcriptions and other documents. To put this in perspective, Edward Snowden leaked just 58,000 documents. In this case, we don’t know who leaked the files, but they were given to a German newspaperwhich then shared them with the International Consortium of Investigative Journalists last year. Since then, the ICII has been going over them, and released their initial reports last week. But this first release is just the tip of the iceberg, as the ICII has promised to release a full list of companies and the people linked to them in early May.

Tom: Why are they such a big deal?

Mellody: The papers are so explosive because they show the numerous ways individuals can exploit secretive offshore tax regimes in minute detail, and they reveal the identities of these individuals. Twelve current and former national leaders – including Russian president Vladimir Putin, Pakistan’s prime minister Nawaz Sharif and Icelandic prime minister Sigmundur Gunnlaugsson, who was forced to resign as a result of the leak – are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.

Twenty-three individuals who have had sanctions imposed on them for supporting the regimes in North Korea, Zimbabwe, Russia, Iran and Syria have also been clients of Mossack Fonseca. In addition to these individuals, the firms other clients span the spectrum of bad guys, including member of the Japanese mafia, the Sicilian mafia, the Russia mafia, as well as weapons dealers, drug dealers, and pedophiles.

Tom: Why do people have these offshore accounts?

Mellody: There are a lot of reasons people hold offshore accounts, and many of them are legal. Immigrants keep accounts in their home country to manage expenses or support for relatives still in their home country. Americans living abroad also hold accounts there so they have access to a local bank to pay bills or get cash.

Two other reasons that people hold accounts overseas include asset protection and overseas businesses. Some people keep their assets abroad to protect them from a lawsuit, a divorce or other legal situation. Some people feel they’re targeted because of their wealth, and in many cases, assets in an offshore trust are untouchable in legal disputes. People outside the U.S. may also use offshore accounts if the political or financial climate in their own country isn’t stable. Businesses can also find it cheaper to incorporate a company abroad where registration fees or taxes are low.

Tom: What makes uses of these account illegal?

Mellody: These accounts get so much attention because they are often used to hide assets and shelter funds from taxes. Unlike most other countries, the U.S. taxes its citizens on all income, regardless of where it is earned or where they live, and many people try to avoid their tax burden by hiding income in shell companies or hidden accounts.

Other uses include money laundering – many of these offshore structures are used to launder money from illicit activities such as arms sales, drug sales, or other money made illegally – or hiding money obtained through corruption.

Tom: What will come of this leak?

Mellody: That really remains to be seen, Tom. We have already seen one democratic leader resign over this, and the pressure is building on many politicians in the UK and in Ukraine. And we have yet to see any Americans named in this leak, which is certain to change. Now, we are beginning to see calls for an international conference to push through policy changes that will close loopholes and bring greater transparency to the international banking system. The scale of the leak suggests that this story will play out over weeks, months and years, so stay tuned tom.

Tom: We certainly will. Thanks for joining us, Mellody.

Mellody: You are welcome, Tom.

Mellody is president of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS news and CBS.com.

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