NYT Article on the Panamanian Law Firm at the Center of the Panama Papers Leak (4/7/16)

A New York Times lead article focuses on the Panamanian law firm Mossack Fonseco, here, which is at the center of the latest leaks so prominent in the news in the last few days.  Kirk Semple, Azam Ahmed and Eric Lipton, Panama Papers Leak Casts Light on a Law Firm Founded on Secrecy (NYT 4/6/16), here   The Panama Papers Overview of the Report is here (with links); My blog on the Panama Papers Report is ICIJ Panama Report on Offshore Financial and Enabler Skulduggery (4/4/16; 4/5/16), here,

There are a vast number of news articles on the report and its ramifications.  The scope of the Panama Papers is so large that I expect that many more articles will appear for some time into the future.  I cannot read them all.  I can read selectively and pass on to the blog's readers the ones I think useful.  But my sampling is necessarily anecdotal.  With that caveat, I excerpt key portions from the NYT article:

The firm, Mossack Fonseca, was built on assurances of bulletproof privacy for its clients. But its operations were laid bare this week by a vast leak of millions of documents that have helped expose the proliferation of shell companies and tax havens for the world’s wealthiest people.  

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The leak has also brought more scrutiny to Panama’s financial and legal sectors, just as the country’s leadership was trying to shed its longstanding reputation as a haven for the loot of the criminal and corrupt. In February, Panama was removed from a watch list maintained by an international agency that sets standards to combat money laundering and terrorism financing, but it remains under scrutiny as a haven for tax evaders.

Panama’s president has vowed to cooperate with any judicial investigations stemming from the leaked information, which could put him in the awkward position of allowing an inquiry into his former adviser. 

* * * * 

Among the leaked documents was an email exchange obtained by the International Consortium of Investigative Journalists, in which the firm’s top partners realized they had worked for years with clients from Iran who had been listed on a sanctions list published by the United States government and the United Nations. 

“This is dangerous!” Mr. Mossack wrote in an email to Mr. Fonseca and others at the firm. “A red flag should have been raised immediately.” 

Mr. Mossack placed blame for the oversight on employees in the law firm’s London office who were “not doing their due diligence thoroughly, (or maybe none at all).” 

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The rise of Mossack Fonseca coincided with the emergence of Panama as a capital of the worldwide offshore banking industry. The increasing flow of global capital across borders during the 1970s and 1980s fueled a market for lawyers and accountants capable of sheltering the money, and Panama was primed to take advantage of the boom. 

Beginning in the early 1900s, its station as a trade and shipping center — at the intersection of two continents and at the convergence of the Pacific Ocean and the Caribbean Sea — made it an obvious candidate for offshore accounting. International ships flew the Panamanian flag to take advantage of its advantageous corporate tax structure, which some experts say was copied almost directly from the state of Delaware. 

“Because it has always been at the center of international trade, it was a natural fit for things like offshore finance and international offshore tax planning,” said Victor Fleischer, a professor at the University of San Diego School of Law. “I don’t know if it is justified or not, but people have always thought of Panama as a little bit shady.”

The firm was aggressive and nimble, capable of responding to an evolving regulatory landscape. Its reputation flourished. 

But other Panamanian law firms joined the fray, too, including larger and more prominent practices than Mossack Fonseca. 

“All the important Panamanian law firms have a division like this,” said Roberto Eisenmann, the founder of the newspaper La Prensa in Panama. 

In fact, Mossack Fonseca is just one of countless firms around the globe dedicated to a worldwide industry that harbors trillions of dollars and may deprive nations of as much as $200 billion in tax revenues each year, tax and legal experts say. 

“Too often, these offshore firms are willing to take on just about any customer and follow their instructions,” said Jack Blum, a former Senate investigator who now specializes in examining money laundering and tax evasion. 

As offshore accounts have multiplied during the past several decades, they have increasingly been used to launder money, evade taxes or finance terrorism. Those seeking to break the law have often enjoyed the same secrecy as accounts used for legitimate purposes. 

The Last Big Holdout 

But Panama has been more reluctant to follow a transparency initiative started in 2009 by the Organization for Economic Cooperation and Development. While most other international financial centers, like the British Virgin Islands, the Cayman Islands and Singapore, quickly agreed to the initiative, Panama held back. 

“Panama is the last major holdout that continues to allow funds to be hidden offshore from tax and law enforcement authorities,” the group’s secretary general, Angel Gurría, said in a statement on Monday. 

But several tax experts pointed out that Panama, in its refusal to comply with international transparency standards, is in esteemed company: the United States. 

* * * * 

Foreign nations have had trouble getting information about accounts their citizens hold in America as well. 

“Panama isn’t the real story,” said Matt Gardner, the executive director of the Institute on Taxation and Economic Policy, a research group based in Washington. “This leak is giving a window into a much broader world, but it should be understood as giving a window into how things work in the U.S. as well.” 

Since the data leak last weekend, both the firm and Mr. Fonseca have said that they are not responsible for the actions of the shell companies they create. 

In the interview on Wednesday, Mr. Fonseca said that the company was careful to vet clients, and that it would drop any it discovered with a “bad reputation.” But he was insistent that his clients were lawyers, accountants and intermediaries — not dictators, for instance. 

“We are like a car factory who sells its car to a dealer (a lawyer for example), and he sells it to a lady that hits someone,” he wrote in a message. “The factory is not responsible for what is done with the car.” 

Mr. Fonseca said his firm tried to determine “to the best of our knowledge” the actual owner of a shell corporation. 

* * * * 

“As attorneys we have the duty to provide privacy,” Mr. Fonseca said in the interview. 

He feels his firm, in particular, has been robbed of it. 

Mr. Fonseca said he was currently working on a novel about an investigative journalist who is “honest and looking for the truth without agendas.” And he has already begun outlining another book.