A huge leak of documents that implicate government heads in the setting up of "shell" companies to harbor billions of dollars is set to cause upheaval on offshore hubs and shake up global political governance. A team of journalists from around the world published what they called the "Panama Papers" on Sunday—more than 11.5 million encrypted internal documents from Mossack Fonseca, a Panamanian law firm. An anonymous source began supplying the documents— dated from the 1970s to 2016—to German newspaper Süddeutsche Zeitung (SZ) a year ago. SZ assembled a group of media organizations, including the International Consortium of Investigative Journalists (ICIJ), The Guardian, the BBC and Le Monde, to analyze the data, before simultaneously releasing their findings.

Calling the leak "the biggest that journalists had ever worked with," SZ said the documents revealed numerous shadowy financial transactions via offshore companies created by Mossack Fonseca. The law firm, who has more than 40 offices worldwide, specialized in the sale of anonymous offshore companies, known as shell firms. According to SZ's findings, 12 current and former heads of state, 200 other politicians, as well as members of various Mafia organizations, plus football stars, 350 major banks, and hundreds of thousands of regular citizens were among Mossack Fonseca's clients. It is important to note that owning an offshore company is not illegal in itself, but SZ alleged that concealing the identities of the true company owners was the law firm's primary aim in the bulk of cases. Mossack Fonseca told the BBC, which also released the leaked information Sunday, that it had always complied with international protocols to ensure the companies it incorporates are not used for tax evasion, money-laundering, terrorist financing "or other illicit purposes." While people often legitimately move funds to countries outside their national boundaries to access more relaxed financial regulations, offshore companies are also commonly associated with tax evasion as well as serious illicit activities such as money laundering. CNBC has not been able to independently verify the allegations made by media outlets that studied the documents.

Big names involved

Argentine President Mauricio Macri, Iceland's Prime Minister Sigmundur Davíð Gunnlaugsson, Saudi Arabia's King Salman, U.A.E President Sheikh Khalifa and Ukrainian President Petro Poroshenko are among those named in the documents as having set up shell companies, according to SZ.

Relatives and associates of other leaders, including Russia's Vladimir Putin, China's Xi Jinping, Syria's Bashar Assad and Britain's David Cameron, were also identified by the team of reporters that examined the documents. Prominent Asian officials named in the reports included Anuraj Kerjiwal, the former head of Indian political party Lok Satta, as well as Cambodia's Minister of Justice. Ramon Fonseca, the director of Mossack Fonseca, told Reuters that the firm was not responsible for the activities of the companies it incorporated. "We're dedicated to making legal structures which we sell to intermediaries such as banks, lawyers, accountants and trusts, and they have their end-customers that we don't know," Fonseca said. But revelations have caused a global uproar, with pundits warning of dire financial and political consequences to come.

An offshore crackdown

Gerard Ryle, the ICIJ director who coordinated coverage of the leak, told CNBC's "Squawk Box" on Monday that global leaders must unite to enforce strict controls on offshore havens.

"We're looking at a system that's actually broken. You've got a system that sells, as a primary product, secrecy...If you go to the offshore world, you can do things that you wouldn't be able to do at home." Some of the world's well-known offshore hubs include Switzerland, Bermuda, the Cayman Islands and Cyprus. The emergence of Panama as a busy offshore destination was a surprise to many experts. "We see various crackdowns on the offshore world by the OECD and the E.U., for example. But every time they create new rules, the offshore world creates new ways of getting around that world. It can't be ended until there's a collective outcry around the world," said Ryle. Aside from tax evasion, a key concern is that some countries are using offshore companies as a front for illegal activities, especially when it came to so-called rogue nations like North Korea, he continued. Strategists widely expect the Panama Papers to result in increased regulation. "The fact that very strong spotlights are going to be shined on micro-states like Panama is going to put a lot of pressure on them as well as governments engaged in those activities," said Ian Bremmer, president of consultancy firm Eurasia. "This will cause more instability than what you saw with Snowden," he continued, referring to a 2013 leak about global surveillance programs by Edward Snowden, a former contractor for the U.S. government. Already, the non-famous clients of Mossack Fonseca are under pressure. Australia's Taxation Office told Reuters that it had opened an investigation with federal police, the country's Crime Commission and the anti-money laundering regulator on 800 Australian taxpayers whose names appeared in the documents.

Political tensions to heighten

Sunday's leak could cause serious political conflict, warned Bremmer.

"This is the kind of thing that leads to violence, people getting killed in those countries. It's a threat to the rule of leaders and the regimes," he said, referring to some of the rogue nations named in the leak. It remains to be seen how the governments involved will respond to bolster their credibility, both at home and within the international community, he said. Russia, in particular, could respond aggressively, Bremmer added. Given that the ICIJ was partially funded by billionaire George Soros' Open Society Foundation, the Kremlin may seek to punish the U.S., Soros and the CIA, he noted. "This is going to make Russian policy towards the U.S. even more antagonistic." Bremmer believes the $2 billion linked to people close to President Putin was just "a tiny fraction of what the Kremlin has actually been laundering." In Iceland, Gunnlaugsson already reportedly faces calls for his resignation amid mounting pressure for a no-confidence vote, after the Panama Papers revealed he bought an offshore company in 2007 that he didn't declare when entering parliament in 2009. The PM has reportedly denied that he obtained any financial advantage from the arrangement.

The privacy issue