Monday, April 4, 2016

The Panama Papers


My Orchids. Phalaneopsis White. Photo ET






















The Panama Papers

The opening salvo about the Panama papers hit the news over the weekend. Eleven million and a half of records about a quarter million offshore clients hit the sunlight, compliments of a hacker who got access to a major law firm’s systems. Of course, it wasn’t really a surprise: it was known that the International Consortium of Investigative Journalists (ICIJ) had its hands on something big. The surprise is that it is really big, bigger than all the “Leaks” that came before.

The leak is about a life’s work at the Panama based law firm Mossack Fonseca, with their total of about 240,000 companies created over the years. The firm’s reaction is of course that a crime was committed against it. The manuscript is the same than it was for the defense in Luxleaks and others before: everything is legal, the anonymous whistle blower committed a crime, and other tax havens do the same. It is a difficult and long term a losing proposition:

1.      There are probably many wealthy individuals who chose or were advised to set up a Panamanian company. If it is transparent, and is not strictly for tax evasion purposes, but for tax “optimisation” and asset protection, then no crime was committed. It is however that kind of publicity that a tax haven and its prominent wealthy client really don’t want. Public opinion will be unforgiving. Mostly among the well-known 99% who cannot afford similar privilege and tax breaks.  

2.      Then there is the corrupt world of world leaders, sometimes from the poorest countries stealing from their people. The Presidents for Life, the dictators, the kleptocrats, and the professional politician who is for sale. In that tango it takes at least two, the corrupted and the corrupting party, without forgetting the enabler, banks, law firms, advisors, and all the other “willfully blind”. Most of the latter are not in Panama. They are in this case in the order of performance: in Hong Kong, Switzerland, the UK, and Luxembourg.

3.      Then there are the proceeds from other crimes. Criminal organizations, grand theft, human trafficking, and extortion. Even a tax haven cannot prosper for long, catering to that sort of clientele. Eventually political pressure will put it to an end.

There will be no business as usual in Panama anymore. Of course the country has to clean up to preserve its financial center. Mossack Fonseca will have some explaining to do. The excuse “are we supposed to verify if the client is honest?” doesn’t sit well. Ask us in Luxembourg. The only good news is that previous leaks elsewhere went by without any real sanctions so far. But Panama Papers will entertain the world for some time.

As for Luxembourg, it is not off the hook. There needs to be some explaining too. There is no longer the lone exception of the famous “Panama Charly”. Hopefully all enablers that suddenly put Luxembourg into fourth position among the business providers, have their orchid-white vest on.