Paul Lashmar: Media crack open cash haven
WITH the Panama Papers exposé perhaps we can now say the fortress walls of offshore secrecy are finally cracking. Such havens allow corruption and tax avoidance to take place on a massive international scale by some of the richest and most powerful people on Earth. Meanwhile, the poor get poorer.
Western politicians have huffed and puffed about clamping down on offshore havens, but in reality their collective breath would not have knocked over a little piggie’s straw house, let alone bastions of vested interest. It is thanks to investigative reporters, whistle blowers and unprecedented international media collaboration that the matter is being forced.
Advocacy group Global Financial Integrity reports that illegal channelling of profits offshore cost developing countries nearly US$6-trillion (R88-trillion) between 2001 and 2010. As Facebook posters like to remind us, 1% of the world’s population owns half the wealth and they like to hoard it.
But finally things may be changing. We are being treated to the third major offshore data leak in as many years.
The first was the Cayman Islands tax leak in 2013 that exposed a huge number of major figures worldwide as holding accounts in the tiny island – a British dependency – in secrecy. Then there was the great HSBC leak which revealed that the company’s Swiss private bank had helped wealthy account holders from other nations to dodge huge sums of due tax.
Now it is the turn of Panama – an excellent place to park large sums of money. The Panama investigation has again featured a network of like-minded journalists in a range of countries.
The network has been built up over a series of multinational collaborations. Among the organisations involved are The Guardian and BBC TV’s Panorama programme, which have a long-standing relationship with the International Consortium of Investigative Journalists (ICIJ) which is at the heart of this operation.
The material is reported to have been leaked to German newspaper Süddeutsche Zeitung from the database of Mossack Fonseca, the world’s fourth biggest offshore law firm. As the cracks appear in the once invincible wall of tax haven secrecy, it must be dawning on the rich and powerful that their privacy is no longer guaranteed.
The opening reports of the Panama Papers focus on a US$2-billion (R29-billion) trail to Russian president Vladimir Putin. But we can expect coming days to bring revelations about many more people.
The last thing the rich and powerful who have offshore bank accounts want is publicity about them. Their questions must be: “where next” and “which havens remain safe”?
What is important about Panama’s financial services industry? If you tap “Panama offshore” into Google you get a long list of adverts offering to set up a Panamanian offshore (secret) bank account for you.
For those wanting to establish a really secret tax avoidance scheme it is not good enough just to pick one offshore tax haven – say the British Virgin Islands or the Cayman Islands. You need a series of interlocking offshore accounts in different jurisdictions to guarantee anonymity.
British Virgin Islands is good for setting up companies and the Caymans provides extremely discreet bank accounts. Meanwhile Panama is tax exempt and stonewalls requests for company information from investigators in the rest of the world.
Offshore companies incorporated in Panama – and the owners of the companies – are exempt from any corporate taxes, withholding taxes, income tax, capital gains tax, local taxes, and estate or inheritance taxes, including gift taxes.
Panama has more than 350 000 secretive international business companies (IBCs) registered, the third largest number in the world after Hong Kong and the British Virgin Islands.
Alongside incorporation of IBCs, Panamanian financial services are proactive in forming tax-avoiding foundations and trusts, insurance, and boat and shipping registration. Violation of financial secrecy is punishable by prison.
Panama ranks at 14th position on last year’s Financial Secrecy Index. But it remains a jurisdiction of particular concern.
The Organisation for Economic Co-operation and Development’s Pascal Saint Amans summed up the problem: “From the standpoint of reputation, Panama is still the only place where people still believe they can hide their money.”
The Tax Justice Network (TJN) says that “until now Panama has been fairly indifferent to reputational issues, but the increased attention that Panama receives will inevitably raise concerns among the punters that Panama is no longer able to effectively protect the identity of the crooks and scammers attracted by its dodgy laws and equally dodgy law firms”.
TJN says Panama has long been the recipient of drugs money from Latin America, plus ample other sources of dirty money from the US and elsewhere. In recent years it has adopted a hard-line position as a jurisdiction that refuses to cooperate with international transparency initiatives.
In Jeffrey Robinson’s 2003 examination of tax havens, The Sink: Terror, Crime and Dirty Money in the Offshore World, a US Customs official is quoted as saying: “The country is filled with dishonest lawyers, dishonest bankers, dishonest company formation agents and dishonest companies registered there by those dishonest lawyers so that they can deposit dirty money into their dishonest banks. The Free Trade Zone is the black hole through which Panama has become one of the filthiest money laundering sinks in the world.” Paul Lashmar is a senior lecturer in journalism at the University of Sussex. This article first appeared on The Conversation website.
