Periodic Posting of Articles on ICIJ's Panama Papers and Ramifications (4/9/16)

There are so many news articles on the ICIJ's Panama Papers and their ramifications that I have decided just periodically (mostly daily) post an aggregation of the news articles or other content on the web that I think may be useful to readers.  Readers should remember that I do not look at all that web content, so there may be good content that I miss.  I urge readers aware of content that I missed to post the missed items as content or email the missed items to me at jack@tjtaxlaw.com.

First, the Wikipedia offering on the Panama Papers is here.  I presume that it will be regularly updated and could be a good source of information.  Readers interested in the issue probably should check it from time to time.

Also, Wikipedia offers a list of people named in the Panama Papers, here.

Now, here are today's offerings:

Billionaire Reading Name In Panama Papers Totally Forgot He Even Had Funds In Seychelles (TheOnion 4/7/16), here.  Noting that the billionaire, Frederick Weldon, claims to have forgotten about funds stashed in the Seychelles.  Except:

“Oh, yeah, right—jeez, forgot about that,” said Weldon, who after thinking about it for several moments, began to recall having his attorney at one point set up a tax-free dummy corporation in the island nation off the coast of Africa to harbor a portion of his assets. “Wow, I haven’t thought about that in years. How much was it again? $30 million? $40 million? Anyway, I’m glad they reminded me. Who knows how long that would have slipped my mind.” Weldon added that, just to be on the safe side, he’d better make some calls to Switzerland, Luxembourg, Hong Kong, Singapore, Bermuda, Mauritius, Macau, and the Isle of Man to make sure he wasn’t missing any other funds he had stored away.

[Note to readers 4/12/16 1:24pm:  A reader made a comment below that the Onion is a parody news site.  I should have caught that.  So read the above offering as parody.  Had I realized that before posting, I would not have posted, but having posted, I thought I would leave it up.] 

John Letzing, Swiss Banks at Risk of Harboring Corruption Proceeds, Says Regulator (WSJ 4/7/19), here.  Excerpts:

Mark Branson, chief executive of the Swiss Financial Market Supervisory Authority, or Finma, noted in public remarks Thursday that Swiss wealth managers are “increasingly accepting money from faraway, previously less-familiar markets.” That, he said, shifts the danger for Swiss banks “away from risks connected with tax law towards money laundering risks.” 

“It is often more difficult to determine the origin of money from developing countries,” Mr. Branson said. 

* * * * 

“We need a culture in which bank employees feel personally committed to combating money laundering,” Mr. Branson said. 

More Swiss banks need to be proactive about reporting suspicious activity, he said, with 18% of such reports based on the bank’s internal suspicions, while 28% are “in response to a newspaper article.”

Ralph Atkins, Swiss banks warned of exposure to EM money laundering (FT 4/7/16), here.  I do not post excerpts because FT requests that links to the article be given instead of cutting and pasting.  I will note that the article is more detailed than the WSJ article above and does have some good information.  Readers may be required to have a subscription.

Luke Harding, The fallout from Panama Papers revelations so far, country by country (Guardian 4/8/16), here.  Good country by country update for Russia, Azerbaijan, Iceland, UK, China, Zimbabwe, Iran, Australia, Panama, Pakistan, Argentina and Syria.


Jamie Grierson, Cameron takes blame for mishandling of Panama Papers revelations (Guardian 4/9/16), here.  The article contains criticism of the official response, but says:

“But I mustn’t let that cloud the picture. And the facts are these. The facts are I bought shares in a unit trust, shares that are like any other sorts of shares, and paid tax on them in exactly the same way. I sold those shares, in fact I sold all the shares that I owned on becoming prime minister. 

“And later on I’ll be publishing the information that goes into my tax return, not just for this year but for years gone past because I want to be completely transparent and open about these things. I’ll be the first prime minister, the first leader of a major political party, to do that, but I think it’s the right thing to do.”

Panama papers: Mossack Fonseca offices in El Salvador raided (BBC.com 4/9/16), here.

Documents and computer equipment were seized from the Mossack Fonseca office, officials said on Twitter. 

The attorney general's office said the Mossack Fonseca sign had been removed a day earlier and quoted an employee as saying the firm was moving. 

The leak showed how some wealthy people use offshore companies to evade tax. 

The raid was overseen by El Salvador's Attorney General Douglas Melendez. 

Mossack Fonseca's El Salvador branch was able to provide "back office" functions for the firm's clients all over the world, according to a document posted on Twitter by the attorney general's office.

Everett Rosenfeld, Panama Papers' firm co-founder: We didn't know (CNBC 4/8/16), here.  The denial.

Libby Nelson, A top expert on tax havens explains why the Panama Papers barely scratch the surface (Vox 4/8/16), here.  An interview with Gabriel Zucman, author of The Hidden Wealth of Nations, a Piketty style dig into the data.  Excerpts:

It's been way too easy for very rich individuals to pay very little in taxes, for both legal and illegal reasons. And the implications of this for inequality down the road are potentially very important. 

Tax havens are one of the prime reasons why inequality is rising and may continue to rise in the future. The inability to have a well-functioning tax system at the top end raises the risk of an ever-increasing trend of rising inequality, and that's not something we want.
If we want to deal with rising inequality and rising wealth concentration seriously, then we need to make these forms of tax dodging much, much more limited. 

* * * * 

According to my estimates there's about 8 percent of the world's wealth — $7.6 trillion — in tax havens, and 80 percent evades taxes, meaning only 20 percent is duly reported.
The estimate I have for tax losses is about $200 billion per year. That's at the global level, and that's only for one specific form of tax evasion: really illegal tax evasion. So failing to report the income that you earn on your offshore accounts, the dividends, the interest income, and the capital gains that your offshore wealth generates. 

That's only for this particular form of tax evasion. There are also lots of other revenue losses due to lots of things — some of which are legal. The $200 billion figure is just for the illegal stuff. 

* * * * 

The people who own this wealth and who benefit from these tax havens are very, very rich individuals, who are able — sometimes legally, sometimes illegally — to considerably reduce the effective tax rates they pay. 

If they pay less in taxes, it has two consequences. First, it's easier for them to accumulate more wealth and remain at the top of the wealth distribution, and that tends to increase wealth inequality. It also means that it's harder for the vast majority of the population to accumulate wealth, because the taxes that are evaded at the top have to be compensated for through higher taxes for the rest of us. 

And so at the end of the day this has potentially very big implications for inequality. One of the key determinants of the long-run concentration of wealth is the actual tax rate on capital, on wealth, that rich people face. 

Wealth was very concentrated in Europe in the 19th century, when there was very little wealth taxation, and was very concentrated in the US in the early 20th century, when there was no federal income tax. Then there was a big decline in inequality in the first half of the 20th century that's largely related to the big increase in taxation at the top.
If all of this is reversed, there's a real risk that we might reach sustained, very high levels of wealth concentration in the US, and in many other economies. So if you want to prevent that, it's critical to have a well-functioning tax system that is fair, and that taxes the very richest people at least as much as ordinary citizens. 

* * * * 

 For Europe, the massive use of tax havens started in the 1920s, because that's when Switzerland started its offshore wealth management industry, and when Germany and France and the UK started to increase a lot the marginal income tax rates. 

But from the 1920s to the 1980s, Switzerland was the only well-functioning tax haven. It was mostly used by Europeans. You can look at the fraction of all US equities that belong to offshore financial institutions and to individuals who live in tax havens — that's data collected since the 1940s by the US Treasury. From 1940s to the mid-1980s, it was very small; about 1 percent of US equities belonged to tax havens. 

Then in the 1980s, lots of other tax havens appear — the Cayman Islands, Singapore, Hong Kong, Panama, Bermuda, and so on. And so at the global level, the use of tax havens increases dramatically starting in the 1980s. 

* * * * 

I think it's important to acknowledge that there's been progress through the financial crisis. So in particular before 2008, there was strictly no exchange of bank information between tax havens and foreign countries' tax authorities. So it was really easy to evade taxes, because there was total bank secrecy. 

And this has changed mostly thanks to the US law starting to be implemented right now that forces foreign institutions to automatically tell the IRS about their US clients and their holdings. Now other countries are trying to do the same thing. There's going to be an automatic exchange of bank information that involves many countries around 2017, 2018. So there's been significant progress. The problem is it's not enough to just create laws. 

I think we need to clearly say there's clear evidence that out of the 100,000 shell companies in Panama and the British Virgin Islands, many of them are used for illegal activity. Why do we even tolerate these activities taking place? Why do we tolerate that these countries host such an enormous amount of financial activity? 

We should have immediate sanctions against places like that and say that the sanctions will remain in place until you're able to prove that you've correctly identified all the initial owners of all the companies that are incorporated on your territory. We need to have this approach that's centered on sanctions to change the incentives and the behavior of the countries and the firms and the people involved in this business.