Mossack Fonseca is not a household name, but the Panamanian law firm has long been well-known to the global financial and political elite, and thanks to a massive 2.6-terabyte leak of its confidential papers to the International Consortium of Investigative Journalists it's about to become much better known. A huge team of hundreds of journalists is poring over the documents they are calling the Panama Papers.

The firm's operations are diverse and international in scope, but they originate in a single specialty — helping foreigners set up Panamanian shell companies to hold financial assets while obscuring the identities of their real owners. Since its founding in 1977, it's expanded its interests outside of Panama to include more than 40 offices worldwide, helping a global client base work with shell companies not just in Panama but also the Bahamas, the British Virgin Islands, and other notorious tax havens around the world.

The documents provide details on some shocking acts of corruption in Russia, hint at scandalous goings-on in a range of developing nations, and may prompt a political crisis in Iceland.

But they also offer the most granular look ever at a banal reality that's long been hiding in plain sight. Even as the world's wealthiest and most powerful nations have engaged in increasingly complex and intensive efforts at international cooperation to smooth the wheels of global commerce, they have willfully chosen to allow the wealthiest members of Western society to shield their financial assets from taxation (and in many cases divorce or bankruptcy settlement) by taking advantage of shell companies and tax havens.

If Panama or the Cayman Islands were acting to undermine the integrity of the global pharmaceutical patent system, the United States would stop them. But the political elite of powerful Western nations have not acted to stop relatively puny Caribbean nations from undermining the integrity of the global tax system — largely because Western economic elites don't want them to.

What's a shell company? Why would someone want one?

Sometimes a person or a well-known company or institution wants to buy things or own assets in a way that obscures who the real buyer is.

The typical reason for this is a kind of routine corporate secrecy. Apple, for example, appears to have created a shell company called SixtyEight Research that journalists believe to be a front for its interest in building a car. Since Apple happens to be the most covered company on the planet, this hasn't been incredible effective — and when SixtyEight Research staff showed up at an auto industry conference, everybody noticed.

But in general, companies don't like to tip their hand to what they are doing, and the use of shell companies to undertake not-ready-for-public-announcement projects can be a useful tool.

Shell companies are often used for simple privacy reasons. Real estate transactions, for example, are generally a matter of public record. So an athlete, actor, or other celebrity who wants to buy a house without his name and address ending up in the papers might want to pay a lawyer to set up a shell company to do the purchasing.

Okay, but how about the shady stuff?

As is generally the case in life, secrecy can have illegitimate purposes as well. This is particularly true for shell companies set up in international centers of banking secrecy that offer a level of anonymity and obscurity that goes beyond simply making it hard to look up the real owner's name online.

Your soon-to-be-ex-wife cannot seize half of the money in an account that she and her lawyers don't know exists and can't prove that you own, for example. Nor can your creditors seize such an account in a bankruptcy proceeding. Nor can the government levy estate taxes on it when you die and pass it on to your kids. In all those circumstances, a Panamanian company that you secretly control and that holds stocks, bonds, and other financial assets on your behalf could be the ideal vehicle.

By the same token, if you have made a bunch of money illegally (taking bribes, trafficking drugs, etc.) you need to do something with the money that won't attract the attention of the authorities or the media. A secret offshore shell company is perfect. Not only does it help you avoid scrutiny in real time, but if you are found out its assets can't be taken from you if you have to flee the jurisdiction or even serve jail time.

But even though various criminal money-laundering schemes are the sexiest possible use of shell companies, the day-to-day tax dodging is what really pays the bills. As a manager of offshore bank accounts told me years ago, "People think of banking secrecy as all about terrorists and drug smugglers, but the truth is there are a lot of rich people who don't want to pay taxes." And the system persists because there are a lot of politicians in the West who don't particularly want to make them.

What do the Panama Papers show?

As you would imagine, there is quite a lot in the 2.6 terabytes. Here are a few of the highlights the team found, with links to the full stories where you can read the details:

The International Consortium of Investigative Journalists has a full profile of political figures and their relatives named in the Panama Papers for your reading pleasure.

But though political corruption is fun and newsy, the document dump also features a leaked memorandum from a Mossack Fonseca partner revealing the more boring truth that "[n]inety-five per cent of our work coincidentally consists in selling vehicles to avoid taxes."

How much money is there in offshore tax havens?

A big part of the idea, of course, is to make it hard for anyone to know for sure.

But Gabriel Zucman, an economics professor at UC Berkley, has made the most detailed study of the question for his book The Hidden Wealth of Nations, and estimates that it totals at least $7.6 trillion. That's upward of 8 percent of all the world's financial wealth, and it's growing fast. Zucman estimates that offshore wealth has surged about 25 percent over the past five years.

Much of that reflects "new money" from China and other developing nations whose citizens to an extent have legitimate fears about political stability and the rule of law.

But some of it is simple avarice. The name of Ian Cameron, the late father of British Prime Minister David Cameron, shows up in the Panama Papers, for example. Mossack Fonseca helped him set up his investment company Blairmore Holdings (named after his family's ancestral country estate) in the British Virgin Islands, where, marketing material assured investors, the company "will not be subject to United Kingdom corporation tax or income tax on its profits."

This particular kind of move is perfectly legal and doesn't even involve any secrecy. It is entirely typical for investment companies whose employees all work or reside in New York, London, or Connecticut to be domiciled for tax purposes in someplace like the Cayman Islands. Since these companies don't own much in the way of physical assets, they can be officially located anywhere in the world and naturally choose to locate in jurisdictions where they won't need to pay taxes.

Why doesn't anyone do anything about this?

To an extent, things have been done.

First the war on drugs and then, more recently, the war on terror led to meaningful political pressure on countries around the world to alter their banking practices so as to reduce global money laundering. More recently, the European Union has successfully pressured Switzerland to change its laws to make it easier for the EU to catch people engaged in criminal tax evasion.

But there's a big difference between tax evasion — illegally refusing to pay taxes you owe, and then taking advantage of secret accounts to try to hide the money and get away with it — and tax avoidance, which is hiring clever people to help you find and exploit legal loopholes to minimize your tax bill.

Incorporating your hedge fund in a country with no corporate income tax even though all your fund's employees and investors live in the United States is perfectly legal. So is, in most cases, setting up a Panamanian shell company to own and manage most of your family's fortune.

Tax avoidance is an inevitable feature of any tax system, but the reason this particular form of avoidance grows and grows without bounds is that powerful politicians in powerful countries have chosen to let it happen. As the global economy has become more and more deeply integrated, powerful countries have created economic "rules of the road" that foreign countries and multinational corporations must follow in order to gain lucrative market access.

Establishing some kind of minimum global standard of taxation of corporate and investment income hasn't been done, because it hasn't been a political priority. In the United States, in particular, the Republican Party fights quite hard for the view that high levels of taxation on rich people and investment income are economically ruinous, so there isn't the kind of institutional mobilization that exists around drug trafficking or possible terrorism financing.

The leak of the Panama Papers is significant in part because of the specific information the documents contain, but more broadly because they draw attention to what "everyone knows" and may put public pressure on the powers that be to do something about it.

Watch: The power of wealth in American politics