April 5, 2016
By Joe Rothstein
Vladimir Putin may have grabbed the lead in stories about the Panama Papers, but the real story is the global scale of the network of prominent bankers, lawyers, accountants and other go-betweens who set up and maintain the dark money industry.
More than 214,000 offshore entities are listed in the files secretly purloined from Mossack Fonseca, the Panamanian firm at the center of the Panama Papers story. That’s a staggering number of sham companies to be in any one repository. Now multiply that by the estimated 800 firms worldwide also in the business of setting up shell companies and you have a vast, powerful, secret universe of stealth wealth, and its army of recruiters, enablers and concealers.
Just having an offshore account where you park money is not in itself illegal. But think about it. Why would anyone go to all the trouble and expense of setting up a corporate entity with a bogus name, in a foreign country; a company that does absolutely nothing at all except serve as a safe deposit box for cash. And in many cases, it’s not just one entity, it’s multiple companies, wheels within wheels, making discovery of what’s actually owned, and by whom, virtually impossible to discover.
Obviously most of this off-shoring is to 1) avoid paying taxes 2) turn illegally got money into “clean” money by accepting “dirty” assets and laundering them into clean ones 3) avoiding payments in business, divorce or other settlements, or 4) whatever other benefit your “wealth management” adviser sells you on.
That’s where the network of Good People doing bad things comes in. Bankers competing for large assets to manage, lawyers and accountants fighting to acquire high net worth accounts, brokers steering clients to those inclined to look the other way on marginal or frankly illegal transactions.
The Panama Papers show that more often than not the Good People had no interest in checking whether their clients were involved in criminal enterprises, tax dodging or political corruption. In fact, the files show that the enablers often manipulated official records to protect themselves and their clients from detection.
Ramon Fonseca, a co-founder of the firm at the storm center of the Panama Papers, said in an interview with a Panama TV station that most of those named in the papers were not his firm’s direct clients but were accounts set up by intermediaries. Fonseca compared his firm to a “car factory” whose liability ends once the car is produced. Blaming Mossack Fonseca for what people do with their companies would be like blaming a car maker “if the car was used in a robbery,” he said.
The documents show that Fonseca’s firm not only supplied the vehicle specifically created for robberies, but then helped drive the getaway cars. According to an AP review of the files, the firm “regularly offered to backdate documents to help its clients gain advantage in their financial affairs. It was so common that in 2007 an email exchange shows firm employees talking about establishing a price structure — clients would pay $8.75 for each month farther back in time that a corporate document would be backdated.”
According to the International Consortium of Investigative Journalists, which coordinated a year-long review of the files after they were obtained by Germany’s largest daily subscription newspaper, the trail of scam accounts leads to 12 current and former heads of state, 200 politicians, mafia organizations, sports stars, 350 major banks and hundreds of thousands of wealthy citizens.
You might say that all the Best People were doing it. You might say that if you traveled in those circles and applauded stories about clever ways your friends avoided paying their proper share of taxes and asked to be referred so you could get in on the action. Or if you were among the many buying art at high end auctions, using telephone bids linked to Panamanian bank accounts, thereby securing a clean asset with dirty money. Or if you were spending lavishly to buy property in New York or Vancouver or Dubai, paying in untraceable cash. All this and more has been going on for years, a game being played by the Best People, some notorious, others not. If you're using money parked in Panama or the British Virgin Islands, or Cayman or other havens around the world, no questions are asked. When the money changes hands, no explanations are offered.
The Great Recession seems to have awakened a slumbering world leadership to the scope of this problem. As tax receipts from ordinary workers and business taxes plummeted governments began scouring less traveled places for revenue. The U.S. and other countries are doing better at enforcing transparency in Swiss bank accounts and elsewhere.
But as the Panama Papers reveal, dark money remains a growing and thriving industry, populated by some of the world’s leading banks, law and accounting firms and other go-betweens who conspire to bury clients’ secrets. These secrecy experts use anonymous companies, trusts and other paper entities to create complex structures that can be used to disguise the origins of dirty money.
As it happens, a summit meeting of world leaders is scheduled in May to address these issues, called by British Prime Minister David Cameron. Good luck. What the Panama Papers reveal is that the Wealth of the World will not be easily contained by the Leaders of the World until the Best People decide which side they’re on. At the moment, they're on the side of runaway greed. Don't expect them to switch sides voluntarily.
(Joe Rothstein can be contacted at firstname.lastname@example.org)