The “Panama Papers” Are About Criminals

This article was first published on The Globalist on April 12, 2016.

It is high time for U.S., U.K. and Swiss justice authorities to act.

Tax havens?  Crime havens is a far more accurate description.

Yes, the “Panama Papers” have generated discussion about multinational corporations using holding companies registered in tiny islands from Bermuda to Vanuatu. The function of these companies is to help the corporations avoid taxes. Aided by clever (and no doubt highly paid) lawyers and accountants, such activities may just be legal, even if this raises some ethical questions.

But major corporations have hosts of ways to try and avoid their tax liabilities and the major thrust of the revelations from the “Panama Papers” is not concerned with tax avoidance and major multinational corporations. Focusing on them is a diversion from far more sinister concerns.

The prime function of most of the ‘enablers’ – those armies of lawyers, accountants, agents and brokers – working with secretive shell companies is to aid and abet criminals.

First, there is organized crime, notably narcotics. From the poppy fields of Afghanistan to the drug cartels in Mexico, complex international financial systems are deployed to move and launder illicit cash in ways where it can be invested for its ultimate owners in highly liquid assets. The goal is mostly to place the money in U.S. dollar-denominated assets, but also in assets in British pounds and in euros.

Second, there are terrorist networks that work together with organized crime and that need to move cash around secretly to pay for guns and all manner of services that assist their murderous goals.

Third, there are politicians and civil servants in dozens of countries who are either stealing directly from national treasuries, or receiving kickbacks from corporations in return for granting government procurement contracts. These corrupt public servants hide their cash and launder it in ways that enable them and their families and friends to enjoy luxury lives from London to Manhattan to the South of France.

Fourth, there are the tax dodgers: large numbers of people in many countries who don’t like paying taxes. They too use the ‘enablers’ to establish trusts and companies in remote locations that hide the ultimate beneficial ownership of such entities and so protect these tax thieves.

What these four groups have in common is that they are all criminals. Every ‘enabler’ knows this.  What they also know is that there are relatively few places in the world where the vast assets of these criminals can be invested in ways that generate a decent investment return, that are safe and secret, and that can be accessed and used by whoever the ultimate beneficial owner designates. The United States, the United Kingdom and Switzerland are probably the top three ultimate destinations for the funds that go through the crime havens.

We can bash Panama for allowing lawyers there to work with the criminals and establish shell enterprises for them. We can strive to hit the British Virgin Islands hard where hundreds of thousands of shell companies are registered – probably more than in any other location. But if we want to end this game, then the top priority needs involve the authorities in the U.S., U.K. and Switzerland.

This is not easy. There are enormous entrenched interests in New York, London, Zurich and Geneva, who have successfully fought for years to prevent official interventions into their financial activities. These not only include prestigious law firms, auction houses, real estate brokers, but also major banks. For years, these operators have arranged funds related to shell companies, managed and/or banked them.  They know that many of these funds are registered in the names of foreign companies in ways that mask the true identity of the beneficial owner and that the ways in which that owner obtained the funds could be suspicious.

Brilliant secretly filmed interviews with prominent lawyers in New York that were made by Global Witness and aired on CBS’s “60 Minutes”television show, revealed that some of the leading law firms in New York were willing to discuss arrangements to assist an unknown vastly rich African leader to invest anonymously in Manhattan.

In recent years, such major international banks as BNPParibas, HSBC and Standard Chartered Bank have all settled cases with the U.S. Justice Department that centered on money laundering into U.S. dollar-denominated investments.

The recent indictments of FIFA world soccer officials by the U.S. Justice Department involves individuals moving large amounts of cash across national borders through shell companies registered in the crime havens.

Major auction houses are not currently under any obligation to make their transactions more transparent and to divulge who the beneficial owners are of offshore holding companies whose agents buy and sell vastly expensive works of art.

Miami Beach today is full of exceptionally expensive condominiums that are not owned by elderly Americans on social security. Rather, many of the owners come from Latin America and Russia. You can see them in the luxury shopping malls, at the airport, in the fine restaurants. But in many instances you will not find their names on the condo ownership titles – instead these are registered to foreign offshore holding companies and their agents and managers. Who are these foreign buyers? Where did they get their cash? Did they violate any of the tax and currency laws of their home countries as they invested in Miami?

Everyone engaged in real estate in Miami is making cash today and so there is no interest in asking questions and raising issues of illicit finance.

And the same is true of the most expensive residential areas of Manhattan and London, alongside Monaco and the South of France and other sunny spots where the super rich vacation.

It is time the U.S. and U.K. and Swiss authorities investigated and prosecuted some of the ‘enablers’ and sent the message out that the crime haven games must stop.