Panama’s financial reputation in the dumps with pressures mounting

Stiglitz & Pieth Report
Click here to read the entire 25-page report.

Varela’s damage control collapses before an international outcry

by Eric Jackson

The complaint that leaks from the Mossack Fonseca law firm are unfairly called “The Panama Papers” by a president whose right-hand man was Ramón Fonseca has failed to change international rhetoric. The Public Ministry’s vow to get the bottom of it that turned out to be a bungled investigation of who leaked the documents with no inquiry at all into the criminal activities indicated in the papers themselves made the attorney general a global laughingstock. The appointment of a high profile commission and then the imposition of restrictions that drove its two most prominent members to quit made it worse.

Now come the secondary scandals — 85 tax fraud investigations in Canada, 415 tax fraud investigations in India, 22 tax fraud investigations in the UK and the arrests of three British bankers who laundered their insider trading proceeds through a Mossack Fonseca shell game. The president of Argentina under investigation for undeclared holdings discovered through the Panama Papers. The Russian economy minister under arrest. The Pakistani prime minister on trial for his political life before his country’s supreme court.

Most likely Panama Papers revelations about the family fortune of the British prime minister at the time contributed to the narrow “Leave” victory in the Brexit referendum. Two Icelandic prime ministers were run out of public life in disgrace due to the revelations. Spain’s minister of industry fell, and a subsequent attempt to kick him upstairs to the World Bank was withdrawn in amidst a chorus of great indignation. In other places like Malta, the former Soviet Georgia and China, governments have survived the embarrassment of high-ranking officials or former leaders, but there are likely to be consequences down the road in their much different political systems. Were the Americans barely mentioned? Mossack Fonseca files may have mentioned few US political leaders, but among the handful of oligarchs were friends of Bill and Hillary and friends of The Donald.

It’s not just the Panama Papers now, either. In late September there was a lead of 1.3 million confidential files from the Bahamian corporate registry and these documents are just beginning to have an effect similar to that of the Mossack Fonseca documents. Two officers of Odebrecht Panama have just turned states evidence in Brazil’s massive corruption scandal and the company’s jailed former CEO tells of bribes paid and evidence concealed in Panama. Even if politicians here have passed a law to officially ignore the findings of courts in other countries, it’s likely that Panamanian votes won’t be so understanding.

The OECD has branded Panama’s moves in the wake of the Panama Papers release as unsatisfactory. The European Parliament is talking about a public beneficial ownership registry for all corporations and measures against jurisdictions that don’t have such a thing.

This is the context in which the two experts who resigned from Varela’s Panama Papers commission — Nobel laureate economist Joseph Stiglitz and anti-corruption scholar Mark Pieth — have released their “minority report” ahead of Varela’s official one, the latter which may or may not be put on the public record. Stiglitz and Pieth are calling for stern measures against tax havens and money laundering centers, akin to those used against countries and institutions that handle the financial transactions of those terrorists whom the United States and the European Union don’t like.

These sorts of sanctions have already begun on a small scale — Panamanian banks now have a hard time finding US banks that are willing to have corresponding bank relationships and it’s making check clearance more difficult and might make ATM machine transactions problematic. The Varela administration is considering the placement of a branch of the Banco Nacional de Panama in New York to be the US corresponding bank for this country’s private banks — if the Americans allow that to be done.

Figure that Donald Trump has business interests in Panama and that the Republicans have been talking about repealing FATCA and other measures against money laundering. But also figure that within both major US political parties there are conflicts over this, and that whatever the politicians might say, the financial system may not be willing to assume the growing risks of doing business with Panama.


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