http://www.vox.com/2016/4/3/11356326/panama-papers
(http://www.vox.com/2016/4/3/11356326/panama-papers)
QuoteMossack Fonseca is not a household name, but the Panamanian law firm has long been well-known to the global financial and political elite, and thanks to a massive 2.6-terabyte leak of its confidential papers to the International Consortium of Investigative Journalists it's about to become much better known. A huge team of hundreds of journalists is poring over the documents they are calling the Panama Papers.
The firm's operations are diverse and international in scope, but they originate in a single specialty — helping foreigners set up Panamanian shell companies to hold financial assets while obscuring the identities of their real owners. Since its founding in 1977, it's expanded its interests outside of Panama to include more than 40 offices worldwide, helping a global client base work with shell companies not just in Panama but also the Bahamas, the British Virgin Islands, and other notorious tax havens around the world.
The documents provide details on some shocking acts of corruption in Russia, hint at scandalous goings-on in a range of developing nations, and may prompt a political crisis in Iceland.
But they also offer the most granular look ever at a banal reality that's long been hiding in plain sight. Even as the world's wealthiest and most powerful nations have engaged in increasingly complex and intensive efforts at international cooperation to smooth the wheels of global commerce, they have willfully chosen to allow the wealthiest members of Western society to shield their financial assets from taxation (and in many cases divorce or bankruptcy settlement) by taking advantage of shell companies and tax havens.
If Panama or the Cayman Islands were acting to undermine the integrity of the global pharmaceutical patent system, the United States would stop them. But the political elite of powerful Western nations have not acted to stop relatively puny Caribbean nations from undermining the integrity of the global tax system — largely because Western economic elites don't want them to.
What's a shell company? Why would someone want one?
Sometimes a person or a well-known company or institution wants to buy things or own assets in a way that obscures who the real buyer is.
The typical reason for this is a kind of routine corporate secrecy. Apple, for example, appears to have created a shell company called SixtyEight Research that journalists believe to be a front for its interest in building a car. Since Apple happens to be the most covered company on the planet, this hasn't been incredible effective — and when SixtyEight Research staff showed up at an auto industry conference, everybody noticed.
But in general, companies don't like to tip their hand to what they are doing, and the use of shell companies to undertake not-ready-for-public-announcement projects can be a useful tool.
Shell companies are often used for simple privacy reasons. Real estate transactions, for example, are generally a matter of public record. So an athlete, actor, or other celebrity who wants to buy a house without his name and address ending up in the papers might want to pay a lawyer to set up a shell company to do the purchasing.
Okay, but how about the shady stuff?
As is generally the case in life, secrecy can have illegitimate purposes as well. This is particularly true for shell companies set up in international centers of banking secrecy that offer a level of anonymity and obscurity that goes beyond simply making it hard to look up the real owner's name online.
Your soon-to-be-ex-wife cannot seize half of the money in an account that she and her lawyers don't know exists and can't prove that you own, for example. Nor can your creditors seize such an account in a bankruptcy proceeding. Nor can the government levy estate taxes on it when you die and pass it on to your kids. In all those circumstances, a Panamanian company that you secretly control and that holds stocks, bonds, and other financial assets on your behalf could be the ideal vehicle.
By the same token, if you have made a bunch of money illegally (taking bribes, trafficking drugs, etc.) you need to do something with the money that won't attract the attention of the authorities or the media. A secret offshore shell company is perfect. Not only does it help you avoid scrutiny in real time, but if you are found out its assets can't be taken from you if you have to flee the jurisdiction or even serve jail time.
But even though various criminal money-laundering schemes are the sexiest possible use of shell companies, the day-to-day tax dodging is what really pays the bills. As a manager of offshore bank accounts told me years ago, "People think of banking secrecy as all about terrorists and drug smugglers, but the truth is there are a lot of rich people who don't want to pay taxes." And the system persists because there are a lot of politicians in the West who don't particularly want to make them.
What do the Panama Papers show?
As you would imagine, there is quite a lot in the 2.6 terabytes. Here are a few of the highlights the team found, with links to the full stories where you can read the details:
Vladimir Putin's inner circle appears to control about $2 billion worth of offshore assets.
The prime minister of Iceland secretly owned the debt of failed Icelandic banks while he was involved in political negotiations over their fate.
The family of Pakistan's prime minister owns millions of dollars' worth of real estate via offshore accounts.
Ukrainian President Petro Poroshenko pledged to sell his Ukrainian business interests during his campaign, but appears instead to have transferred them to an offshore company he controls.
The International Consortium of Investigative Journalists has a full profile of political figures and their relatives named in the Panama Papers for your reading pleasure.
But though political corruption is fun and newsy, the document dump also features a leaked memorandum from a Mossack Fonseca partner revealing the more boring truth that "[n]inety-five per cent of our work coincidentally consists in selling vehicles to avoid taxes."
How much money is there in offshore tax havens?
A big part of the idea, of course, is to make it hard for anyone to know for sure.
But Gabriel Zucman, an economics professor at UC Berkley, has made the most detailed study of the question for his book The Hidden Wealth of Nations, and estimates that it totals at least $7.6 trillion. That's upward of 8 percent of all the world's financial wealth, and it's growing fast. Zucman estimates that offshore wealth has surged about 25 percent over the past five years.
Much of that reflects "new money" from China and other developing nations whose citizens to an extent have legitimate fears about political stability and the rule of law.
But some of it is simple avarice. The name of Ian Cameron, the late father of British Prime Minister David Cameron, shows up in the Panama Papers, for example. Mossack Fonseca helped him set up his investment company Blairmore Holdings (named after his family's ancestral country estate) in the British Virgin Islands, where, marketing material assured investors, the company "will not be subject to United Kingdom corporation tax or income tax on its profits."
This particular kind of move is perfectly legal and doesn't even involve any secrecy. It is entirely typical for investment companies whose employees all work or reside in New York, London, or Connecticut to be domiciled for tax purposes in someplace like the Cayman Islands. Since these companies don't own much in the way of physical assets, they can be officially located anywhere in the world and naturally choose to locate in jurisdictions where they won't need to pay taxes.
Why doesn't anyone do anything about this?
To an extent, things have been done.
First the war on drugs and then, more recently, the war on terror led to meaningful political pressure on countries around the world to alter their banking practices so as to reduce global money laundering. More recently, the European Union has successfully pressured Switzerland to change its laws to make it easier for the EU to catch people engaged in criminal tax evasion.
But there's a big difference between tax evasion — illegally refusing to pay taxes you owe, and then taking advantage of secret accounts to try to hide the money and get away with it — and tax avoidance, which is hiring clever people to help you find and exploit legal loopholes to minimize your tax bill.
Incorporating your hedge fund in a country with no corporate income tax even though all your fund's employees and investors live in the United States is perfectly legal. So is, in most cases, setting up a Panamanian shell company to own and manage most of your family's fortune.
Tax avoidance is an inevitable feature of any tax system, but the reason this particular form of avoidance grows and grows without bounds is that powerful politicians in powerful countries have chosen to let it happen. As the global economy has become more and more deeply integrated, powerful countries have created economic "rules of the road" that foreign countries and multinational corporations must follow in order to gain lucrative market access.
Establishing some kind of minimum global standard of taxation of corporate and investment income hasn't been done, because it hasn't been a political priority. In the United States, in particular, the Republican Party fights quite hard for the view that high levels of taxation on rich people and investment income are economically ruinous, so there isn't the kind of institutional mobilization that exists around drug trafficking or possible terrorism financing.
The leak of the Panama Papers is significant in part because of the specific information the documents contain, but more broadly because they draw attention to what "everyone knows" and may put public pressure on the powers that be to do something about it.
Very interesting article. It seemed to me though that the article focuses on why the Western World, particularly the United States, doesn't do something about it.
But the article itself doesn't reference any American politicians or wealthy elite famous families. All Eastern, Middle Eastern and Europeans are mentioned in the article.
In fact the NYT states,
"So far, the documents have connected no American politicians or other influential people to Massack Fonseca, according to McClatchy and Fusion."
http://www.nytimes.com/2016/04/05/world/panama-papers-leak-offshore-tax-havens.html?_r=0
The NYT article does state that's due to the fact that Americans can easily set up shell corps in other ways. But I still find it curious why this article focuses on the U.S. rather than all the Middle Eastern and European families, politicians and corporations that are actually involved in this breach.
Again, very interesting article though on a topic that is often ignored.
Fascinating... Fascinating that the theft of protected client data has engendered so much curiosity... from those ignorant in basic legal and financial matters. Sad. No doubt will be used as always to chip away at our freedoms...
http://panamapapers.sueddeutsche.de/articles/56febff0a1bb8d3c3495adf4/
These people who stole the data and all the "media" who are using the stolen confidential data should be put in jail.
On the other hand, perhaps if these people managed to crack and steal data from Hillary's illegal mail server, we would be at long last getting to the bottom of her and her cabal's treasonous activities... wouldn't that be ironic?
What would be interesting to know is how many offshores are held by Mr. Trump or by the Clinton Foundation.
If you ask Ted Cruz if he has any offshores, he would probably think you are asking him about immigration or H1-B's.
I think we should admit that both the global financial/legal system, and our governments are both systemically corrupt and have been partners in crime – laundering money and evading taxes – as a matter of undeclared policy. It has been and remains just the way the system they profit by, works. The only people who were not to know is us – the little people of every country, who are told they must pay their taxes, accept cuts because they aren't paying enough taxes, and obey the laws and respect their betters, as 'Sentient' advises.
It stretches the limits of credulity to keep imagining that the bankers aren't well aware who their clients are and how dirty the money is they are accepting. It is equally ridiculous to think that governments aren't aware of how oligarchs become wealthy or presidents suddenly become billionaires. And that dirty but hugely wealthy system is there just whispering to our leaders – who let's face it are mostly drawn from the wealthiest families.
I suggest that what we are seeing with the Panama Papers is two partners in crime who have been caught together – The 'criminal' and the inside man/crooked cop together. Normally the criminal – or at least the organization that he works for – look to the crooked cop to protect them. Someone will have to do time of course, but the arrangement remains hidden and therefore protected.
But now the arrangement itself has been uncovered. And if the crooked cop, the inside man, is revealed, that threatens everything doesn't it? That is far more serious. And so here they are, both caught in the light, both being questioned in public. The bankers and lawyers must be wondering how far they can trust the politicians.
Normally this sort of thing is covered over by finding some poor low level fall-guy. Who even if he tries to say the corruption goes higher is easy to discredit or shut up. But now big level people on all sides are blinking in the unwelcome light.
Maybe, maybe not. But it is a particularly sinister turn of events when our former Secretary of State and her husband, the former President, used a secret server to hide their money trail and are now hoping most of us will fall for the okey-doke question: did she or did she not expose "top secret" information? Rather than the real scandal.
The real scandal is the money.
The Panama Papers may just show us how the Russian (for example) intelligence services have used these accounts to place operatives into the Clinton campaign organization by hiring unsuspecting lobbyists who were used as useful idiots:
http://observer.com/2016/04/panama-papers-reveal-clintons-kremlin-connection/
This story has spooked the hell out of Putin and many others. No one can know right now just where it leads.
Bernie called this back in 2011.
https://www.youtube.com/watch?v=LrsI0Sw2hq8 (https://www.youtube.com/watch?v=LrsI0Sw2hq8)
Quote from: bobsim on April 07, 2016, 04:47:16 PM
Bernie called this back in 2011.
https://www.youtube.com/watch?v=LrsI0Sw2hq8 (https://www.youtube.com/watch?v=LrsI0Sw2hq8)
He didn't call anything. He was stating the obvious. Offshore financial centres aren't a secret.
The Panama Papers are impressive not because they uncovered a secret way in which the rich have been avoiding tax (not necessarily evading tax), but rather because of who was implicated.
See, for example, this article from the Economist back in 2007:
http://www.economist.com/node/8695139 (http://www.economist.com/node/8695139)
An interesting take on this...
http://www.brookings.edu/blogs/order-from-chaos/posts/2016/04/07-panama-papers-putin-gaddy
QuoteClifford G. Gaddy | April 7, 2016 2:55pm
Are the Russians actually behind the Panama Papers?
The "Panama Papers"—does this strike anyone else as a very fishy story? It's like something out of a cheap spy movie.
In early 2015, "John Doe" sends (out of the blue) an email to the German newspaper Süddeutsche Zeitung (SZ), offering 11.5 million documents from a Panamanian law firm relating to offshore shell companies. SZ accepts. Under the International Consortium of Investigative Journalists (ICIJ), some 400 journalists from 80 countries spend a year sifting through the documents. Then, in a coordinated launch, they present their first findings: With nearly identical language in all media (down to the local TV station in Washington that I happened to watch this week), they talk about the grand new revelations of corruption, money laundering, and financial secrecy by over 140 world leaders.
Most reports, no matter where, feature Russian President Vladimir Putin as the headliner. But that might obscure a much bigger and more twisted story.
The dog that didn't bark
Despite the headlines, there is no evidence of Putin's direct involvement—not in any company involved in the leak, much less in criminal activity, theft, tax evasion, or money laundering. There are documents showing that some of his "friends" have moved "up to two billion dollars" through these Panama-based shell companies.
[T]here is no evidence of Putin's direct involvement.
But nothing in the Panama Papers reveals anything new about Putin. It is in fact far less of a story than has been alleged for a long time. For over 10 years, there have been suspicions that Putin has a vast personal fortune, claimed at first to be $20 billion, then $40, $70, even $100... And now all they find is "maybe" a couple of billion belonging to a friend?
This is the dog that didn't bark.
Some (geo)political context is important here. In recent years, the media has become a key battleground in which Russia and the West have attempted to discredit each other. Early last year, circles in the West sought to use the media to respond to what they described as Russia's "hybrid warfare," especially information war, in the wake of the Russian annexation of Crimea and related activities. They identified corruption as an issue where Putin was quite vulnerable. It's worth looking at the Panama Papers in that context: Journalists are targeting Putin far out of proportion to the evidence they present.
As soon as one delves below the headlines, it's a non-story. A "friend of Putin" is linked to companies that channel a couple of billion dollars through the offshore companies. Why? To evade Russian taxes? Really? To conceal ownership? From whom? You don't need an offshore registration to do that. To evade sanctions? That's a credible reason, but it makes sense only if the companies were registered after mid-2014. Were they?
This information will not harm Putin at all—instead, it gives Putin cover, so he can shrug and say: "Look, everybody does it." A more serious possibility is that the leaked data will lead to scandals throughout the West, where corruption does matter—a point I'll discuss. On net, the Russians win.
The cui bono principle connects profits with motives, asking who stands to gain from a certain action. If it's the Russians who win, isn't it possible that they are somehow behind at least part of this story?
Who is "John Doe"?
The ICIJ is the self-described elite of investigative journalists—but what have they discovered about the source of all these documents? The only information we have about John Doe is from SZ, which begins its story: "Over a year ago, an anonymous source contacted the Süddeutsche Zeitung (SZ) and submitted encrypted internal documents from the law firm Mossack Fonseca." When the staff at SZ asked John Doe about his motive, he reportedly replied in an email: "I want to make these crimes public."
But how can the journalists—and the public—be sure he's trustworthy, and that the documents are real, complete, and unmanipulated? It's not clear that John Doe is a single individual, for one, nor why he would have been confident that he could reveal the documents without revealing himself. He'd also have access to a pretty impressive documents cache, which suggests that an intelligence agency could have been involved.
Moreover, the revelation brings collateral damage upon legal business and innocent individuals—was that not a worry? In my view, no responsible person with a real concern for rule of law would advocate this sort of sweeping document release. There might be many unintended consequences; it could topple regimes, with unforeseen consequences. It's pure and naïve anarchism, if the thinking was (as it seems from the outside) to create maximum chaos and hope it will all purge the system of its evils. In any event, the potential for using such a leak for political purposes is immense.
[T]he potential for using such a leak for political purposes is immense.
If "we" (in the United States or the West) released these documents, the motive would apparently be to embarrass Putin. This is part of the fantasy that we can defeat Putin in an information war. If that was the motive, the result is pathetic: No real damage is being done to Putin, but there is collateral damage to U.S. allies.
If the Russians did it, a good motive might be to deflect the West's campaign against Putin's corruption. But as I've explained, any actual reputational damage to Putin or Russia caused by the Panama Papers is in fact pretty trivial. For that cheap price, the Russians would have 1) exposed corrupt politicians everywhere, including in "model" Western democracies, and 2) fomented genuine destabilization in some Western countries. What I wonder, then: Is it a set-up? The Russians threw out the bait, and the United States gobbled it down. The Panama Paper stories run off Putin like water off a duck's back. But they have a negative impact on Western stability.
The Panama Paper stories run off Putin like water off a duck's back. But they have a negative impact on Western stability.
So let's say that the "who" is the Russians, and the "why" is to deflect attention and show that "everybody does it." But how? Given Russia's vaunted hacking capabilities, a special cyber unit in the Kremlin may have been able to obtain the documents. (Monssack Fonseca is maintaining that the leak was not an inside job.) But it is most likely that such an operation would be run out of an agency called the Russian Financial Monitoring Service (RFM). RFM is Putin's personal financial intelligence unit—he created it and it answers only to him. It is completely legitimate and is widely recognized as the most powerful such agency in the world, with a monopoly on information about money laundering, offshore centers, and related issues involving Russia or Russian nationals. An operation like the Panama Papers, which is only about financial intelligence, would have to be run out of RFM. Not the FSB, not some ad hoc gang in the Kremlin. While it might not (legally) have access to secrets kept by a firm like Mossack Fonseca, it's privy to lots of international financial information through the international body of which it is a leading member, the Financial Action Task Force. In short, Russians are better equipped than anyone—more capable and less constrained—to hack into secret files.
As for how to leak the documents, it would actually be pretty ingenious to "incriminate" Russia in a seemingly serious (and headline-grabbing) way without actually revealing incriminating information. That's exactly what we have. The Panama Papers revealed no Russian secrets. They added nothing to the rumors already circulating about Putin's alleged private fortune. And the story-that-isn't-a-story was advanced by none other than the ICIJ. So, done right, the last thing anyone would suspect is that the Panama Papers are a Russian operation.
A more serious Russian motive?
Granted, this would be a complicated operation just to defuse the West's campaign to point to "Putin the kleptocrat." But maybe there's another motive.
As many have already pointed out, it's curious that the Panama Papers mention no Americans. But it's possible that they do and that the ICIJ hasn't revealed that information. Perhaps, since the ICIJ is funded by Americans, they're not going to bite the hand that feeds them. But suppose the ICIJ actually doesn't have information on Americans—that calls into question the original data, which if actually real and uncensored would most probably include something on Americans. There are undoubtedly many American individuals and companies that have done business with the Mossack Fonseco crew, and it wouldn't make sense for a collection of 11.5 million documents involving offshore finances to omit Americans entirely. Perhaps, then, someone purged those references before the documents were handed over to the German newspaper. The "someone" would, following my hypothesis, be the Russians—and the absence of incriminating information about Americans is an important hint of what I think to be the real purpose of this leak.
The Panama Papers contain secret corporate financial information, some of which—by far not all—reveals criminal activity. In the hands of law enforcement, such information can be used to prosecute companies and individuals; in the hands of a third party, it is a weapon for blackmail. For information to be effective as a blackmail weapon, it must be kept secret. Once revealed, as in the Panama Papers case, it is useless for blackmail. Its value is destroyed.
Therefore, I suggest that the purpose of the Panama Papers operation may be this: It is a message directed at the Americans and other Western political leaders who could be mentioned but are not. The message is: "We have information on your financial misdeeds, too. You know we do. We can keep them secret if you work with us." In other words, the individuals mentioned in the documents are not the targets. The ones who are not mentioned are the targets.
[T]he individuals mentioned in the documents are not the targets. The ones who are not mentioned are the targets.
Kontrol, the special Russian variety of control
In sum, my thinking is that this could have been a Russian intelligence operation, which orchestrated a high-profile leak and established total credibility by "implicating" (not really implicating) Russia and keeping the source hidden. Some documents would be used for anti-corruption campaigns in a few countries—topple some minor regimes, destroy a few careers and fortunes. By then blackmailing the real targets in the United States and elsewhere (individuals not in the current leak), the Russian puppet masters get "kontrol" and influence.
If the Russians are behind the Panama Papers, we know two things and both come back to Putin personally: First, it is an operation run by RFM, which means it's run by Putin; second, it's ultimately about blackmail. That means the real story lies in the information being concealed, not revealed. You reveal secrets in order to destroy; conceal in order to control. Putin is not a destroyer. He's a controller.
What has to be said about these shell companies is their anonymous nature, i.e. that the actual benefactor is not shown. Admittedly, there are some very limited cases where this would be of interest for perfectly legal and / or moral reasons but if this is is just about tax "optimizations", why hide the companies actual benefactor ?
Also, the money itself does not necessarily need to be in Panama - there are better places.
I picked up an article that ties the Panama Papers to Sverbank, the Russian bank that is materially run by Putin cronies.
The article highlights that the official registered lobbyist for Sverbank is a firm run by John Podesta, a functionary of the Clintons and Democratic Party.
Apparently Sverbank has been used by Putin flunkies and their intelligence agencies to fund Russian ops abroad.
The Ukranians even claim that it was Russian Intelligence who blew up the 2 Sverbank offices in Kiev to make it appear Ukraine was hostile to Russians.
Actually Ukranian intelligence had found that Putin was funneling cash to the rebels using Sverbank accounts and using offshores so they could purchase weapons.
The Ukranians were about to raid the offices to expose the treachery and the Russians blew them up and then blamed them.
There is more here than meets the eye.
I am thinking the CIA is leaking the docs to expose Putin.
Quote from: spuwho on April 08, 2016, 12:46:49 PM
There is more here than meets the eye.
No doubt. The Panama Papers are 11.5 million documents — or 2.6 terabytes of data. I'm sure there will be many more revelations over the months and years to come.
Quote from: spuwho on April 08, 2016, 12:46:49 PM
I am thinking the CIA is leaking the docs to expose Putin.
http://www.independent.co.uk/news/world/europe/vladimir-putin-says-the-panama-papers-leak-is-part-of-western-efforts-to-weaken-russia-a6972761.html
If it were the CIA they would also be doing an awesome job exposing British PM David Cameron and the Islandic government amongst others (generally considered allies) in the west for the price of indirectly (as his name does not appear anywhere afaik) exposing Putin via his associates.
That would seem like a very high price to pay in order to expose a group of people who is already generally considered to not do clean business (i.e. how would that even hurt them?), which is why I seriously doubt the leaks are from any western intelligence agency.
The real issue is not being reported. There are a bunch of very unpleasant people on the list with large fortunes hidden away. The upset seems to be that they have money in a Panamanian vehicle – not how they arrived at that fortune in the first place. A great many of them stole it from their people.
Why are we upset that they placed it in Panama, but not upset that they originally stole it from their citizens? Why do we want to prevent them putting money in Panama, but we don't want to stop them stealing it from their citizens?
Quote from: finehoe on April 09, 2016, 02:48:35 PM
The real issue is not being reported. There are a bunch of very unpleasant people on the list with large fortunes hidden away. The upset seems to be that they have money in a Panamanian vehicle – not how they arrived at that fortune in the first place. A great many of them stole it from their people.
Why are we upset that they placed it in Panama, but not upset that they originally stole it from their citizens? Why do we want to prevent them putting money in Panama, but we don't want to stop them stealing it from their citizens?
Because we in the US cant stop theft inside a sovereign nation. But we can block the export or laundering of same dough.
In some cases we allow some banks to launder freely so our intelligence agencies can monitor the flow.
https://en.wikipedia.org/wiki/Bank_of_Credit_and_Commerce_International (https://en.wikipedia.org/wiki/Bank_of_Credit_and_Commerce_International)