Paper Trail or Peppered Entrails?

As much as Julian Assange’s 2010/11 Wikileaks and Edward Snowden’s 2013 dissemination of confidential NSA materials may have devastated the diplomatic and intelligence world, the April mass release of the Panama Papers hack has only just begun to incite governmental tax and financial regulators to a much bigger response. The deluge sent “11.5 million leaked documents [to the press] that detail financial and attorney–client information for more than 214,488 offshore entities. The leaked documents were created by Panamanian law firm and corporate service provider Mossack Fonseca; some date back to the 1970s.

“The leaked documents illustrate how wealthy individuals, including public officials, are able to keep personal financial information private. While offshore business entities are often not illegal, reporters found that some of the Mossack Fonseca shell corporations were used for illegal purposes, including fraud, kleptocracy, tax evasion, and evading international sanctions.” Wikipedia. See also my April 5th blog, Mossack Fonseca – The Panama Papers, and my April 17th piece, The Society Killers: Corruption and Tax Evasion. 

“About a year ago, a self-described whistle-blower using the name John Doe contacted Bastian Obermayer, a reporter for the newspaper Süddeutsche Zeitung in Munich, and eventually passed to him a far greater volume of material from the Panamanian law firm Mossack Fonseca: The trove totaled 2.6 terabytes, more than 1,000 times the size of the Manning files. New York Times, May 29th. The map above illustrates in which countries politicians, public officials or close associates have been implicated in the recent leak.

The size of the financial impact of the Panama Papers, clearly just one law firm’s work in an ocean of corruption enablers, was significant enough to move the G7 leaders (United States, Japan, United Kingdom, Germany, France, Italy and Canada) meeting in Tokyo to prioritize a coordinated assault against these secret bank accounts, tax havens and those who use and foment them.

“The French bank BNP Paribas said it would shut its Cayman Islands branch. In Pakistan, a cricketer turned politician who had attacked the prime minister over his family’s offshore accounts admitted that he, too, had used a shell company…

“Within days [of the widespread release of the Panama Papers], Iceland’s prime minister, whose offshore company was revealed by the papers, had stepped down. So had a Spanish government minister, an Armenian justice official and a member of the ethics committee of FIFA, the world soccer association. President Vladimir V. Putin of Russia, whose friends had moved $2 billion through offshore companies, denounced the disclosures as an American plot to smear his country.

“A Mexican cartel suspect was arrested in Uruguay at an address disclosed in the documents. Sierra Leone began to investigate mining contracts. The Swiss police raided the European soccer headquarters. The art market was rocked by revelations of subterfuge in the sale of valuable paintings. The list went on.

“In the United States, the revelations of hidden wealth have resonated amid growing public concern about economic inequality; the word yacht appears in the documents 19,380 times. President Obama has deplored how the rich and some companies are ‘gaming the system,’ as he said the documents showed, and has proposed multiple reforms.” NY Times.

But this isn’t about corruption and lack of transparency in Panama. Mossack Fonseca was just one door into a very large and corrupt network of concealment. “In fact, some experts believe the ‘Panama’ label is misleading, obscuring the central role of several states, including Delaware, Wyoming and Nevada, in registering companies with hidden ownership. Mossack Fonseca probably represents just 5 or 10 percent of the industry creating anonymous companies, [Gabriel Zucman, an economist at the University of California, Berkeley] said, so the disclosures have left the vast majority hidden.

“And no matter where shell companies may be registered, he said, much of the wealth they own is invested in the United States, in real estate, stocks and bonds. ‘The U.S. could find out who the true owners are,’ Zucman said….But the United States may illustrate the difficulty of moving from splashy revelations to serious change. States with a stake in the lucrative corporate registration business are likely to resist serious changes, and Congress appears unlikely to act anytime soon on comprehensive reform bills.

Take a look at some of the names of limited liability companies, per the June 2nd Miami New Times, that own chi chi condos and other hot Mimai real estate and ask yourself if these are just cute or un-transparent owners simply thumbing their noses at the rest of us. “Up All Night South Beach LLC, which owns a unit in the Setai, and Lifes a Bch Ball LLC, the owner of a penthouse at the Murano Grand… [Rich Bitch LLC] A unit in the nearby 40-story Axis at Brickell Village is owned by Happy Festivus Corp. Walk Funny LLC is the proud owner of a place in Fortune House. Angry Birds Miami Inc. is listed as an owner at Icon Brickell.” Are these off-shore companies or just legal structures fully legally compliant?

“But why own an apartment under a corporation in the first place? There are plenty of viable financial and business reasons someone might do so, especially if he's buying the unit as an investment rather as a primary residence… But LLCs also add an extra level of privacy for VIPs. Otherwise, anyone could plug your name into a property database and find your address. However, that wasn't a concern for every celebrity condo owner in Miami. A perusal of property listings reveals boldfaced names such as Ivana Trump, Larry Gagosian, Jeremy Shockey, Lennox Lewis, Rajon Rondo, and Jonathan Vilma. 

“Of course, in other cases, these LLCs may be shell companies set up to obscure the fact that units were bought with tainted money or as ways to hide money from the taxman. How many fit that bill? No one knows, but the Panama Papers leak suggests the answer is a lot. In fact, the U.S. Treasury's Financial Crimes Enforcement Network wants to find out. The department hit the Miami real-estate market with a special order earlier this year that will require insurance companies to report the name of any buyer who makes an all-cash purchase of any home worth more than $1 million...

“As the Panama Papers have revealed, it's far from unusual for an anonymous shell company to be listed as the owner of Miami's most luxurious condo properties. In some newer buildings, more than 80 percent of the units are owned by corporations. Many of them are limited liability companies set up specifically to buy real estate, and most have generic names that follow templates such as ‘Building Unit 1234 LLC’ or ‘ABC Investments LLC.’”  Miami New Times. The Feds are also looking at similar purchases in New York City.

“‘The offshore system is incredibly resilient, with a ton of smart lawyers and accountants to find new ways to hide money,’ said Marina Walker Guevara, the deputy director of the international journalists’ consortium.” NY Times. Loopholes and “legal” tax avoidance schemes, lucrative enough in their own light, were not enough to some of those mega-rich perpetrators. Perhaps we will see some embarrassing revelations about international politicians the U.S. put in power or whose palms were greased by C.I.A. operatives.

But democracies turns to rot when corruption seeps into every nook and cranny of power elites. Economies distort, poverty increases, anger rises, and destabilization runs riot as corruption rises. It’s something everyone one of us must fight for… and elect politicians ready, willing and able ruthlessly to crush corrupt secret finances – willing to shun corruption themselves.

I’m Peter Dekom, and if corruption were purged from the planet, there’s a very good change poverty would all but vaporize and society would function as most of us think it should.