Articles on ICIJ's Panama Papers and Ramifications (4/11/16)

Crawford Kilian, The Man Who Foretold the Panama Papers (The Tyee 4/5/16), here.  This is a book review of Thomas Piketty's new book, Why Save the Bankers? And Other Essays on Our Economic and Political Crisis, here, which was just published.  Piketty, here, is the author who stirred the global pot with his massive Capital in the Twenty-First Century, here, with more data and analysis of data than most of us want to think about much less read. (I have heard that Piketty's book has the lowest number of actual readers among persons who have purchased the book; disclaimer: I too purchased it and have yet to read it other than episodically.)  The book being reviewed here is a collection of other smaller works by Piketty that develop and sometimes predate publication of Capital in the Twenty-First Century.  Here are some excerpts (bold face-supplied by JAT):

But why bother to buy a scrapbook of ancient columns when you can read Capital in the Twenty-First Century? For one very good reason.

The world's greatest economic detective 

Because Thomas Piketty follows the money. He goes into the tax archives of the last two centuries, and he has become the greatest economic detective the world has ever known. He has tracked the wealth of the rentier class since Napoleon -- the families of the "independently wealthy" who live off the income paid them because they own moneymaking enterprises and land.  

In one column, published five years ago on April 5, 2011, Piketty offers what is almost a throw-away line: "... at the world level, the net financial position is negative over-all, which is logically impossible unless we assume that on average we're owned by the planet Mars. More likely, this contradiction suggests that a nonnegligible share of financial assets held in tax havens and by nonresidents is not correctly reported as such." 

In other words, every country in the world is losing money, and therefore losing tax revenue. The implication is that every country is making up for the loss either by taxing its poorer residents more than they should be, or by cutting social services.
Five years later, almost to the day, the Guardian and the German newspaper Süddeutsche Zeitung broke a major global scandal: the Panama Papers.

Piketty's colleague, Gabriel Zucman, published on that issue in the The Hidden Wealth of Nations: The Scourge of Tax Havens (2015), here.

Juan Carlos Varela (President of Panama), Don’t Blame Panama. Tax Evasion Is a Global Problem (NYT 4/11/16), here.

DESPITE their name, the Panama Papers are not mainly about Panama. They are not even primarily concerned with Panamanian companies. The more than 11 million documents, illegally hacked and released last week relating to previously undisclosed “offshore” corporations, is roiling the world with revelations of the vulnerability for rampant abuse of legal financial structures by the wealthy. 

They are unfairly called the Panama Papers because this particular trove of documents came from a single law firm based in Panama. But the problem of tax evasion is a global one. 

Panama does not deserve to be singled out on an issue that plagues many countries. But we are willing to accept the responsibility for fixing it, in part because greater transparency is ultimately a continuation of reforms we have recently undertaken. The world must tackle this problem collectively and with urgency, and Panama stands ready to lead the way.

* * * * 

Under previous governments, Panama was no doubt a target of money launderers. Today, Panama is committed to adopting all transparency reforms needed to satisfy the international community. In the 21 months of my administration, Panama has taken steps to increase the transparency and strength of our financial legal systems. We developed a robust treaty network that allows exchange of information. “Know your client” regulations were substantially enhanced and extended not only for financial and corporate providers but also for key nonfinancial industries vulnerable to abuse. And as of January this year, we require identity certification of shareholders of all Panama companies. 

I have announced a commitment to the automatic exchange of financial and corporate information, and we have proposed steps we believe are consistent with the goals of the international community, including the Organization for Economic Cooperation and Development through its Common Reporting Standards proposal. 

These reforms have been recognized and validated by the international community, including the Financial Action Task Force on Money Laundering, which cited Panama’s “significant progress” in combating money laundering when it removed us this year from its “gray list.” Removal from that list occurred in record time. 

Our financial transparency ranking with the nongovernmental organization Tax Justice Network has steadily improved since 2013, and we now rank well ahead of Japan, Germany and the United States. We have also progressed positively in a peer review by the O.E.C.D.’s Global Forum for Transparency and Exchange of Information for Tax Purposes. These reforms in Panama, along with other international efforts, have been paying dividends. 

* * * * 

After decades of dictatorship, Panama is a stable democracy committed to the rule of law and the regional headquarters of more than 100 transnational companies. To fulfill our democratic evolution, we must have a government committed to transparency, accountability and the separation of powers. Our response to the current crisis will test our resolve and our potential.

‘Panama Papers’ Update: Panama Firm Usurped Name of Red Cross to Hide Money (AP story in The Blaze 4/10/15), here.

The law firm at the center of the Panama offshore accounts scandal routinely usurped the name of the Red Cross and other charities to help obscure the origin of millions of dollars in questionable funds, two newspapers involved in the investigation reported Sunday. 

There’s no suggestion that the charitable groups had any idea their name was being used in this way. International Committee of the Red Cross spokeswoman Claire Kaplun told The Associated Press on Sunday that the revelation was “a total surprise and something we find extremely shocking.” 

Sunday that the revelation was “a total surprise and something we find extremely shocking.” 

France’s Le Monde and Switzerland’s Le Matin Dimanche said Mossack Fonseca created dummy foundations with high-minded names such as the “Faith Foundation” to hold shares in around 500 offshore companies. The foundation’s beneficiary was routinely listed as “the Red Cross,” a designation which served the dual purposes of hiding the firms’ real beneficiaries and of draping them in an “NGO aura,” the papers wrote.
Mossack Fonseca didn’t immediately return an email seeking comment, but a leaked email cited by the publications appeared to lay out the firm’s reasoning. 

“Given that banks and financial institutions are today asked to obtain information about economic beneficiaries, it has become difficult for us not to divulge the identity of those of the Faith Foundation’s,” the email said, according to the papers. “That’s why we’ve implemented this structure designating the ‘International Red Cross.’ It’s easier that way.” 

Another email cited by the papers suggests Mossack Fonseca deliberately kept the Red Cross in the dark about the maneuver. 

“According to Panama law, the beneficiaries of a foundation can be used without knowing it,” the email said, according to the papers. “That means the International Red Cross doesn’t know about this arrangement.” 

Kaplun, the Red Cross spokeswoman, said that using the group’s name or logo without its permission is barred by international law — and could put the group’s staff in jeopardy. 

“We work in conflict zones. We work without weapons. Our protection is our name, our emblem, the faith that people have in our reputation,” she said in a telephone interview.
“Let’s say this money was linked to a warring party in a conflict. Imagine what consequences that could have.”

JAT Note:  Since entering private practice in 1977, I have had the opportunity to review offshore planning and frequently saw the Red Cross (or, less frequently, some other prominent charity) who, as best I could ever tell, never knew that it was the beneficiary and never received any distributions.  I think that some of the more careful enablers for this type of evasion would sometimes encourage minimal distributions to the charity to give the appearance of bona fides to the evasion.

Holly Ellyatt, Panama Papers show tax avoidance like a 'cancer' (CNBC 4/11/16), here.

German plan 

Signaling that Europe's leaders are worried about the public backlash against alleged tax evasion by the rich and powerful, as suggested by the Panama Papers, Germany's Finance Minister Wolfgang Scheuble also gave details on Sunday of a plan to combat tax havens.  

His counterpart in France, meanwhile, said last week that Panama would be put back on a list of countries blacklisted as "uncooperative tax jurisdictions," a move which Panama's president said was "wrong and unnecessary," according to media reports.
Showing that the Panama affair could still claim more victims, it was reported on Sunday that French tax police searched Societe Generale's headquarters last week as part of an investigation into offshore accounts revealed by the Panama Papers. 

The searches on April 5 were a "normal development in the context of such an investigation," a spokesman for the bank told Reuters on Sunday but declined to comment further.