Fallout from the Panama Papers

A Panamanian legal firm, Mossack Fonseca, was recently hacked and Sunday over 11 million of their confidential documents were posted on the Internet.  This is significant because MF is the fourth largest global asset protection (tax shelter) law firm.  These documents list many of the world’s most wealthy and powerful.

Why this is Such a Big Deal

Panama City

Image by Matthew Straubmuller

Everyone has known for decades the super-rich and politically-connected can move money around the globe, without any tax implications.  Politicians talk about it; books and articles are written about it; but, nothing is being done to stop it.  In fact, many banks and heads of state appear to be creating and using this tax-evasion network.  Whenever any complications arise, laws and tactics are quickly changed to protect the network.

The Facts are Undeniable

Until now, it was easy to gloss over the problem and deny this was happening on such a massive scale.  Now, it’s virtually impossible to deny.  It’s impossible to even downplay the size of the problem.  The working class knows they’ve been paying an unfair share of the global tax burden and now they finally have the ammunition to do something about it.  It will be interesting to see how it affects the elections.

Everyone is Implicated

  • 12 Heads of State
  • 150 Politicians
  • 29 Forbes List Billionaires
  • Dozens of Global Banks
  • FIFA Officials and Players
  • Drug Cartels and Dealers
  • Arms Dealers and Nuclear Proliferators
  • Companies linked to the CIA

The Fallout so Far

  • The president of Iceland has stepped down
  • The President of Argentina is under investigation
  • Vladimir Putin called the leak an American plot
  • The Prime Minister of England is under fire
  • The President of France is under investigation
  • CEO of Austrian Hypo Landesbank stepped down
  • Swiss Federal Police raided the UEFA offices
  • Police in El Salvador raided the local MF office
  • Australia is investigating 800 listed taxpayers
  • China has blocked MF related media and Internet

Evasion in America

There is a curious lack of Americans listed as MF clients.  Does this mean it’s not happening here in the US?  No, it just means Americans don’t move their money through Panama.  There are three key reasons for this:

  1. The Panamanian Free Trade Agreement forces Panama to release information to American authorities.
  2. US law makes it easier to setup shell companies in the Caribbean and other tax havens.
  3. Recent US laws like the Foreign Account Tax Compliance Act (FACTA) make it harder for American citizens to hide their money abroad.

Don’t be surprised to see Americans implicated in future leaks.

The Bottom Line

The bottom line is that transparency is a good thing, unless you are breaking the law.  International law is pretty murky and much of this may be legal, in some countries.  But, evasion and laundering are taking place on a global scale.

“Corruption, money laundering, and tax evasion are global problems, not just challenges for developing countries.”

– Sri Mulyani Indrawati

Recommended Reading

CNN – The Panama Papers: 7 Things to Know
New York Times – The Panama Papers: Here is what we Know
The Guardian – Fallout from the Panama Papers

5 comments to Fallout from the Panama Papers

  • Paul N

    I have 2 comments and I think one will be unpopular.
    The first is that I read somewhere that the American names are being witheld along with some others to create several “news cycles” to maximize news outlets profits. Kind of ironic if that’s true.

    My second point is that even though I am not rich and don’t make a lot of money comparatively I believe many jurisdictions ask for an unfair amount of tax and create the environment of people wanting to protect what they have earned. France was a great example of that. A 75% wealth tax that was implemented and rolled back.

    The fact that there is zero accountability for tax money wasted by governments compounds the issue as well. All money the government has is our tax money. They do not create their own. ( many people that say ” the government should pay for that”. They simply don’t understand it’s always our tax that’s paying out) Governments going into deep debt while you or I or some rich person are careful and save is very frustrating. Of course even I don’t want the government stealing what I earn to throw away later. Or pay governments workers a higher wage, golden benefits, and a golden retirement at a younger age than myself and my peers. If your going to go after the rich then level the entire playing field because there is unfairness at every level.

    • Thanks for stopping by Paul.

      I like unpopular comments, because they are usually honest or at least provocative.

      I hadn’t heard about any US names being withheld. It wouldn’t surprise me though, because whomever is leaking this information definitely has an agenda. John McAfee, who is running for President as a Libertarian, believes Soros and the Rothschilds are trying to protect the banking cartel.

      I also believe spending and taxation by governments is way out of control and threatens our global economy. I believe a fair max amount of taxes should be 25%. If everyone actually paid their taxes and governments showed some spending restraint, that would be very possible.

      On your third point, it’s not just that the governments are wasting our tax money, it is being siphoned off to people who are politically connected. That’s why so many politicians and heads of state are on this list. It’s not just the politicians either. Many of the same contractors keep getting no-bid contracts, when they failed to execute on their past contracts.

      Basically, they are looting the treasury.
      Bret recently posted..Fallout from the Panama PapersMy Profile

  • I was just in Panama. The building used by the law firm in question is incredibly fancy and looks like a lot of people were hiding money there.
    Millennial Moola recently posted..Financial Advice is a Ripoff, Here’s What You Should PayMy Profile

    • Thanks for stopping by Millennial Moola.

      I would love to visit Panama one of these days. It’s definitely on my bucket list. When I was searching Flickr for the picture in my post, I didn’t realize how many beautiful high-rise buildings there were in Panama City. There is definitely money flowing around.
      Bret recently posted..Fallout from the Panama PapersMy Profile

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