By Tom Maertens
April 16, 2016
The revelations in the Panama Papers — 11.5 million documents leaked from the Panama-based law firm Mossack Fonseca — continue to reverberate. The documents reveal how corrupt officials, criminals, corporations and the super-wealthy hide money, usually to avoid taxes or launder dirty money.
They include information on some of the 214,000 shell companies the firm created and on the 14,000 banks, law firms, and other middlemen from more than 100 countries who shield trillions from public scrutiny. Mossack Fonseca even appropriated the name of the Red Cross and fabricated religious-sounding organizations to obscure the real owners of the shell companies.
Thousands of people are implicated, including 12 current or former world leaders, several cronies of Vladimir Putin, and family members of eight Chinese politburo members; the prime minister of Iceland already resigned because of the revelations.
The International Consortium of Investigative Journalists
, some 400 journalists from 77 countries, has been analyzing the files for a year.
Among the usual tactics used to shelter money are paying foreign jurisdictions to pass favorable tax laws, and using shell corporations and foreign intermediaries to obscure ownership with layers of paper transactions.
This can lead to complicated and opaque tax avoidance schemes such as Apple’s “Double Irish With a Dutch Sandwich” which Sen. Carl Levin called the “holy grail” of tax avoidance — setting up offshore corporations legally incorporated in Ireland and the US — but for tax purposes, not resident anywhere. Apple shifted $74 billion among such subsidiaries between 2009 and 2012, and paid only 2 percent tax on the money.
A major study by the Tax Justice Network
estimated that at least $21 trillion, and possibly as much as $30 trillion was hidden in secret tax havens by the end of 2010. That is equivalent to the size of the U.S. and Japanese economies combined.
This helps explain why tax cuts for the wealthy don’t trickle down as Republican dogma insists — money squirreled away in tax havens does not create jobs.
The United Nations Conference on Trade and Development
calculates that almost a third of all overseas investments — amounting to $6.5 trillion — has been routed through “conduit countries,” mainly to avoid taxes, before reaching their destination.
It cited the British Virgin Islands as an example of a “conduit” country, noting that in 2012 it attracted $72 billion of foreign investment, a figure almost $30 billion more than the U.K. received, despite the latter having an economy 3,000 times larger.
Secrecy is the key to shielding “investors”: the confidentiality law in the Cayman Islands, for example, allows a person to be jailed for up to four years just for asking about investment information, reports Vanity Fair.
Tax avoidance is so common among the plutocrats that even a presidential candidate, Mitt Romney, had a Swiss bank account and money stashed in Bermuda and other tax havens. Bain Capital, the firm he founded, had at least 138 funds organized in the Cayman Islands to help its clients hide money.
Controlling offshore tax havens will require more international cooperation than currently exists. Senior officials from the world’s tax authorities, led by the Joint International Tax Shelter Information and Collaboration Network
, have agreed to further coordinate their activities.
In 2010, the U.S. government passed the Foreign Account Tax Compliance Act
, which requires foreign financial institutions to report U.S. clients they suspect of trying to conceal assets. Other legislation has been introduced every year since 2008 but it has never passed.
Surprisingly, the U.S. is among the biggest tax havens in the world, starting with Nevada and Delaware; creating a shell company in the U.S. is easier than obtaining a library card, says the Guardian. No state in the U.S. requires beneficial ownership information, which is what permits bank secrecy.
A financial system that permits corrupt politicians to hide stolen assets and tax evaders to escape their obligations to the countries whose services they use is inimical to democratic rule.
The journalists’ consortium says that more revelations are to come. In the meantime, a federal whistleblower reward program has been the most effective enforcement tool regarding U.S. citizens.
Bradley Birkenfeld, who disclosed that 19,000 U.S. citizens were hiding an estimated $20 billion in a Swiss bank received a $104 million reward, which sent a chill thru the offshore world. That prompted more than 50,000 Americans to come clean under an IRS amnesty program, which requires them to pay taxes and penalties but avoids criminal charges. The Washington Post reports there may be another 35,000 Americans attempting to negotiate an amnesty.
This article was also published in the Mankato Free Press here. Tom Maertens served as National Security Council director for nonproliferation and homeland defense under presidents Bill Clinton and George W. Bush, and as deputy coordinator for counter-terrorism in the State Department during and after 9/11.