Panama is the new Switzerland

By Bill Press

Another century, another tax haven. In the 20th century, the very rich used to park their money in secret Swiss bank accounts. How quaint. And how old-fashioned.

In the 21st century, as we’ve just learned, Panama is the new Switzerland. That’s where many of today’s most wealthy prefer to shelter their money, and for the same reasons: to hide their personal fortune and avoid paying taxes. All you need is a shady law firm to grease the skids, and many families worldwide found just what they were looking for in the boutique Panamanian firm of Mossack Fonseca.

According to the “Panama Papers,” a vast trove of 11.5 million documents originally leaked to a German newspaper and made public this week by a consortium of journalists worldwide, Mossack Fonseca helped set up 215,000 phony, or “shell,” offshore companies for 14,153 clients, including top business leaders, sports and entertainment celebrities, and 143 of the world’s most prominent politicians and their families. Included in their ranks are the presidents of Argentina and Ukraine, the king of Saudi Arabia, prime ministers of Pakistan and Iceland, relatives of at least three members of the Chinese Politboro, leaders of FIFA and close associates of Russia’s Vladimir Putin and Syria’s Bashir al Assad.

So far, the only casualty of “Panamagate” is Iceland’s prime minister, Sigmundur David Gunnlaugsson, who “stepped aside” (he insists he did not resign) two days after news broke that he and his wife had set up a shell company in the British Virgin Islands, which failed, and for which they were now seeking $4.2 million in reparations from three Icelandic banks. Criminal investigations are already underway in Germany and the U.K. Also in hot water is Britain’s prime minister, David Cameron, who ran for office promising a new era of financial transparency – only for the world to discover, to his embarrassment, that 113,000 of Mossack Fonseca’s 215,000 phony companies were located in the British Virgin Islands, including one, still in business, set up by his late father.

No prominent Americans have been named to date, perhaps because it’s too easy under American law for wealthy Americans to stash their money elsewhere – as Mitt Romney did in the Cayman Islands. Either they don’t need Panama or, more likely, documents with American names haven’t yet seen the light of day. Still, whether American fat cats get caught with their hands in the Panama cookie jar or not, release of the “Panama Papers” will have significant implications for the United States.

First, because creation of such new tax havens was a direct result of the Panama Trade Promotion Agreement, begun under President George W. Bush and signed by President Barack Obama in October 2011. The same opportunities for tax evasion under the Panama trade deal would be multiplied many times over under the blockbuster, 11-nation, Trans-Pacific Partnership deal, President Obama’s top legislative priority, now pending before Congress. Why should Congress approve what may be just another fast track for escaping U.S. taxes?

Second, exposure of the Panama Papers also deepens the rift between Bernie Sanders and Hillary Clinton over trade deals in general. In a 2011 speech on the Senate floor, Sanders thundered against approval of another NAFTA-like trade pact: “Panama is a world leader when it comes to allowing wealthy Americans and large corporations to evade U.S. taxes by stashing their cash in offshore tax havens. And the Panama Free Trade Agreement would make this bad situation much worse.” As secretary of state, Hillary Clinton worked with President Obama in winning support for the deal.

It took the International Consortium of Investigative Journalists a whole year to dig through the mountain of leaked documents. It may take another year to uncover all the big names involved, determine what laws were broken and what new laws may be needed to close offshore tax loopholes.

But what we’ve already learned from release of the Panama Papers is troubling enough: At this time of year, while most Americans dutifully pay taxes on what little money they’ve struggled hard to earn, there’s a global shadow network created solely for the purpose of helping some of the most notorious human rights violators on the planet – including Gadhafi, Mugabe, Assad and Putin and their henchmen – to shelter trillions of dollars in ill-gotten gains and, according to tax experts, deprive governments of $200 billion annually in revenue. And, so far, the United States has done nothing to stop it. Think of that when you file this year’s tax returns.

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