Excerpt: "The range of alleged activities encompassed by the Panama Papers
was broad - from tax evasion and tax avoidance to money laundering
associated with a variety of nefarious activities. The range of public
figures who made an appearance in the documents was equally impressive."
Economist Joseph Stiglitz. (photo: Reuters)
The Real Scandal Behind the Panama Papers
By Joseph E. Stiglitz and Mark Pieth, Vanity Fair
30 September 16
After the leak of more than 11 million documents detailing sensitive, and
often terrifying, information about offshore financial and legal activities,
the Nobel-laureate economist Joseph Stiglitz was enlisted to help Panama
reform its practices. But nothing could have prepared him for what came
next.
I'll confess that my jaw dropped when I looked beyond the headlines about
the Panama Papers last spring and began to read the fine print. Panama
Papers is shorthand for the widely publicized report of the International
Consortium of Investigative Journalists, originally published on April 3,
2016. The story broke simultaneously on the I.C.I.J. Web site and in
newspapers around the world and detailed what had been going on behind a
cloak of secrecy. An enormous leak of 11.5 million documents from the
Panamanian law firm Mossack Fonseca provided the investigative journalists
with a trove of information about 200,000 entities incorporated in offshore
havenscompanies whose real owners were difficult or impossible to trace.
The newspaper Süddeutsche Zeitung had obtained the documents; realizing that
to analyze the data was beyond its own capacities, it enlisted the help of
the I.C.I.J., which worked for a year through 107 media organizations in 80
countries before breaking the story.
Panama is but one of a large number of offshore corporate havens, which
include the British Virgin Islands, Cyprus, and the Cayman Islands. Often,
the owners of a corporation in one secrecy haven will be a web of
corporations incorporated into another. Why the secrecy and the dizzying
complexity? In many instances, it is to throw law-enforcement agencies, tax
collectors, and investigative journalists off the scent.
The range of alleged activities encompassed by the Panama Papers was
broadfrom tax evasion and tax avoidance to money laundering associated with
a variety of nefarious activities. The range of public figures who made an
appearance in the documents was equally impressive. The publicity brought
down the Icelandic prime minister, and forced Britains prime minister at
the time, David Cameron, to explain why his fathers name appeared in the
documents. The prominence of Putin associates in the Panama Papers led to
accusations (from Moscow) that the revelations were a Western plot. China,
too, had its share of prominent people represented.
As Mark Pieth, a Swiss lawyer and anti-corruption expert at the University
of Basel, put it in an interview this summer with The Guardian: I have had
a close look at the so called Panama Papers and I must admit that, even as
an expert on economic and organized crime, I was amazed to see so much of
what we talk about in theory was confirmed in practice. The newspaper
itself noted that the Panama Papers may include evidence of crimes such as
money laundering for child prostitution rings.
Years ago, after serving as chief economist of the World Bankwhere I saw
the role that corruption, tax evasion, and money laundering play in bleeding
developing countries of money they need for developmentI had urged that
secrecy havens be shut down. With Leif Pagrotsky, Swedens trade minister at
the time, I published an opinion article on the subject in the Financial
Times. These centers are a cancer. The lack of transparency at their heart
undermines the functioning of the global economy. What the Panama Papers
showed was that matters were far worse than I had imagined.
So it was with some surprise that, just a couple of weeks after the release
of the Panama Papers, I received a call from Panamas vice president, Isabel
Saint Malo, asking me to serve on a special commission that Panama was
setting up. The purpose was to recommend steps that Panama could take to
promote transparency in its offshore financial-services industrynot just
the banks but the full array of service providers, including its law
firms, one of which had inadvertently opened a window onto what was going
on. I wondered if the government was serious. It was obvious that officials
were concerned about Panamas public image. They repeatedly pointed out the
unfairness of the title Panama Papers, since only a fraction of the bad
activities had actually occurred in Panama. But the central player was
Mossack Fonseca, the Panamanian law firm that had used its expertise in
secrecygarnered from years of operating in Panamato expand globally.
Panama was perhaps particularly unhappy because it had worked so hard to
live down the reputation earned under strongman Manuel Noriega, when it had
been such a key logistics hub for the drug trade that the U.S. felt it had
to invade.
Two things convinced me to serve. First, the vice president flew to New York
to meet me in my office at Columbia Universityan indication that the
government might be serious. Second, the government also sought the
participation of Mark Pieth, who has devoted much of his life to fighting
corruption, bribery, and secrecy. Pieth knew in detail how global standards
were improving, how the noose was tightening around the neck of the secrecy
havens. I hadnt met him, but I knew he would agree that not enough had yet
been done. We both understood why secrecy havens were tolerated: people in
the advanced countries, including and especially in the financial sector,
benefitted enormously. But it was becoming intolerable to citizens and their
governments that so much money was escaping taxation, effectively enjoying
protected status beyond prying eyes. Indeed, far worse was being done under
cover of secrecy.
If we could actually get one of the havens to reform itself, it could become
a model for others to followincluding onshore secrecy centers like London
and Delaware. Panama had passed legislation on bank and corporate secrecy
that moved in the right direction. The Panama Papers showed, however, that
there were large gaps between legislation and enforcementand often a kind
of foot-dragging that raised questions about Panamas commitment to
transparency. Panama had also refused to sign on to what was becoming the
global standard for best practices, what is known as the multilateral
automatic exchange of information among tax authorities. Such exchange is
necessary if tax authorities are to trace all the jurisdictions in which
their citizens and residents are working.
In short, Panama seemed tantalizingly on the edgeand with the right sort of
shove, maybe it could be pushed over into the group of transparent
countries. The proposed commission might be the means, and Pieth and I
agreed to join.
The seven-member international commission, described by the government as an
Independent Committee of national and international experts established by
the Government of Panamá to evaluate and adopt measures to strengthen the
transparency of the financial and legal system of the country, which I
co-chaired and which included several Panamanians, including the other
co-chair, Alberto Alemán Zubieta, was inaugurated in Panama City on April 29
by none other than the president, Juan Carlos Varela, before a large
convocation of ambassadors and international officials. In retrospect, this
moment can be seen as the high point. Because events quickly took a less
auspicious turn.
No sooner had the preliminary work gotten under way than the intermediary
between the government and the commission, a private-sector lawyer named
Maruquel Pabón de Ramirez, sent the group an e-mail where an item at the top
of her proposed agenda was confidentiality of the report. Perhaps naïvely,
Pieth and I had assumed that a government asking us to produce a report on
transparency would commit itself to transparency in the release of the
report. What confidence would there otherwise be in its work? What would it
mean if the government could cherry-pick, releasing only those
recommendations with which it agreed? Pieth and I both came from countries
where there are basic standards of transparency in the public sector, giving
citizens certain rights of access to information concerning what the
government does and what is done on behalf of the government. There are
especially strong standards when it comes to outside commissions appointed
by the government that might influence its workings.
On June 3, at the first full meeting of the commission, in New York, I, as
co-chair, opened with a discussion on the subject of the transparency of the
groups work. The commission came to an agreement: it would require that the
government commit itself to releasing the full report, whatever the findings
might be. At the same time, the government of Panama would be permitted a
period of time to prepare its response before the report went public. The
summary of that session, as recorded by Erika Suia legal expert on
international taxation and how the international system has been used for
tax avoidance and evasion, whom I had asked to work with me on this
projectwas clear: the group came to a consensus that the report go through
a process of consultation with the president and that the report be made
public by December 1, 2016. Maruquel Pabón, our intermediary with the
government, was asked to convey this stipulation regarding transparency as
soon as possible.
The commission had a second request, because it was clear that we would need
resources to proceed with our work. The members of the commission were
providing their services pro bono, but it was not reasonable to ask support
staff to do the same. The government had indicated that it understood this,
but for a variety of reasons no funding had yet materialized. Thus, the
second request to Maruquel Pabón was to obtain the governments commitment
to provide the necessary funds, which in any case were relatively modest.
These were the only two hard topics taken up at the New York meeting. The
commission quickly agreed on the scope of its work, on its work program, on
the division of responsibilities, and so forth. One of the central messages
to the government was that, because global standards were changing rapidly,
Panama would have to respond quickly, both in terms of legislation and
enforcement. To advise Panama on where it should go, it was agreed that
there had to be a discussion of these evolving global standards. And Panama,
in order to comply, would have to increase its capacities in several
directions. The commission agreed that its discussions had to go beyond the
banking sector to encompass all those who play a role in making Panamas
status as a secrecy haven possible, including lawyers and those people who
serve as registered agents for corporations.
I believe, as Pieth does, that transparency reforms will strengthen Panamas
economy in the long run. Indeed, time is running out for the old model based
on secrecy. It will not be long before those nations that opt to continue
with old-style secrecy will be labeled pariah states and be cut off from the
global financial system.
With the organizational work out of the way, each member of the commission
went about preparing specific sections of the report, with a commitment to
exchange drafts in early August. We waited (and waited, and waited) for the
governments response to our two requests: for a commitment to transparency
and for modest funding to support the necessary work. On July 29, after
almost nine weeks had elapsed, the acting vice minister of foreign affairs,
Farah Urrutia, sent an e-mail telling the commission to keep the scope of
its inquiry narrow and rejecting the request for funds to support its work.
The e-mail simply ignored our insistence on a commitment to transparency.
The commission had agreed that it would not proceed without such a
commitment. It seemed clear that we were at loggerheads with the government.
At that point, the commissions co-chair, Alberto Alemán Zubieta, said he
was coming to New York. Could we meet? I arranged a breakfast on August 1 at
Community Food & Juice near Columbianormally too noisy and crowded with
students for a serious conversation, but ideal with students away for the
summer. Given the issue that had arisen, I felt it was important to have
someone else at the meeting, and when an associate who had been working with
me couldnt make it, I asked my wife, Anya, who had come down to Panama City
and participated in some discussions there and in New York. Alemán himself
was joined by one of the other members of the commission, Domingo Latorraca,
who worked with the auditing firm Deloitte in Panama City. Alemán and
Latorraca had come to the conclusion that the government would not comply
with our requests. They recommended that the commission be disbanded. My
view was that a joint resignation by all members would have the most impact
on the government, and Anya was asked to draw up a joint letter.
Pieth had scheduled a call with Alemán to follow directly upon our meeting.
Pieth was worried about the adverse effects that a joint resignation would
have on Panama and its reputation. He also wondered whether there had
perhaps been a miscommunication with the governmentthat maybe those who
were supposed to be the intermediaries hadnt done their job. Before sending
in our resignations, he suggested, we should make one more attempt to
explain to the government the importance of transparency and the risks it
faced by continuing in its stance. We tried every channel we knew to get
this argument to the right ears, and were rebuffed every time.
As the group attempted to agree on a common resignation letter, Pieth and I
began to suspect that something was afoot behind the scenesthat hidden
agendas were at play. In version after version of the resignation letter,
some of the Panamanian members insisted on obfuscating the true reason for
our resignations: the failure of the government to affirm a commitment to
make our report public, no matter what it said. They suggested saying that
there were divisions within the commission on matters of substance that
impeded its work. This was not true.
There was one other odd event in our dealings with some of the members of
the commission that contributed to an intimation of double dealing: in
mid-July, we had received something from Alemán labeled an interim report.
In the agenda originally prepared by Maruquel Pabón, there had been mention
of such an interim report, but with the final report coming out by
Novemberand with no further meeting scheduled before the end of Augustan
interim report had come to seem both unnecessary and unrealistic. Alemán had
apparently on his own decided to write one up, including draft
recommendations that were his own.
The group had briefly discussed some possible recommendations in our New
York meeting, but had not gone into detail. I for one would have gone much
further than Alemán was proposing. To begin with, there should be a Freedom
of Information Act, so that there wouldnt have to be this squabble over
whether a report to the public was made public. Every citizen would have the
basic right to know. There were other measures I would have addedor at
least would have wanted to discuss thoroughly. There should be a public
registry of the true owners of all corporations registered. Because
corporations operating in tax-free zones (Panama has a couple of such zones)
are especially at risk for being used for money laundering, the true owners
of any firms receiving preferential tax treatment should be known, and none
should be of the sort that might want to make use of these tax-free
opportunities for money laundering. Further, law firms and other service
providers associated with illicit activities should lose their license to
practice. In some areas, Panama had already put transparency on the
booksthe question was enforcement.
In the work I was preparing for our next meeting, I had begun drafting such
a list of strong recommendations. I began to respond in detail to Alemáns
so-called interim report but quickly came to the view that his report was
far from being presentableand far from representing the consensus of the
commission. Pieth and I independently wrote unequivocal e-mails saying that
the interim report should not be sent to the government. Indeed, there was
no reason to rushas noted, the committee was intending to send in its
report by the end of November. Why not just wait until we all met in August
to discuss the recommendations?
Nevertheless, Alemán sent the interim report to the government anyway,
despite my request that we wait. Had I known, I would have rushed to send my
views. Alemán now says that he polled the other members of the commission. I
was the co-chair, and was not pollednor informed of such a poll. Neither
was Pieth.
It increasingly became clear that the government, with the assistance of at
least some of the Panamanian members of the commission, had a purpose other
than reforming the system in a transparent way. What it really wanted was to
get the positive glow of an announcement while avoiding the need to make any
real changes. Under the circumstances, Mark Pieth and I had no choice but to
resign.
The Independent Committee of national and international experts was
established in part to persuade advanced countries that Panama was cleaning
up its act. The rump commission that continues in operation is unlikely to
take significant steps that would truly force Panama to do so. After our
first meeting, back in New York in June, the government did make one
significant change in the status quo, agreeing to the multilateral automatic
exchange of information. But much more is needed, starting with a public
registry of the beneficial ownership of corporations registered in Panama.
That would enable a newspaper in some countryto take a completely
hypothetical exampleto find out, for instance, who the real owner is of a
mining company that was just awarded a government contract under suspicious
circumstancesand to discover, say, that it was none other than the
brother-in-law of the president. Were it to adopt such a policy, that would
say something. We will see.
While we criticize Panama, it needs to be emphasized that onshore secrecy
havens, like Delaware and London, are as important as offshore ones; and
that vested interests associated with onshore centers have been working just
as hard to preserve their secrecy status as those in offshore centers like
Panama. The release of the Panama Papers does seem to have made a
difference: since their publication, the U.S. has announced strong new
measures against secrecy. In the words of a May 5 Treasury Department press
release, issued between the time of the convening of the Panama Committee
and our first meeting in New York, the new legislation and rules would
require banks to collect and verify the personal information of the real
people (also known as beneficial owners) who own, control, and profit from
companies when those companies open accounts and would require companies
to know and report adequate and accurate beneficial ownership information at
the time of a companys creation, so that the information can be made
available to law enforcement. The rules would apply everywhere in the
U.S.even in Nevada and Delaware. And while they dont go as far as I
believe is necessary for transparencywhich would require making that
information publicly availablethey are a big improvement over current
arrangements.
Governments and many in the corporate sector thrive on secrecy, and do
whatever they can to expand its scope. In contrast, among citizens in
general there is a widely shared vision of an open society. It is a
never-ending battle. Those of us who have grown up in a world where there is
more than lip service to transparency are sometimes inclined to take it too
much for grantedwe dont always appreciate its significance or its power.
If nothing else, the experience in Panama is a reminder of how frightening
transparency seems in the eyes of its enemies.
Error! Hyperlink reference not valid. Error! Hyperlink reference not valid.
Economist Joseph Stiglitz. (photo: Reuters)
http://www.vanityfair.com/news/2016/09/the-real-scandal-behind-the-panama-pa
pershttp://www.vanityfair.com/news/2016/09/the-real-scandal-behind-the-panam
a-papers
The Real Scandal Behind the Panama Papers
By Joseph E. Stiglitz and Mark Pieth, Vanity Fair
30 September 16
After the leak of more than 11 million documents detailing sensitive, and
often terrifying, information about offshore financial and legal activities,
the Nobel-laureate economist Joseph Stiglitz was enlisted to help Panama
reform its practices. But nothing could have prepared him for what came
next.
'll confess that my jaw dropped when I looked beyond the headlines about
the Panama Papers last spring and began to read the fine print. Panama
Papers is shorthand for the widely publicized report of the International
Consortium of Investigative Journalists, originally published on April 3,
2016. The story broke simultaneously on the I.C.I.J. Web site and in
newspapers around the world and detailed what had been going on behind a
cloak of secrecy. An enormous leak of 11.5 million documents from the
Panamanian law firm Mossack Fonseca provided the investigative journalists
with a trove of information about 200,000 entities incorporated in offshore
havenscompanies whose real owners were difficult or impossible to trace.
The newspaper Süddeutsche Zeitung had obtained the documents; realizing that
to analyze the data was beyond its own capacities, it enlisted the help of
the I.C.I.J., which worked for a year through 107 media organizations in 80
countries before breaking the story.
Panama is but one of a large number of offshore corporate havens, which
include the British Virgin Islands, Cyprus, and the Cayman Islands. Often,
the owners of a corporation in one secrecy haven will be a web of
corporations incorporated into another. Why the secrecy and the dizzying
complexity? In many instances, it is to throw law-enforcement agencies, tax
collectors, and investigative journalists off the scent.
The range of alleged activities encompassed by the Panama Papers was
broadfrom tax evasion and tax avoidance to money laundering associated with
a variety of nefarious activities. The range of public figures who made an
appearance in the documents was equally impressive. The publicity brought
down the Icelandic prime minister, and forced Britains prime minister at
the time, David Cameron, to explain why his fathers name appeared in the
documents. The prominence of Putin associates in the Panama Papers led to
accusations (from Moscow) that the revelations were a Western plot. China,
too, had its share of prominent people represented.
As Mark Pieth, a Swiss lawyer and anti-corruption expert at the University
of Basel, put it in an interview this summer with The Guardian: I have had
a close look at the so called Panama Papers and I must admit that, even as
an expert on economic and organized crime, I was amazed to see so much of
what we talk about in theory was confirmed in practice. The newspaper
itself noted that the Panama Papers may include evidence of crimes such as
money laundering for child prostitution rings.
Years ago, after serving as chief economist of the World Bankwhere I saw
the role that corruption, tax evasion, and money laundering play in bleeding
developing countries of money they need for developmentI had urged that
secrecy havens be shut down. With Leif Pagrotsky, Swedens trade minister at
the time, I published an opinion article on the subject in the Financial
Times. These centers are a cancer. The lack of transparency at their heart
undermines the functioning of the global economy. What the Panama Papers
showed was that matters were far worse than I had imagined.
So it was with some surprise that, just a couple of weeks after the release
of the Panama Papers, I received a call from Panamas vice president, Isabel
Saint Malo, asking me to serve on a special commission that Panama was
setting up. The purpose was to recommend steps that Panama could take to
promote transparency in its offshore financial-services industrynot just
the banks but the full array of service providers, including its law
firms, one of which had inadvertently opened a window onto what was going
on. I wondered if the government was serious. It was obvious that officials
were concerned about Panamas public image. They repeatedly pointed out the
unfairness of the title Panama Papers, since only a fraction of the bad
activities had actually occurred in Panama. But the central player was
Mossack Fonseca, the Panamanian law firm that had used its expertise in
secrecygarnered from years of operating in Panamato expand globally.
Panama was perhaps particularly unhappy because it had worked so hard to
live down the reputation earned under strongman Manuel Noriega, when it had
been such a key logistics hub for the drug trade that the U.S. felt it had
to invade.
Two things convinced me to serve. First, the vice president flew to New York
to meet me in my office at Columbia Universityan indication that the
government might be serious. Second, the government also sought the
participation of Mark Pieth, who has devoted much of his life to fighting
corruption, bribery, and secrecy. Pieth knew in detail how global standards
were improving, how the noose was tightening around the neck of the secrecy
havens. I hadnt met him, but I knew he would agree that not enough had yet
been done. We both understood why secrecy havens were tolerated: people in
the advanced countries, including and especially in the financial sector,
benefitted enormously. But it was becoming intolerable to citizens and their
governments that so much money was escaping taxation, effectively enjoying
protected status beyond prying eyes. Indeed, far worse was being done under
cover of secrecy.
If we could actually get one of the havens to reform itself, it could become
a model for others to followincluding onshore secrecy centers like London
and Delaware. Panama had passed legislation on bank and corporate secrecy
that moved in the right direction. The Panama Papers showed, however, that
there were large gaps between legislation and enforcementand often a kind
of foot-dragging that raised questions about Panamas commitment to
transparency. Panama had also refused to sign on to what was becoming the
global standard for best practices, what is known as the multilateral
automatic exchange of information among tax authorities. Such exchange is
necessary if tax authorities are to trace all the jurisdictions in which
their citizens and residents are working.
In short, Panama seemed tantalizingly on the edgeand with the right sort of
shove, maybe it could be pushed over into the group of transparent
countries. The proposed commission might be the means, and Pieth and I
agreed to join.
The seven-member international commission, described by the government as an
Independent Committee of national and international experts established by
the Government of Panamá to evaluate and adopt measures to strengthen the
transparency of the financial and legal system of the country, which I
co-chaired and which included several Panamanians, including the other
co-chair, Alberto Alemán Zubieta, was inaugurated in Panama City on April 29
by none other than the president, Juan Carlos Varela, before a large
convocation of ambassadors and international officials. In retrospect, this
moment can be seen as the high point. Because events quickly took a less
auspicious turn.
No sooner had the preliminary work gotten under way than the intermediary
between the government and the commission, a private-sector lawyer named
Maruquel Pabón de Ramirez, sent the group an e-mail where an item at the top
of her proposed agenda was confidentiality of the report. Perhaps naïvely,
Pieth and I had assumed that a government asking us to produce a report on
transparency would commit itself to transparency in the release of the
report. What confidence would there otherwise be in its work? What would it
mean if the government could cherry-pick, releasing only those
recommendations with which it agreed? Pieth and I both came from countries
where there are basic standards of transparency in the public sector, giving
citizens certain rights of access to information concerning what the
government does and what is done on behalf of the government. There are
especially strong standards when it comes to outside commissions appointed
by the government that might influence its workings.
On June 3, at the first full meeting of the commission, in New York, I, as
co-chair, opened with a discussion on the subject of the transparency of the
groups work. The commission came to an agreement: it would require that the
government commit itself to releasing the full report, whatever the findings
might be. At the same time, the government of Panama would be permitted a
period of time to prepare its response before the report went public. The
summary of that session, as recorded by Erika Suia legal expert on
international taxation and how the international system has been used for
tax avoidance and evasion, whom I had asked to work with me on this
projectwas clear: the group came to a consensus that the report go through
a process of consultation with the president and that the report be made
public by December 1, 2016. Maruquel Pabón, our intermediary with the
government, was asked to convey this stipulation regarding transparency as
soon as possible.
The commission had a second request, because it was clear that we would need
resources to proceed with our work. The members of the commission were
providing their services pro bono, but it was not reasonable to ask support
staff to do the same. The government had indicated that it understood this,
but for a variety of reasons no funding had yet materialized. Thus, the
second request to Maruquel Pabón was to obtain the governments commitment
to provide the necessary funds, which in any case were relatively modest.
These were the only two hard topics taken up at the New York meeting. The
commission quickly agreed on the scope of its work, on its work program, on
the division of responsibilities, and so forth. One of the central messages
to the government was that, because global standards were changing rapidly,
Panama would have to respond quickly, both in terms of legislation and
enforcement. To advise Panama on where it should go, it was agreed that
there had to be a discussion of these evolving global standards. And Panama,
in order to comply, would have to increase its capacities in several
directions. The commission agreed that its discussions had to go beyond the
banking sector to encompass all those who play a role in making Panamas
status as a secrecy haven possible, including lawyers and those people who
serve as registered agents for corporations.
I believe, as Pieth does, that transparency reforms will strengthen Panamas
economy in the long run. Indeed, time is running out for the old model based
on secrecy. It will not be long before those nations that opt to continue
with old-style secrecy will be labeled pariah states and be cut off from the
global financial system.
With the organizational work out of the way, each member of the commission
went about preparing specific sections of the report, with a commitment to
exchange drafts in early August. We waited (and waited, and waited) for the
governments response to our two requests: for a commitment to transparency
and for modest funding to support the necessary work. On July 29, after
almost nine weeks had elapsed, the acting vice minister of foreign affairs,
Farah Urrutia, sent an e-mail telling the commission to keep the scope of
its inquiry narrow and rejecting the request for funds to support its work.
The e-mail simply ignored our insistence on a commitment to transparency.
The commission had agreed that it would not proceed without such a
commitment. It seemed clear that we were at loggerheads with the government.
At that point, the commissions co-chair, Alberto Alemán Zubieta, said he
was coming to New York. Could we meet? I arranged a breakfast on August 1 at
Community Food & Juice near Columbianormally too noisy and crowded with
students for a serious conversation, but ideal with students away for the
summer. Given the issue that had arisen, I felt it was important to have
someone else at the meeting, and when an associate who had been working with
me couldnt make it, I asked my wife, Anya, who had come down to Panama City
and participated in some discussions there and in New York. Alemán himself
was joined by one of the other members of the commission, Domingo Latorraca,
who worked with the auditing firm Deloitte in Panama City. Alemán and
Latorraca had come to the conclusion that the government would not comply
with our requests. They recommended that the commission be disbanded. My
view was that a joint resignation by all members would have the most impact
on the government, and Anya was asked to draw up a joint letter.
Pieth had scheduled a call with Alemán to follow directly upon our meeting.
Pieth was worried about the adverse effects that a joint resignation would
have on Panama and its reputation. He also wondered whether there had
perhaps been a miscommunication with the governmentthat maybe those who
were supposed to be the intermediaries hadnt done their job. Before sending
in our resignations, he suggested, we should make one more attempt to
explain to the government the importance of transparency and the risks it
faced by continuing in its stance. We tried every channel we knew to get
this argument to the right ears, and were rebuffed every time.
As the group attempted to agree on a common resignation letter, Pieth and I
began to suspect that something was afoot behind the scenesthat hidden
agendas were at play. In version after version of the resignation letter,
some of the Panamanian members insisted on obfuscating the true reason for
our resignations: the failure of the government to affirm a commitment to
make our report public, no matter what it said. They suggested saying that
there were divisions within the commission on matters of substance that
impeded its work. This was not true.
There was one other odd event in our dealings with some of the members of
the commission that contributed to an intimation of double dealing: in
mid-July, we had received something from Alemán labeled an interim report.
In the agenda originally prepared by Maruquel Pabón, there had been mention
of such an interim report, but with the final report coming out by
Novemberand with no further meeting scheduled before the end of Augustan
interim report had come to seem both unnecessary and unrealistic. Alemán had
apparently on his own decided to write one up, including draft
recommendations that were his own.
The group had briefly discussed some possible recommendations in our New
York meeting, but had not gone into detail. I for one would have gone much
further than Alemán was proposing. To begin with, there should be a Freedom
of Information Act, so that there wouldnt have to be this squabble over
whether a report to the public was made public. Every citizen would have the
basic right to know. There were other measures I would have addedor at
least would have wanted to discuss thoroughly. There should be a public
registry of the true owners of all corporations registered. Because
corporations operating in tax-free zones (Panama has a couple of such zones)
are especially at risk for being used for money laundering, the true owners
of any firms receiving preferential tax treatment should be known, and none
should be of the sort that might want to make use of these tax-free
opportunities for money laundering. Further, law firms and other service
providers associated with illicit activities should lose their license to
practice. In some areas, Panama had already put transparency on the
booksthe question was enforcement.
In the work I was preparing for our next meeting, I had begun drafting such
a list of strong recommendations. I began to respond in detail to Alemáns
so-called interim report but quickly came to the view that his report was
far from being presentableand far from representing the consensus of the
commission. Pieth and I independently wrote unequivocal e-mails saying that
the interim report should not be sent to the government. Indeed, there was
no reason to rushas noted, the committee was intending to send in its
report by the end of November. Why not just wait until we all met in August
to discuss the recommendations?
Nevertheless, Alemán sent the interim report to the government anyway,
despite my request that we wait. Had I known, I would have rushed to send my
views. Alemán now says that he polled the other members of the commission. I
was the co-chair, and was not pollednor informed of such a poll. Neither
was Pieth.
It increasingly became clear that the government, with the assistance of at
least some of the Panamanian members of the commission, had a purpose other
than reforming the system in a transparent way. What it really wanted was to
get the positive glow of an announcement while avoiding the need to make any
real changes. Under the circumstances, Mark Pieth and I had no choice but to
resign.
The Independent Committee of national and international experts was
established in part to persuade advanced countries that Panama was cleaning
up its act. The rump commission that continues in operation is unlikely to
take significant steps that would truly force Panama to do so. After our
first meeting, back in New York in June, the government did make one
significant change in the status quo, agreeing to the multilateral automatic
exchange of information. But much more is needed, starting with a public
registry of the beneficial ownership of corporations registered in Panama.
That would enable a newspaper in some countryto take a completely
hypothetical exampleto find out, for instance, who the real owner is of a
mining company that was just awarded a government contract under suspicious
circumstancesand to discover, say, that it was none other than the
brother-in-law of the president. Were it to adopt such a policy, that would
say something. We will see.
While we criticize Panama, it needs to be emphasized that onshore secrecy
havens, like Delaware and London, are as important as offshore ones; and
that vested interests associated with onshore centers have been working just
as hard to preserve their secrecy status as those in offshore centers like
Panama. The release of the Panama Papers does seem to have made a
difference: since their publication, the U.S. has announced strong new
measures against secrecy. In the words of a May 5 Treasury Department press
release, issued between the time of the convening of the Panama Committee
and our first meeting in New York, the new legislation and rules would
require banks to collect and verify the personal information of the real
people (also known as beneficial owners) who own, control, and profit from
companies when those companies open accounts and would require companies
to know and report adequate and accurate beneficial ownership information at
the time of a companys creation, so that the information can be made
available to law enforcement. The rules would apply everywhere in the
U.S.even in Nevada and Delaware. And while they dont go as far as I
believe is necessary for transparencywhich would require making that
information publicly availablethey are a big improvement over current
arrangements.
Governments and many in the corporate sector thrive on secrecy, and do
whatever they can to expand its scope. In contrast, among citizens in
general there is a widely shared vision of an open society. It is a
never-ending battle. Those of us who have grown up in a world where there is
more than lip service to transparency are sometimes inclined to take it too
much for grantedwe dont always appreciate its significance or its power.
If nothing else, the experience in Panama is a reminder of how frightening
transparency seems in the eyes of its enemies.
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