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European Union flags outside the EU Commission headquarters in Brussels, Belgium.Francois Lenoir/Reuters

The European Union has threatened to sanction countries such as Panama if they continue to refuse to co-operate fully to fight money laundering and tax evasion, after a leak of data showed the tiny country remains a key destination for people who want to hide money.

A leak of 11.5 million documents from Panama-based law firm Mossack Fonseca showed it had helped thousands of individuals and companies from around the world to set up shell companies and offshore accounts in low-tax havens. Because such accounts often hide the ultimate owner of the money, they are a favoured tool to launder money, pay bribes or evade taxes.

So far, the scandal has brought down the leader of Iceland and raised questions about the dealings of the presidents of Argentina and Ukraine, senior Chinese politicians, famous actors, athletes and the circle of friends of Russian Vladimir Putin, who some allege has profited indirectly from such accounts.

"People are fed up with these outrages," said Pierre Moscovici, who heads financial affairs for the 28-member EU. He took to task countries such as Panama that facilitate such secretive, low-tax accounts.

"The amounts of money, the jurisdictions and the names associated with this affair are frankly shocking," he said. Speaking of countries such as Panama, he said the EU has to "be ready to hit them with appropriate sanctions if they refuse to change."

Panama is listed by the EU as a country that is not co-operative on tax issues, and Mr. Moscovici urged the country to "rethink its position in this regard."

The Central American country's government said late Wednesday it is creating an international committee of experts to recommend ways to boost transparency in its offshore financial industry.

President Juan Carlos Varela said the committee's findings will be shared with other nations so joint action can be taken to boost transparency in legal and financial centres worldwide.

But Mr. Varela defended Panama against what he called a "media attack" by wealthy countries that he says are ignoring their own deficiencies and unfairly stigmatizing Panama.

Europe is also home to countries with a record of acting as tax havens and providing banking secrecy – Luxembourg, Switzerland, Andorra, among others. The United States has also become a haven, with several states including Wyoming and Delaware now popular places to open anonymous accounts that are cheap to maintain and pay little or no local tax.

Since the first reports were published Sunday, prominent politicians, celebrities and businesspeople have had their offshore business dealings dragged into the spotlight. On Thursday, the German newspaper that first obtained the so-called Panama Papers, said it won't publish all the files, arguing that not all are of public interest.

Sueddeutsche Zeitung received the documents from an unidentified source more than a year ago and shared at least parts of them with dozens of other media outlets around the world.

Sueddeutsche Zeitung said the complete set of 11.5 million documents "won't be made available to the public or to law enforcement agencies. That's because the SZ isn't the extended arm of prosecutors or the tax investigators."

The Washington-based International Consortium of Investigative Journalists, which helped co-ordinate reporting on the leaks, also said it "will not release personal data en masse" but mine the information for details of public interest.

It was not clear if the German paper had shared all the data with the ICIJ and other media outlets or signed an accord with them on what could be reported on.

Authorities have legal powers to obtain such documents from those suspected of wrongdoing, and in many cases there's no public interest in revealing companies' or individuals' offshore business dealings, the Munich-based paper said.