A coalition of journalists broke a huge tax haven scheme dubbed the “Panama Papers” this week. The group released more than 11.5 million documents that experts say dwarf its predecessor Wikileaks and embroil numerous world leaders like the King of Saudi Arabia and UK Prime Minister David Cameron, as well as, 411 Americans, who have yet to be named as investors in “secret off-shore” corporations that are purportedly lawful vehicles designed to shield them from pubic and governmental scrutiny.
Gerard Ryle Journalist for the Investigative Consortium of Journalist Project (ICJP) revealed documents pertaining to thousands of “off-shore” companies created by Panamanian law firm Mossak Fonseca, which claimed to have been the victim of a data breach.
The leaked information was offered to the German government and “the German government bought the information and then subsequently other governments around the world, including the US and the British governments were offered the documents. We were lucky enough to get the to that material and we crossed-referenced that material with this material and of course, it all matched perfectly,” he told CNN. “There’s no doubt that illegality is occurring here.”
Meanwhile, Mossak Fonesca issued the following statement, “Our industry is not particularly well understood by the public, and unfortunately, this series of articles will only serve to deepen that confusion. The facts are these: while we may have been the victim of a data breach, nothing we’ve seen in this illegally obtained cache of documents suggests we’ve done anything illegal, and that’s very much in keeping with the global reputation we’ve built over the past 40 years of doing business the right way, right here in Panama. Obviously, no one likes to have their property stolen, and we intend to do whatever we can to ensure the guilty parties are brought to justice.”
But France’s President, Francois Hollande praised the hackers as whistleblowers. “It’s thanks to those (whistleblowers) who come forward, that we now have this information, these whistleblowers are doing work that is useful for the international community.”
Apparently, the Panama tax shelter status was a well-kept secret for the rich and famous. The 6 percent growth rate the Central American country enjoyed last year should have been a tipoff for IRS agents. Under Panamanian law, companies can be created for approximately $1,000 USD and can be set up in low-tax or no-tax jurisdictions that provide absolute secrecy. Plus, more than 100 multinational businesses have set up shop in the equatorial nation that touts criminal punishment for anyone who discloses any foreign companies financial information.
During the 1980s, dictator and US puppet, Manuel Noriega, opened Panama to Colombian drug traffickers who stashed their cocaine profits. Panama fashioned its safe-haven status after Delaware’s lawful tax skirting program. “Panama was a pioneer in the offshore finance system and has been central to drug-money laundering schemes, (and) to various kinds of arms-dealing schemes,” Jack Blum, an adviser at the Tax Justice Network said. “That offshore center has become — second next to the canal — the principal source of income in Panama.”
Exactly how much money flows in and out of Panama is hard to pin down, but UC Berkeley professor and economist, Gabriel Zucman, estimates approximately $7.6 trillion, or 8 percent of global financial assets derive from Panama. “Panama has a reputation for secrecy, incorporating companies and forming foundations,” he told the Washington Post.
Current Democrat Senator and Presidential candidate Bernie Sanders warned President Obama and Congress in 2011. Financial gurus say Sanders’ concerns were well founded and the Panamanian Free Trade Agreement makes it easier to transfer money between the United States and Panama.
On the other hand, Democratic presidential frontrunner Hillary Clinton has consistency supported trade deals, including Panama, Columbia, and South Korea. However, when news of the Panama papers broke last week Clinton promptly responded. “Some of you may have just heard about these disclosures about outrageous tax havens and loopholes that super-rich people across the world are exploiting in Panama and elsewhere,” Clinton lamented at a campaign stop last week. “Now some of this behavior is clearly against the law, and anyone who violates the law anywhere should be held accountable. But it’s also scandalous how much is actually legal.”
It’s worth noting that Hillary and her husband both set up two shell companies listed at 1209 North Orange Street in Delaware in 2008 and 2013, one for her book deal and the other for her husband’s speaking engagements. Also, the Clinton Foundation registered three other companies. One for her book deal, the other for Haiti development and some sort of worldwide fund, according to the Clinton Foundation amended tax returns.
Public Citizen, an advocacy group, stated at the time: “The FTA’s Services, Financial Services, and Investment Chapters include provisions that forbid limits on transfers of money between the U.S. and Panama. Yet, such limits are the strongest tools that the United States has to enforce policies aimed at stopping international tax avoidance. We can’t say for sure what led both President Obama and Secretary of State Clinton to reverse their positions on Panamanian free trade in the time between the 2008 campaign and when they entered the executive branch in 2009. But one thing is clear: While trade between the U.S. and Panama isn’t so important as to be a big boon or a detriment to the U.S. economy, America’s relationship with Panama is critical for diplomatic and law enforcement reasons.”
Now that the proverbial Pandora’s Box has been opened will US law enforcement officials swoop in and bust the US tax evaders? “The official, who is familiar with ongoing discussions about the document trove, said agents from every three-letter agency are lining up to crunch the data to bolster existing cases and build new ones against organized crime syndicates, drug cartels, foreign corrupt and kleptocratic regimes and even suspected Hezbollah terror cells in Latin America and possibly the U.S. That includes the FBI, the IRS and other Treasury agents, the Drug Enforcement Administration (DEA) and the Department of Homeland Security (DHS),” according to NBC News.
In an effort to control international as well as internal damage, a number of countries, like China, are censoring the release to protect dozens of Chinese leaders who are included in the scheme, other dictators mentioned in the tax haven include Libya’s deceased Dictator Muammar Gadhafi, Syria’s civil-war embattled President Bashar al-Assad as well as friends of Russia’s President Vladimir Putin.
Since the latest treasure trove of financial documents has been released, many world leaders and politicos are questioning why the leak saw the light of day now?
Clifford G. Gaddy of the Brookings Institute, that receives funding from Qatar, believes the Russians are behind the leak. “We know two things and both come back to Putin personally.” First, Putin runs an operation named RFM, and, it’s ultimately about blackmail. “That means the real story lies in the information being concealed, not revealed. You reveal secrets in order to destroy; conceal in order to control. Putin is not a destroyer. He’s a controller,” Gaddy claims.
“The Panama Papers contain secret corporate financial information, some of which—by far not all—reveals criminal activity. In the hands of law enforcement, such information can be used to prosecute companies and individuals; in the hands of a third party, it is a weapon for blackmail. For information to be effective as a blackmail weapon, it must be kept secret. Once revealed, as in the Panama Papers case, it is useless for blackmail. Its value is destroyed. 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,” Gaddy wrote on the Brookings Institute website. “By then blackmailing the real targets in the United States and elsewhere (individuals not in the current leak), the Russian puppet masters get “kontrol” and influence.
A Washington Post article agrees with Brookings and highlights additional points.
*It was a hacker backed by the Russian government who emailed the German newspaper Süddeutsche Zeitung to offer the leak in early 2015, the initial contact that would eventually lead to the release of the Panama Papers.
*There’s deliberately little information within the Panama Papers that harms Putin: While the $2 billion figure has been reported widely, the link to Putin is relatively obscure, and the Russian president has survived far worse accusations of corruption. (Some reports say as much as $200 billion are held by Putin.)
*Meanwhile, there’s plenty of information in the Panama Papers that has already proven extremely embarrassing for other world leaders. At the least, Gaddy argues, this makes Putin and his reputation for corruption seem like less of an outlier and more of standard operating practice.
*The fact that so few Americans have been linked to the Panama Papers could suggest that their details were deleted from the documents given to Süddeutsche Zeitung and passed on to other media outlets. If this is true, Gaddy suggests that the lack of this information in the release means that it could be being held back for blackmail purposes.
In any event, “This is a massive blow to secrecy and the offshore world only has one product and that’s secrecy,” Ryle said.
According to the documents, Fonseca, a self-described tax haven, knows the identities of just 204 of 14,086 companies it incorporated on the Indian Island of Seychelles.
But in 2010, United States government passed the Panama Trade Promotion Agreement, which included a taxation clause that effectively was supposed to force both countries to share financial information in an effort to monitor Panama’s tax haven attractiveness with the rich.
“The Tax Information Exchange Agreement includes a clause, Article 5, that specifies the terms of information sharing between the two countries on tax related matters,” according to rules in the trade deal. The competent authority of the requested Party shall provide upon request by the competent authority of the requesting Party information for the purposes referred to in Article 1 of this Agreement. Such information shall be exchanged without regard to whether the requested Party needs such information for its own tax purposes or the conduct being investigated would constitute a crime under the laws of the requested Party if it had occurred in the territory of the requested Party.”
So, why are there few American’s listed in the initial stories? The Washington Post suggests, “Americans prefer tax havens other than Panama. US citizens are thought to favor more secure havens such as the Isle of Man, the Cayman Islands, and Switzerland.”
As for the $7.6 trillion funneling through Panama, US taxpayers questioning any legal consequences for Americans will have to stay tuned and hope Wikileaks isn’t right, as they have deemed the Panama Papers “the flop of the century.”