The Panama Papers
Once upon a time the Wars of the Reformation raged across the Caribbean Sea, with the Protestant English and Dutch off and on doing battle with the Catholic Spaniards and French –and sometimes with each other — for control of many of the islands and more importantly for control of the shipping lanes. Many were the valuable cargoes being shipped, as this was the time when gold, silver and precious stones stolen from the conquered peoples of the New World were headed toward Spain – with a percentage going to The Vatican – and luxury goods for consumption by the new colonial aristocracies headed in the other direction. Hijack a ship headed toward the trade fairs that took place in Panama – first at Nombre de Dios, later at Portobelo – and the silks, guns, wines, household items and so on could be rich pickings, not even counting the ransom for any wealth passenger captured in the process. Get a ship on the way back, with precious artifacts wrested from the Incas, and maybe the more valuable sorts of run and tobacco if the vessel had called at Hispaniola or Cuba along the way, and the pickings were even richer. If the English crown had issued a charter in exchange for its percentage, call it “privateering.” Without such a piece of paper, call it piracy.
There arose a thriving industry on some of the Caribbean islands in outfitting the illegal and semi-legal predator ships. The bucaneros were people who made their living drying meat for ship chandlers to sell to the pirates and privateers. The jerky business could be good at times and slow at others, but a share of rich booty might allow a man to put that way of life behind him. So bucaneros often enlisted on pirate or privateer ships and became what has come down to us as buccaneers. Surely more lost their lives than found their fortunes, but those who made their way back after the really big steal made their islands prosper.
Eventually, though, times and economies changed. Europeans got sick of the constant religious warfare and on their own continent suppressed those conflicts by way of the 1648 Treaty of Westphalia. The British Isles lagged behind – arguably to this day in Northern Ireland – but also by the 17th century the rich troves of the pre-Columbian empires were playing out. Henry Morgan, the Welsh son of a family that had fallen out of favor by its association with the religious fanatic Oliver Cromwell’s interregnum, is known to Panamanians and a pirate. In his 1670-71 raid on Panama, though, he was a privateer under crown charter and for his devastation of Spain’s interoceanic transit zone he was rewarded by being made lieutenant governor of Jamaica.
There wasn’t much to steal in Panama after Morgan’s raid. That the British attacked Panama again under Admiral Edward “Old Grog” Vernon in 1739 and 1740 was about neither loot nor religion, but in furtherance of one of history’s more bizarre and pointless exercises in aggressive nationalism, The War of Jenkins’ Ear.
The days of piracy ended as the legal thinking of a peace activist scholars from the latter days of the Wars of Reformation, Hugo Grotius, began to gain acceptance. The waters off of what was The Spanish Main were increasingly seen not as seas claimed by Spain but as the high seas, international waters upon which piracy was taken to be a crime against all nations. The notion of free trade that Grotius championed may be controversial today, but even as Europeans began to fight over things other than religion the colonial governors of the Caribbean islands and littoral increasingly saw the value of trade with nominally enemy neighbors. Perhaps the biggest blow to piracy was the rise of national armies and navies that took the places of mercenaries and privateers. The British hanged hundreds of pirates between 1716 and 1726. By 1830 the age of rampant piracy in the Caribbean was over. So was the economy of the bucaneros.
Where were people to go? What were they to do?
A lot of people from the English Caribbean made their way to the colonies that became the United States. One group from Barbados founded Charleston, South Carolina. Some resettled in Great Britain, or made their ways to other parts of its empire. Many just went on to different pursuits as places with formerly thriving pirate support industries like Jamaica, the Bahamas and Haiti became economic backwaters. There are still ship chandlers and those who produce goods for them to sell to vessels that call in these locations but in this day and age these are niche industries.
Is there a lesson to be learned from all of this with respect to the money laundering industry?
Is the author way out of bound to call the “offshore financial services” industry and its adjuncts such a thing, and to compare it to pirate support businesses of old?
So sue me, Mr. Mossack and Mr. Fonseca. Sue me, all of you who built, sold, managed or put their names on these gleaming upscale towers that are completely sold out but at eight at night hardly have any lights on in the purportedly occupied apartments. Sue me, all of you investors who report back to your nations’ tax collectors the fabulous rents you bring in from these empty units. Those who are merely hiding money from the taxman probably won’t want to sue because their whole enterprise is about not calling attention to themselves.
Sea pirates may be a growing nuisance in some waters off of Africa and Asia, but today’s big business of servicing criminals has other clients. The oligarchs with Russian-sounding names who made their fortunes looting the public assets of the former Soviet Union? Check. Their western colleagues, who picked through the valuables in the de-industrialization of the United States and misappropriation of the private pension funds of the employees of those shuttered factories? Check. The finanacial hustlers of the misrepresented mortgage derivatives, the LIBOR manipulations and all the various pyramid schemes? Check. The people who made a lot of money In more or less legal ways, got lower tax rates thanks to understanding politicians, but who don’t want to pay any taxes at all? Check.
Then there are the more plebian, although often no less wealthy, customers. The ones against who the great international hue and cry was raised in Noriega times were the drug lords. The human trafficking business has attracted a bit more attention on the side that’s related to politically disruptive mass migrations and lesser concern to the extent that it’s about moving women around for the purposes of prostitution and pornography. Illegal currency movements? To the extent that it’s to the detriment of Venezuela, Uncle Sam likes that. Moving drug cash around outside of the DEA’s view he doesn’t like. Gun runners the powerful US gun sellers’ lobby likes. The Americans are a bit less understanding about some of the other rackets.
Perhaps the most tolerated of all is the money laundering at the expense of women and children. As, in the assets that disappear in the property settlements of divorce proceedings. As in, rich men woefully in arrears on child support payments keeping assets out of the view of the courts. The big money in money laundering is from organized crime and public corruption, but by the count of people involved the racketeers as classically defined would be vastly outnumbered by smaller fish cheating ex-spouses, children and tax collectors.
“Where are your statistics? What is your source? You can’t claim that based on anecdotal evidence.” Such are the inevitable rejoinders by those in denial, and it’s true that governments don’t have good numbers on the proceeds of illegal things, reporters who care to see the next day don’t go asking gangsters about their business, there is attorney-client privilege and so on.
But these are the days of hackers, people privy to inside information who are disgruntled with the way things are, and a piranha school of journalists unwilling to just republish the statements of governments and the oligarchs who buy them. That’s what The Panama Papers were all about, and as we have seen that trove of information is but one example of a trend. Among the glimpses of information dots may be connected in conservative or paranoiac fashion, but a picture of the world money laundering scene is emerging. It’s a picture that governments concerned about making ends meet increasingly dislike, and not just because high ranking people in those governments are getting outed in the leaks.
The ambivalence of so many governments about money laundering – because the high and mighty cheat on taxes and hide assets offshore, or because they have family, friends or patrons who do, while on the other hand have to balance public budgets – is also reflected in the privately owned large media. One medium, several media – it’s not an overarching grand conspiracy. The Washington Post and its emerging nemesis The Intercept are both owned by billionaires. The small fry, whose brains the corporate mainstream media often pick, swim in waters fed by Google and Facebook. Th waters are muddied by widespread fakery. Between stories that get killed to protect publishers’ friends, benefactors or shareholders and details that get cut out because market researches say that too much complexity drives away the audience, important information is kept out of public debate. People who don’t want to support schools or any of civilization’s other defenses make it worse.
Educational standards in the USA are pretty low. Unlike Europeans, the great majority of Americans, even university educated ones, are conversant in only one language. The percentage of Americans who can’t identify US states on a map is surprisingly high, and that gets much worse when it comes to recognizing or knowing anything about foreign countries. It has long been the case that the only sure thing that most Americans could say about Panama is that there is a canal here.
Then along came a US-trained military dictator, a certified expert in psychological operations — messing with people’s minds — and at least for a moment a lot of Americans could come up with General Noriega when the subject of Panama was broached. The great Hearst chain newspaper pundit Ambrose Bierce, who ended up disappearing in another Latin American land, did famously observe that war is how Americans learn about geography.
Time marches on and headlines take up new subjects, even in the dumbed-down US mainstream media, which due to diminished American economic power in the world and corporate profit taking have closed down most of their news offices abroad. So now the more recent headlines that will likely jog the gringo mind when the concept of Panama arises are about The Panama Papers.
Those, you might recall, are the archives of a Panamanian gone multinational law firm, Mossack Fonseca, which were leaked by a pseudonymous John Doe to a German newspaper, which were so voluminous that an international team of investigative journalists was brought in to make sense of, catalogue, publish and do follow-up investigations on them. Thus, The Panama Papers, a moniker that annoys many in Panama’s business and political circles, and legal profession, to no end.
‘Why not call them the Mossack Fonseca Papers?’ one argument goes, ‘as it’s just a leak from one law firm that worked in multiple jurisdictions that should not be allowed to sully the name of all of Panama.’
Many of Panama’s noteworthy reform advocates are lawyers, and perhaps the deafening silence from them, about what was after all was a monumental breach of attorney-client privilege, is easily understood. One prominent Panamanian who was educated as a lawyer and has fought and won some impressive legal battles, albeit never as an attorney, is entertainer Rubén Blades and he did issue an opinion. In his occasional online column Blades was aghast that the government of Denmark paid the International Consortium of Investigative Journalists (ICIJ) a reportedly large sum of money for a complete copy of their Panama Papers archive. This, Blades argued, was about a national government buying stolen property, the proceeds of a crime against a Panamanian law firm.
The sale of copies of the Mossack Fonseca trove was apparently not limited to Denmark, and the income and perhaps potential liability from that surely flowed with such massive leaks most probably was one of the reasons for the spinoff of ICIJ from its nongovernmental organization parent, the Center for Public Integrity. ICIJ went on to other leaks, in particular a comparable trove from a comparable law firm in Bermuda, the so-called Paradise Papers. So Panama was not so unique, nor Mossack Fonseca.
Meanwhile in Panama, prosecutors got onto the Panama Papers case. Although they made some confusing moves with international reporters tipped off at first, it wasn’t about the international rogues gallery who used Mossack Fonseca to assist them in the laundering of the revenues generated by their various criminal enterprises, be they mere tax evasion or more widely reviled rackets. Panama’s Public Ministry, headed by an attorney general (Procuradora General de la República) is chosen by the country’s unicameral legislature, the National Assembly. She says all the appropriate things about impartial justice and upholding the law no matter who gets touched. Everyone in her position, even the most obviously sleazy characters, always has. But in the Panamanian political culture attorneys general are in their actions largely beholden to the country’s political caste. At the time Mossack Fonseca was integrally woven into the administration of President Juan Carlos Varela. Ramón Fonseca Mora was minister without portfolio in Varela’s cabinet when the scandal broke, both the de facto presidential chief of staff and as the vice president of Varela’s Panameñista Party the man who ran the day to day affairs of that political formation. There were members of the extended Mossack and Fonseca families sprinkled around in government posts, particularly in consulates where consuls get a percentage from each ship registry under the Panamanian flag that is processed in his or her office and from which an operative for a law firm whose clientele is drawn from the international rich and famous gets into a position to drum up new business.
So the Panama Papers investigation by Panamanian authorities was not very much about the corrupt politicians, tax cheats and underworld figures named or suggested in those documents. It was a whodunit about the identity of “John Doe” and his or her sources.
Wouldn’t you just love it were it the musician who teamed up with Exene Cervenka to form the heart of the US West Coast punk rock band X way back when? This reporter’s estimate is that the principal source of The Panama Papers leaks is someone who was working at Mossack Fonseca and was annoyed by something like a raise, promotion or partnership expected but not forthcoming, or general office politics rancor. Would more than one person have been involved, perhaps within the law firm or perhaps from without, before those emails were sent to the German newspaper? This reporter would expect so.
In the fall of 2017 there were some cryptic reports buried in the Panamanian media, about a guilty plea in the Public Ministry’s Panama Papers investigation, involving someone working at one of Panama City’s bank. The person, the bank and the details of the offense were not disclosed. So did they find the former law firm employee? Did they find the hacker? Did they find an accomplice of the person who actually obtained the files? Those things we don’t know. We also don’t know whether the reports were the product of a misleading press release by an attorney general who is under intense public criticism for her handling of a number of other public corruption scandals that at the time were far more prominent than the Panama Papers in Panamanian public discourse.
So, if there was such impunity and such tight protection of the Panamanian political caste, how is that that Ramón Fonseca and all of the Mossacks and Fonsecas in public posts lost their political jobs and moreover Ramón Fonseca went to jail?
For one thing, the Panama Papers coincided with a spectacular series of revelations coming out of Brazil, the Lava Jato or Car Wash investigations. They started out with bribery and kickbacks in the dealings of the state-owned Petrobras oil company, but soon came to largely center on an old villain in Brazilian public affairs, the construction-based Odebrecht conglomerate. Cross-references between the Panama Papers and the Lava Jato investigations soon appeared. It turned out that Mossack Fonseca was but one of several Panamanian law firms, and not the biggest of them, that set up shell corporations for Odebrecht bribery networks. Mossack Fonseca in particular created at least such 44 dummy companies with accounts at the FPB bank and brokerage firm in Brazil and Panama. FPB had that curious feature of which any newcomer to the isthmus seeking to do business should beware, anonymous ownership AND anonymous management. Anonymous ownership is what Panamanian corporate secrecy laws are all about, but that and especially anonymous management are features that banking and security regulators are not supposed to allow, even in Panama.
By international demand, and because Panama’s President Juan Carlos Varela was not in total control of the government, Mossack Fonseca and the Varela administration came under increasing pressure. Ramón Fonseca Mora was in addition to Varela’s de facto chief of staff, running the ruling party. However, the Panameñistas held only 16 of 72 seats in Panama’s unicameral legislature and appointees of presidents from the now opposition parties controlled the Supreme Court. Not that the opposition wanted to change any of the usual practices, nor that their parties hadn’t also been paid off by Odebrecht, but it was a convenient matter about which to complain.
Mr. Fonseca was obliged to resign from the cabinet and most of the Mossacks and Fonsecas with government jobs also resigned. Raids and investigations ensued, and the day came when Ramón Fonseca was accused of being an accessory to financial crimes in Panama. The attorney went public, alleging the Varela had taken millions from Oedbrecht. Varela flat-out denied it. Then more witnesses and a paper trail corroborated Fonseca’s story. Thus Varela took advantage of a holiday weekend to modify his plea, no longer denying that Odebrecht paid the millions but explaining that it was not a bribe but a donation to the Panameñista Party. Even were the latter scenario true, it would be a gross violation of Panamanian election laws.
So as in more than a dozen other countries, the Odebrecht scandal destabilized Panama’s government. However, the outcomes of these scandals have been disparate. For example, Odebrecht does business in the United States and has given money to foundations and political action committees associated with prominent Republicans and prominent Democrats in the state of Florida.
So why is it not news in the USA? Perhaps because of the business and social ties of Odebrecht and its partners in that country. For one example, Odebrecht is partners with construction companies owned or controlled by Mexican billionaire Carlos Slim. In the biggest of these, Spain’s FCC, Slim was only a minority shareholder when the crime alleged in most of the Odebrecht bribery and graft scandals were supposed to have been committed. He later gained a controlling interest. And what other business features Slim as its largest shareholder, albeit not of a majority stake? The New York Times.
So what might this have to do with the dogs and cats of Panama, anyway? This is a book about Panama, and the author recommends that if you are looking for loyalty, be very suspect of political, business and legal circles. The most loyal ones in Panama are the dogs.
As the for probable lot of Panama’s dogs and cats – and for horses in the stables of the circles in which Mossacks and Fonsecas have run – it’s hard to say.
The money laundering economy is still strong in Panama and that’s largely because it’s in demand by tax evaders and crooks elsewhere, some of them influential in the political or economic lives of much greater powers than little Panama.
However, among the politicians ruined by the Panama Papers was a prime minister of the United Kingdom and his counterpart in Pakistan. It’s not just Iceland that’s offended.
Color the worldwide money laundering economy, of which Panama is far from the only player, as unsustainable as the pirate economy was. But then it took a couple of centuries for the pirates of the Caribbean to go out of business.