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The Panama Papers
Countries involved in Panama Papers leak (Photo courtesy: JCRules)

By James Mejia

The Panama Papers could have been easily called the Cayman Island, British Virgin Islands, Dubai, Belize or Bermuda Papers. After all, each of those countries offer the same enticement; a low tax rate and an ideal environment for multinational corporations or high wealth individuals to shield their earnings from higher tax rates in the U.S., Europe or Asia.

Why does Facebook headquarter in Luxembourg, iTunes homebase in Ireland or Google take profits in Bermuda? For these companies and a multitude of others the answer is quite simple. In these days of smaller world, multinational sales, profits can be recorded anywhere the home company is incorporated. For conglomerate financial analysts and accountants the tax avoidance objective has led to incorporation in one of the numerous countries always ready to help companies create a confusing paper trail of ownership and hard-to-trace profits. At the end of the day, companies looking to pay little or no taxes can easily find a tax haven.

Making this situation even more confusing, companies taking profits in one of the tax haven countries are generally not breaking the law. For most companies using the structure, their only offense is a lack of transparency. However, the same cannot be said for elected officials who are currently under fire for using offshore accounts.

Take the case of Chinese Head of State, Xi Jinping, who has been on anti-corruption, transparency and democracy campaigns, promoting decorum and fairness in private industry. [1] At the same time as his campaign, his family has been tied to offshore accounts, hidden from public view and avoiding taxes with the implication that he, himself, will benefit from the tax haven. Whereas the public might be a bit more forgiving with a private firm using international tax laws to their advantage, they are less understanding with hypocritical public officials.

British Prime Minister David Cameron has been dogged by similar anti-transparency charges. His family’s former offshore accounts enriched his position all while touting transparency in government. A Labor Party parliamentarian, Dennis Skinner, calling Cameron “Dodgy Dave,” was removed from British Parliament last week by Speaker John Bercow for ‘unparliamentary language.’ Skinner was invited to withdraw the adjective describing Cameron and refused, instead further driving home his point, “This man has done more to defy his station than anyone else. He’s looked after his own pockets. I still refer to him as Dodgy Dave.” [2] Though his family has divested in offshore ownership, the cloud of mystery and hidden accounts has followed Cameron’s political travails.

Finally, there is the case of Former Icelandic Prime Minister Sigmundur Gunnlaugsson, forced to step down after it was discovered that his offshore company, Wintris, had invested in Icelandic banks, affecting their value at the same time he was head of state, negotiating the banks’ recovery. [3] While this link to direct enrichment is rare, it underscores the problems with the Panama Papers and offshore accounts and businesses – the secrecy and multiple ownership trails are almost impossible to trace back to single individuals.

The political leaders of Saudi Arabia, Ukraine, Argentina, Russia, and Pakistan have also been implicated in the Panama Papers scandal.

A simple Internet search provides adequate rationale for why offshore accounts exist. Offshore Companies International gives three reasons why ‘Business and Investment strategies lend themselves to Offshore structuring’:

- Financial Privacy/Tax Minimization

- Asset Protection

- Access to High return Investments

In essence, the company will help protect earnings from taxation while ensuring privacy. For a fee, the company will facilitate the setup of an offshore, veritably untraceable offshore company in a number of countries hosting the service: St. Kitts and Nevis, Hong Kong, Anguilla, Cyprus, Gibraltar, Seychelles, British Virgin Islands, Belize, Panama, Dominica and even the states of Oregon and Delaware in the United States. Unabashedly, the site claims that, ‘Most offshore financial centres do not recognize foreign judgments.’ and ‘He who controls the wealth makes the rules!’ Indeed. The cost for a ‘Self-Managed Seychelles IBC’ (International Business Corporation)? $900. That includes a year of administration fees, an incorporation fee, Certificate of Incorporation and even the First Directors Meeting Resolution.

The Panama Papers came to light when an anonymous party associated with the Panamanian company, Mossack Fonseca leaked more than 2.5 terabytes of data dating back to the 1970s. The four services the company touts on its website are setting up Trust Services, creating Companies and Foundations, Maritime Services for vessels and yachts and Exclusive Online Services. The company’s official response to the leak and global media fallout, “Recent media reports have portrayed an inaccurate view of the services that we provide and, despite our efforts to correct the record, misrepresented the nature of our work and its role in global financial markets. These reports rely on supposition and stereotypes, and play on the public’s lack of familiarity with the work of firms like ours. The unfortunate irony is that the materials on which these reports are based actually show the high standards we operate under…”

The work of the company highlights why Panama might be a country where these services are sought; a highly educated and English-speaking population, a convenient geographic location in the middle of the Americas, low-wage earning professionals versed in international accounting and law and national law designed to promote business development above all else. Most telling is the aspect in the official company response that defends their practice, “We provide company incorporation and related administrative services that are widely available and commonly used worldwide.”

For Jeff Campos, former President and CEO of the Hispanic Chamber of Metro Denver and current Executive Director of the Denver Chapter of the Global Chamber, the use of offshore accounts is different for politicians than it is for companies. “The data breach exposed some high-ranking officials and corruption but the use of tax havens has been well documented and goes back some four decades. U.S. companies have been using offshore accounts for a very long time. Now, several countries are investigating companies for tax evasion.”

Campos recognizes the whole practice of offshore companies is under a much brighter light these days. “The bottom line is this is a blow for secrecy. A major selling point for companies is that you have an offshore haven. Now it looks like the whole industry, the whole effort may have to change. Still, it seems every time governments try to create transparency, companies find another way around it.”

[1], 12/17/2015

[2] The Independent, “Dennis Skinner Thrown out of House of Commons for Twice Refusing to Withdraw ‘Dodgy Dave’ Jibe,” Tom Brooks-Pollock, April 11, 2016

[3] New York Times, “Iceland’s Prime Minister Steps Down Amid Panama Papers Scandal,” By Steven Erlanger et al, April 5, 2016





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