Kossacks who have been paying attention to the international news may have heard about the Panama Papers scandal, in which papers leaked from a Panamanian law firm, Mossack Fonseca, revealed how individuals and companies used Panama as a tax haven. They set up shell companies and used banks in the Central American country in order to hide billions of dollars in taxable assets.
Among those that turned to Mossack Fonseca to help them evade taxes and international sanctions include a cousin of Syrian dictator Bashar al-Assad, described by the United States as “a poster boy for corruption,” associates of Russian President Vladimir Putin, the Prime Minister of Iceland, who has stepped down as reported by Meteor Blades, and a fund run by the father of British Prime Minister David Cameron. Even Jackie Chan was implicated by the leak.
Just having an offshore company is not illegal. However, it is a popular means of evading taxes, which is illegal.
My Gut Reaction: And now our ruling class will go through a pantomime of faux outrage, dismiss those caught with their hand in the cookie jar, and keep going on with business as usual.
Analysis below the fold….
As journalist Craig Copetas argued in a debate on the France 24 news channel, the reaction to the Mossack Fonseca scandal and subsequent calls for reform are essentially “a kabuki dance.” Government and media elites express outrage at one series of tax evasion cases after being confronted with evidence, when in reality there is a systematic problem, one in which the world financial system and many first world governments are involved.
For example, Mossack Fonseca was not the only firm which helped Rami Makhlouf, the cousin of Bashar al-Assad mentioned above, evade sanctions from the United States and the EU. As The Guardian article previously linked described, Makhlouf received extensive assistance from the British bank HSBC, which apparently advised the Panamanian firm to maintain ties with him. Other prominent banks, such as Deutsche Bank in Germany, also guided their customers to Mossack Fonseca.
Furthermore, corporate tax havens are not necessarily a third world phenomenon. In the United States, the state of Delaware has laws very favorable to setting up tax havens. It has provided a home not only to numerous corporations, but also to financial criminals and organized crime:
What attracts these marquee names to 1209 North Orange and to other Delaware addresses also attracts less-upstanding corporate citizens. For instance, 1209 North Orange was, until recently, a business address of Timothy S. Durham, known as “the Midwest Madoff.” On June 20, Mr. Durham was found guilty of bilking 5,000 mostly middle-class and elderly investors out of $207 million. It was also an address of Stanko Subotic, a Serbian businessman and convicted smuggler — just one of many Eastern Europeans drawn to the state.
The United Kingdom has its own tax haven in the form of Guernsey, a small island. This excerpt from the blog Habeas Quaestus describes the legalities surrounding this British isle:
Guernsey is what is called a Group 1 jurisdiction by the G-7 Financial Stability Forum, the top group of offshore financial centers. In 1998, the Channel Island Stock Exchange was founded there, and within two years in 2000 it was trading £47,032,605 – in 2001, it traded £76,262,293. Why all the sudden interest in this little island off of the coast of France? It may have something to do with the loose regulations of the Banking Supervision Law of 1994. The main focus of this law to prevent fraud is to only allow banks to open branches on their island which have reputable branches elsewhere – banks like Credit Suisse. Another key event that made Guernsey look like an attractive safe haven for sketchy capital maneuvering was a bankruptcy court decision in Florida in 1997.
In In re International Administrative Services, Inc., a Florida federal bankruptcy court examined what to do about Defendant, International Administrative Serivces, Inc. who had declared Chapter 11 Bankruptcy but then moved assets, that a creditor had a claim to, to Guernsey. IAS Inc. provided financial services for clients, including putting out a magazine and running a financial advisory hotline. But, like many of the companies revealed in the Panama Papers, IAS Inc. actually only had one shareholder, a man named Charles J. Givens. And the company’s real purpose was to obfuscate “[an] extremely complex web of transactions between the Debtor [IAS Inc.] and insiders of the Debtor including Givens, numerous corporate affiliates of the Debtor, and various other third parties.” The United States Trustee Committee appointed to oversee the bankruptcy proceedings began to unravel all of this. Givens, in response, started destroying the relevant documents. Further, Givens was transferring assets from the company to other financial accounts. The Committee then moved, partially in secret, in Guernsey courts to have the assets of IAS Inc. frozen. Givens attempted to get this court order thrown out on a technicality – the Chapter 11 proceeding was through a Florida court, and it should have jurisdiction. But not only did the court reject this argument, on an issue of first impression it ruled that Guernsey courts were best situated to exert control over the businesses that operated there.
Furthermore, our elected officials, in their enthusiasm for globalization and free trade agreements, have made it easier to engage in offshore tax evasion. Even though, as LaFeminista has reported, President Obama has denounced tax havens, saying “We shouldn’t make it legal to engage in transactions just to evade taxes,” policies advanced by him and former Secretary of State Hillary Clinton have arguably contributed to the problem. As the International Business Times reports:
Critics, however, said the pact would make it easier for rich Americans and corporations to set up offshore corporations and bank accounts and avoid paying many taxes altogether.
“A tax haven ... has one of three characteristics: It has no income tax or a very low-rate income tax; it has bank secrecy laws; and it has a history of noncooperation with other countries on exchanging information about tax matters,” Rebecca Wilkins, a senior counsel with Citizens for Tax Justice, a nonpartisan nonprofit that advocates changes in U.S. tax policy, told the Huffington Post in 2011. “Panama has all three of those. ... They’re probably the worst.”
The Panama FTA pushed for by Obama and Clinton, watchdog groups said, effectively barred the United States from cracking down on questionable activities. Instead of requiring concessions of the Panamanian government on banking rules and regulations, combating tax haven abuse in Panama could violate the agreement. Should the U.S. embark on such an endeavor, it could be exposed to fines from international authorities.
“The FTA would undermine existing U.S. policy tools against tax haven activity,” warned consumer watchdog group Public Citizen at the time, saying the agreement would encourage corporations to thwart any U.S. efforts to combat financial secrecy. The group also noted that U.S. government contractors, as well as major financial firms supported by taxpayer bailouts, stood to gain from the trade deal's provisions that could make it harder to crack down on financial secrecy.
Above all, this scandal shows how, for all their conflicts and differences, in the end we have one global elite united by wealth. Just take a look at the list of different people implicated in the Mossack Fonseca scandal above the fold. Both friends and enemies in various international conflicts came together through the shared vice of greed. United They Profit.