A tax haven professes to stand on principle, risking pariah status
PANAMA’S most notorious moment as a haven for tainted cash came with the nationalisation of money-laundering in the 1980s under Manuel Noriega, a military strongman. It has since clamped down on egregious financial criminality, but remains home to thousands of secretive firms and famous for the discretion of its bankers and lawyers. The Central American microstate is the financial and incorporation centre of choice for many Latin Americans and Europeans—and, critics say, many financial ne’er-do-wells.
It is also holding out against global tax-transparency plans known as the Common Reporting Standard (CRS) being championed by the OECD club of rich nations. It says it will develop its own standard, which will probably mean less information, exchanged with fewer countries. Small financial centres, it huffs, are being bullied into accepting competitiveness-sapping rules shunned by some bigger countries, in particular America. “We’ll move at the same speed as the slowest,” says one of its leading lawyers. “Otherwise our financial centre faces a death sentence.”
Some suspect a delaying tactic rather than a principled stand. The many conditions Panama has set for joining in the automatic exchange of tax information were crafted to ensure it never will, they say. But it has, to its credit, made some important reforms. A new law requires bankers, lawyers and professionals in 30 other industries to know the names of client firms’ real owners and to pass them to law enforcement on request. It hopes this will help get it removed from a list of countries with poor safeguards against money-laundering, compiled by more scrupulous governments.
That will depend partly on how strictly the law is enforced. And there are other concerns, such as Panama’s fondness for anonymous bearer-share companies, widely regarded by other countries as a favourite vehicle of criminals. They must now be registered with a custodian. But the listed owner can be another firm.
And Panama’s biggest law firms are giant offshore-company incorporation factories. Many wield power of attorney to conceal ownership. Some market their services to financial firms serving Latin American clients, “guaranteeing” that the country will not sign agreements to exchange information with their home countries, such as Argentina and Mexico.
According to a Brazilian prosecutor, there is evidence that Mossack Fonseca, one of Panama’s largest law firms, laundered money for some of those implicated in a vast bribery scandal centred on Petrobras, Brazil’s state-controlled oil giant. The law firm, one of whose senior partners, Ramon Fonseca Mora, is a “minister counsellor” in Panama’s government, says it always does the required due diligence on clients. It says it has been a victim of a smear campaign by political opponents and is “certain that our name will be cleared very soon”.