Let’s Go to Panama

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A German newspaper first broke the Panama Papers story.

A German newspaper first broke the Panama Papers story.

A German newspaper first broke the Panama Papers story.

Larry Jia, Staff Writer

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Last week, a group of investigative journalists leaked 11 million papers from Panama law firm Mossack Fonseca. Sifting through the terabytes of data, paper traces were found connecting some of the most powerful individuals in the world to elaborate money laundering, tax evasion companies. Termed shell companies, these loophole corporations allow rich and powerful politicians, financiers, and just about anyone with enough dough to anonymously store their wealth. These shell companies use tactics such as synthetic shells and legal privacy measures to erase the money trail from snooping investigations.

The Panama Papers revealed that billions were connected to the single Panama-based law firm through 214,000 anonymous offshore accounts and opaque corporations. Russia’s Vladimir Putin was alleged to be connected to a $2 billion scheme and the heads-of-state from Argentina, Iceland, Saudi Arabia, Ukraine, and the United Arab Emirates were also specifically identified. Most of the banks and law firms connected to the Panama Papers are based in the British Virgin Islands and Hong Kong. Technically, the shell companies used in these scandals are not themselves illegal but can provide a vehicle to conduct illegal business. The Papers also reveal that European banks, especially in Switzerland, France, and Germany, were fully involved with systematically aiding dignitaries commit tax evasion.

It should be common knowledge that money laundering and tax evasion from the upper echelon of society is possible. But, how is it so easy? Well, throughout the world, and even in the United States, large and reputable law firms often offer personal services to aid the superrich in storing their funds. In an investigative episode, 60 Minutes sent an actor posing as a rich minister from Africa while purposely dropping clues to supplement the suspicion that the money was not legally obtained to various law firms. However, out of the sixty Manhattan law firms interviewed, only one refused to aid the “African minister.” Others, such as James Silkenat and Lawrence Gabe, who are respected lawyers, agreed to aid the nondescript actor in efforts to create a maze of shell companies and offshore bank accounts to store money. One attorney even joked, “We run the country.” The simplicity and easiness of approaching a lawyer to create such vehicles allows the dishonorable and often illegal choice of creating shell companies far too attractive. Since this is such an issue, why is there not reform?

Considering that most of the activity in creating offshore accounts and shell companies is legal, why is there no reform and enforcement promoting transparency? Because, as outlined in the Panama Papers, a plethora of public officials themselves are involved in such activities, regulators cannot be trusted to self-police and uncover illegal practices. But, as President Barack Obama stated, law enforcers can only act when law is being broken. Countries such as Switzerland, the British Virgin Islands, Singapore, and others have often been exploited for low tax rates. However, the proposal of unifying national tax rates at an international level in particular has been opposed for decades, citing national sovereignty issues. However, until this issue is resolved, the differences in taxing procedure and transparency between countries will always be a catalyst for money laundering and tax evasion.

However, it is important to note that within the past decade, the flow of money across borders has decreased significantly. The mortgage crisis of the late-2000s was heavily funded by those with the privilege of having offshore accounts. But, as the financial industry collapsed in 2008, a large portion of the offshore financial industry also collapsed. Business for such activity has been slow lately largely due to a reduction in the money flow of international investment banks. Many in the finance industry, such as Nigel Green, defend the questionable practices of offshore banking. Green claims that the Panama Papers are not representative of the overall financial industry or national governments and that most transactions across borders are both moral and legal. Although he may be correct, the rich and powerful can still have their way until tighter reform or increased transparency is achieved.

Until then, billionaires and public servants might just keep at it.

 

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