Since the release of the Panama Papers, every day has brought on a new development. The sheer scale of the leaks is staggering — nearly 100 times more data than when Wikileaks released nearly 3 million US diplomatic cables.

The papers themselves include millions of leaked documents that reveal just how pervasive tax avoidance is among the world's most powerful and wealthy. They give a world tour of corruption, magnifying tactics used by the rich to keep their financial dealings secret. They have already forced out the prime minister of Iceland and raised uncomfortable questions for the prime minister of the United Kingdom.

But they also raised a lot of questions, from the complex to the simple: Who leaked the documents? How did we get into this situation in the first place? And what the hell is a shell company to begin with? While financial transparency remains a mainstay of many prominent world leaders' political platforms, the Panama Papers proved that international tax structures allow for widespread secrecy. Here's how:

1) What are the Panama Papers?

Let's start at the beginning. In short, the Panama Papers is the biggest leak of confidential data in history.

Specifically, the leak consisted of 11.5 million documents from Mossack Fonseca, a Panamanian law firm that specializes in helping people anonymously set up offshore shell companies in nations with lower taxes to protect their financial assets. The papers were initially released to German newspaper Süddeutsche Zeitung. The newspaper then partnered with the International Consortium of Investigative Journalists. For more than a year, 300 journalists reviewed the 2.6 terabytes of data before releasing their findings, now called the Panama Papers.

The documents showed the internal dealings, emails, invoices, and documents shared between the world's elite and the lawyers paid to help them retain their wealth. If we have learned anything from the Panama Papers, it's that the revelations that came out of them are extraordinarily complicated (explained in more detail here), and their impact has depended not just on what the papers themselves showed, but on the political situation surrounding the principal players.

The papers named 140 politicians from more than 50 countries linked to offshore financial dealings in more than 20 tax havens. It named famous athletes and celebrities, friends of world leaders, and wealthy divorcees, ultimately giving insight into how the wealthy are able to keep their money and power without being subject to their own country's laws and tax codes:

Iceland's prime minister resigned after the Panama Papers showed he was personally connected to an offshore company , Wintris, registered in the British Virgin Islands, that stood to benefit from bailout negotiations in which he was involved with big banks, although it's not clear whether he personally benefited financially.

, Wintris, registered in the British Virgin Islands, that stood to benefit from bailout negotiations in which he was involved with big banks, although it's not clear whether he personally benefited financially. UK Prime Minister David Cameron's father owned an offshore holdings company in Panama in which the prime minister also once had shares and sold before becoming prime minister in 2010.

in Panama in which the prime minister also once had shares and sold before becoming prime minister in 2010. There is a multimillion-dollar network of offshore companies surrounding Vladimir Putin and his closest friends that, although not directly linked to Putin by name, connects the Russian president to secret and questionable loans and investments in Russian monopolies.

and his closest friends that, although not directly linked to Putin by name, connects the Russian president to secret and questionable loans and investments in Russian monopolies. Mossack Fonseca was deeply tied to Brazil's current corruption scandal and President Dilma Rousseff's impeachment trial. The Panamanian law firm helped 57 people linked to the Petrobras scandal, a $5.3 billion bribery scheme implicating Brazil's most elite politicians and executives, and set up 107 offshore companies, including one allegedly tied to Eduardo Cunha, the lead opposition politician pushing for the president's impeachment.

2) How do tax havens and shell companies actually work?

Tax havens — countries, states, or territories where taxes are very low or nonexistent — often also have financial regulations that require less transparency in the banking system. Panama, for example, does not have an international transaction income tax or sales tax. The government only requires that offshore companies pay a $300 annual franchise tax.

Places like Panama — or the Bahamas, the Cayman Islands, or the British Virgin Islands — are particularly attractive for wealthy individuals because this legal framework makes it easy to hide their financial assets from the tax authorities of the countries in which they actually live and work.

Big multinational companies take advantage of tax havens to minimize their corporate income tax bill by internally shifting profit-making assets to subsidiaries located in low-tax countries. For example, Apple's global sales go through its subsidiary company in Ireland, which has lower corporate income tax.

Individuals can't really do this. Instead, they can go to law firms like Mossack Fonseca to set up inactive companies, called shell companies, the sole purpose of which is to hold financial assets.

Usually the true owners of these companies remain anonymous — on paper, shell companies are often directed by the lawyers who control the company but don't have any real control of the company's activities. These shell companies can hold investments, they can buy houses and multimillion-dollar yachts, and ultimately they allow the real owners to shield assets from scrutiny or taxation.

Setting up a shell company isn't illegal. Paying lower taxes in Panama or other tax havens isn't illegal either. These, like claiming deductions, are tax avoidance practices — legal ways to pay the least amount of taxes possible. But tax evasion — failing to accurately disclose your financial situation — is illegal. The precise line between legal avoidance and illegal evasion can be hard to detect, especially without access to full and complete financial records, so offshore shell companies can help blur the line.

3) Are offshore tax havens bad?

Tax havens let people avoid or evade paying a lot of money to the governments under which they live — which is good for the avoiders, and, again, is not necessarily illegal, but is usually bad for their fellow citizens.

Gabriel Zucman, an economist at the University of California-Berkeley, estimates that nearly $8 trillion — 8 percent of all the financial wealth in the world — is stashed in tax havens, and that illegal tax evasion costs governments around the world $200 billion per year in taxes. The problem is worst in Africa, where 30 percent of assets are in tax havens, and Russia, where the total wealth in tax havens is more than 50 percent.

Legal tax avoidance schemes cost the US a lot of money, too: A recent study from Oxfam found the top 50 corporations in the US had stowed more than a trillion dollars in 1,600-plus offshore subsidiary companies while still receiving trillions in federal funds, whether in the form of a loan or a bailout. Their tax avoidance practices cost the US more than $110 billion every year, according to Oxfam's report.

Organizations like Oxfam say this leads to further inequality, ultimately forcing the government to cut federal programs that are meant to aid lower-income citizens. Outside of the US, this kind of practice can also reduce tax gains in the developing world. Because tax havens are the product of an unorganized international tax system, developing countries are also cut out of about $100 billion of taxes — money that could go toward necessary infrastructure like schools, roads, etc.

Tax havens are also counter to ideals of financial transparency. One chief purpose of shell companies is to maintain the anonymity of the real owner, which has the potential to lead to even shadier things than tax avoidance. Tax havens are often seen as breeding grounds for criminal activity. When countries do not require companies to report financial records, it makes it really easy to mask illegal activities. This is the scene in the movies when the rich guy in a silk robe gets arrested for laundering money through his private Cayman Island resort.

And a lot of these law firms are set up to help people do just that.

Mossack Fonseca, the law firm at the center of the Panama Papers, has been investigated time and time again for aiding in money laundering schemes. In January, Brazilian prosecutors brought charges against their lawyers for hiding documents related to the Petrobras scandal. Before that, an American hedge fund that was invested in Argentina's defaulted debt investigated Mossack Fonseca's Las Vegas subsidiary for hiding records relating to offshore accounts that were stealing from Argentinian government contracts.

"When it comes to money laundering, we offer full service: rinse, wash, and dry," said Miguel Antonio Bernal, a Panamanian lawyer and political analyst told Vice. "You can go to any law firm in the city, from the smallest to the biggest, and open up a shell company with no questions asked."

In the end, tax havens make inequality worse, Zucman told Vox's Libby Nelson: They make it easier for the rich to get richer by avoiding taxes. They make it harder to redistribute their wealth. And people who aren't sheltering their assets end up paying more in taxes to make up for the untaxed money that's being held offshore.

4) If so many people think tax havens are bad, why are they still around? Isn't someone trying to do something about this?

The simplest way to approach this is that tax havens benefit the very wealthy and the very wealthy have a lot of political clout. Elites have largely allowed tax havens to exist because elites themselves benefit from their existence.

This doesn't mean fixes haven't been in the works. In both 2008 and 2014, the Senate investigated tax-evasion practices surrounding Switzerland's largest banks. During the second investigation, Credit Suisse agreed to a $196 million settlement with the US Securities and Exchange Commission for illegal banking.

In 2015, Sen. Sheldon Whitehouse (D-RI) introduced the Stop Tax Haven Abuse Act. The bill, supported by many tax-justice oriented organizations, would tighten reporting requirements on offshore companies and treat certain offshore companies owned by Americans as taxable domestic corporations. It was referred to House committees the day it was introduced and has not moved since.

There are multiple reasons for this.

First, tax havens' major beneficiaries are multinational corporations that have powerful lobbyists. According to the Oxfam study, a corporation is run by a "multibillion dollar army of lobbyists to influence federal policy," which not only guarantees them millions in loans, loan guarantees, and bailouts, but also finds ways to eventually bring the money they have stored offshore back into the country without exorbitant taxes.

But also there are some persistent counterarguments to putting an end to tax havens. One, paying higher taxes prevents them from investing in resources that could ultimately benefit people. And second, there is the notion of double-taxing, which is the idea that without tax havens people could be taxed on the same income, assets, or financial transactions in two different jurisdictions.

In the current international tax structure, double taxing is prevented with tax deals between countries. For example, under President Barack Obama's administration the United States passed a deal with Panama that eliminated tariffs on trade and gave Panama access to US businesses and financial services.

5) How did we get into this situation in the first place? Is a trade deal with Panama to blame?

Many congressional critics of the free trade agreement between the US and Panama, which passed in 2012, warned the deal would worsen Panama's status as a tax haven. One of those critics, presidential candidate Bernie Sanders, used the Panama Papers to vindicate his stance against the Panama free trade deal.

"The Panama Free Trade Agreement put a stamp of approval on Panama, a world leader when it comes to allowing the wealthy and the powerful to avoid taxes," Sanders said in a statement following the release of the Panama Papers.

"I predicted that the passage of this disastrous trade deal would make it easier, not harder, for the wealthy and large corporations to evade taxes by sheltering billions of dollars offshore. I wish I had been proven wrong about this, but it has now come to light that the extent of Panama’s tax avoidance scams is even worse than I had feared."

But this isn't necessarily the case. In fact, countries can use trade deals to put checks on tax havens. The papers themselves indicate that the agreement made it slightly ​harder​ for Americans to use Panama specifically as a venue, as the Washington Post's editorial board argues:

Data culled from the documents by the International Consortium of Investigative Journalists, and presented in several charts on the group’s website, show that the Panama-based law firm Mossack Fonseca, which specialized in setting up offshore accounts and shell companies for wealthy people, has been steadily reducing its activity in Panama for about a decade. As it happens, the decline began about the time the Bush administration and Panama began discussing a free-trade pact — and accelerated after the deal took effect during Mr. Obama’s first term. [...] The Obama administration, backed by members of Congress, made it clear the free-trade deal — which Panama badly wanted, to match a deal between its Central American neighbors and the United States — hinged on a separate agreement granting U.S. tax authorities more access to Panama’s financial system. The United States particularly insisted on plugging the "bearer shares" loophole. Panama agreed and changed its laws accordingly — before the free-trade agreement reached the Senate and Mr. Sanders nevertheless voted "no," claiming, wrongly, that it would make the tax haven "worse."

6) Taxes are kind of confusing. Can we just watch cartoons instead?

Yes. But only if it's a fun educational cartoon about shell companies and tax havens. Here are the Panama Papers explained in an adorable comic about piggy banks:

7) Hold up. Back to the Panama Papers. Who actually leaked these documents?

We don't actually know.

In an interview with Wired, Bastian Obermayer, the Süddeutsche Zeitung reporter who first interacted with the anonymous whistleblower, said the German paper had months of encrypted conversations with the source, who over a few months continuously fed the reporters troves of confidential documents, emails, and invoices.

Obermayer said the source said his or her "life is in danger." They never met in person and only communicated in encrypted messages. In the months that followed, Süddeutsche Zeitung partnered with journalists around the world and created an encrypted database to work through the leaked documents. The paper has not released the raw data and has said it will not do so, in order to protect the source.

"You don't harm the privacy of people, who are not in the public eye. Blacking out private data is a task, that would require a lifetime of work — we have eleven million documents," the reporters wrote in a Reddit AMA.

The law firm in question, Mossack Fonseca, maintains that the leak did not come from one of its employees.

So, the source is still anonymous, but there are a lot of theories about who leaked the documents. It's fun to speculate, but the conspiracy theories also illustrate how different parts of the world are reacting to the leak:

Putin's theory is that the US leaked the documents as part of a larger scheme to "destabilize" Russia, adding that the entire motive behind leaking the documents was to smear him as president.

"They are trying to destabilize us from within in order to make us more compliant," Putin said in response to the information revealed in the documents.

The Brookings Institute's Clifford G. Gaddy theory is that Russia leaked the documents, which turns Putin's theory on its head, claiming that this was some long-reaching Russian ploy to blackmail the US. How? Because while the Panama Papers mired Russian elites in headlines, they said little that was unknown. Rather, Gaddy says the papers are more interesting in what they don't reveal: the offshore habits of American elites. That information, he says, the Russians are keeping as blackmail:

Any actual reputational damage to Putin or Russia caused by the Panama Papers is in fact pretty trivial. For that cheap price, the Russians would have 1) exposed corrupt politicians everywhere, including in "model" Western democracies, and 2) fomented genuine destabilization in some Western countries. What I wonder, then: Is it a set-up? The Russians threw out the bait, and the United States gobbled it down. The Panama Paper stories run off Putin like water off a duck’s back. But they have a negative impact on Western stability. [...] Therefore, I suggest that the purpose of the Panama Papers operation may be this: It is a message directed at the Americans and other Western political leaders who could be mentioned but are not. The message is: "We have information on your financial misdeeds, too. You know we do. We can keep them secret if you work with us." In other words, the individuals mentioned in the documents are not the targets. The ones who are not mentioned are the targets.

These two conspiracy theories have one thing in common: They suggest that the revelations in the Panama Papers were very important to Russia and Putin in particular. Even if neither is true — yes, Gaddy's theory is somewhat outlandish, but he's also one of the most prominent experts on Russia's economy — that's an important point of context to understand why they've made news.

8) Why didn't Americans make the Panama Paper headlines?

We have three options here: One, we can go with Gaddy's theory that they actually did make an appearance in the papers and we just don't know about it yet; two, that Americans have used other tax-avoidance schemes; or three, that Americans are in the clear and don't use tax-avoidance schemes. The third is not the correct answer.

As the Oxfam study said, especially in corporate America, the use of tax havens is pervasive. Americans are not exceptional in this regard.

And there are plenty of very wealthy Americans who are surely implementing tax-avoidance schemes. Mossack Fonseca is one law firm – and one that as a policy "prefer(s) not to have American clients," founder Roman Fonseca recently told the Associated Press.

"My partner is German, and I lived in Europe, and our focus has always been the European and Latin American market," Fonseca told the AP.

But there is an additional point to be made here. The term "offshore tax haven" or offshore company, uses "offshore" very loosely. America has its own tax havens — a lot of them.

As James Henry, a senior adviser to the Tax Justice Network, wrote in a 2012 report, first reported by the Washington Post, offshore can also mean right at home for Americans looking to protect their assets:

"The term offshore refers not so much to the actual physical location of private assets or liabilities, but to nominal, hyper-portable, multi-jurisdictional, often quite temporary locations of networks of legal and quasi-legal entities and arrangements that manage and control private wealth," Henry wrote.

Namely, Delaware, Nevada, Wyoming, Montana, South Dakota, and New York are all tax-friendly for keeping financial assets, even when compared to the more iconically known tax havens like the Bahamas or Panama.

9) Okay, so a lot of data was just released and important people were named. Is anything actually going to change now that we know this?

It's true this sort of tax-avoidance scheming has been going on forever; it has long been documented that people try to find every possible way to pay fewer taxes.

But as the stories continue to unfold some things have started to change. There were the immediate reactions: Iceland's prime minister resigned out of embarrassment, British Prime Minister David Cameron, who released his personal financial assets in an attempt at transparency — a promise he had made earlier on as prime minister and is now under enormous pressure to uphold — will also host an anti-corruption summit in the coming month, which will surely discuss the Panama Papers' findings.

The European Union's Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici also threatened sanctions against Panama and other tax havens if they do not close their tax loopholes, according to the Associated Press.

Panama, which has not cooperated with international tax issues in the past, has responded to the strong international outrage, forming an international committee of experts to recommend best transparency practices for Panama's offshore financial industry.

"The Panamanian government, via our foreign ministry, will create an independent commission of domestic and international experts ... to evaluate our current practices and propose the adoption of measures that we will share with other countries of the world to strengthen the transparency of the financial and legal systems," President Juan Carlos Varela said in a televised address after the papers were released.

There have been a lot of calls for action. Now it is a waiting game to see if changes will be implemented.