Panama Papers Reveal How the World's Rich and Powerful Hide Their Wealth

Posted April 13, 2016

MP3 Interview with James S. Henry, senior fellow at Columbia University's Center for Sustainable International Investment and a senior advisor to the Tax Justice Network, conducted by Scott Harris

panama

Most listeners will have heard or read about a set of leaked confidential files known as the Panama Papers, 11.5 million documents that provide detailed information on the shareholders and directors of more than 214,000 offshore corporations. The documents were leaked from the Panamanian-based law firm Mossack Fonseca that assists some of the world's richest people and corporations establish shell companies in low-tax haven nations used to conceal wealth.

The names of 140 politicians from more than 50 countries linked to secret offshore accounts in the documents, have thus far included the prime minister of Iceland, who was forced to resign, Pakistan’s prime minister, the presidents of Argentina and Ukraine, the king of Saudi Arabia, senior Chinese officials and some close associates of Russian President Vladimir Putin. British Prime Minister David Cameron’s father was also connected to a Panamanian off-shore account.

An anonymous source originally provided the Panama Papers to a German newspaper in early 2015, but due to the overwhelming volume of documents the editors sought help from the International Consortium of Investigative Journalists which distributed the data to 400 journalists at 107 media outlets across the world. Between The Lines' Scott Harris spoke with James S. Henry, a senior fellow at Columbia University's Center for Sustainable International Investment and a senior adviser to the Tax Justice Network, who assesses the significance of the leaked Panama Papers documents, which represents just the tip of the iceberg of where the world's wealthiest people and corporations hide their money in tax shelters.

JAMES S. HENRY: Well, this is by far the largest leak in history. We've had 214,438 companies that were set up by this company and the documents associated with those. The clients are from 200 countries and they include, so far, we've identified about 22 current heads of state, 143 people in political office, quite a few family members who are associated closely with the current and former heads of state and quite a few people on the Fortune 500 list. So it's an incredible accumulation of influential people. This case is about kleptocracy in terms of public officials helping themselves to public assets or having offshore wealth that they can't explain, maybe due to corruption and bribery.

And for many countries in the developing world, kleptocracy is a more important issue. Kleptocracy, corruption is a more important issue than just tax dodging.

BETWEEN THE LINES: I wonder if you could explain to our audience how the Mossack Fonseca revelations fit into the global tax avoidance that you've estimated at between $21 trillion and $32 trillion in private wealth in offshore tax havens. And that doesn't include the trillions of dollars more in wealth hidden by many global corporations.

JAMES S. HENRY: That's right, and it doesn't include nonfinancial assets, like real estate, yachts, art collections. I mean, the tax angle to this, our estimates are as of 2010. What we've seen since then is that the numbers for the worldwide haven industry have grown even farther, especially from countries like Russia and China, which had been in the last two or three years subject to huge amount of capital outflow – a trillion dollars from China in the last 18 months; Russia probably has more than $1.3 trillion offshore; Argentina, leading Latin American countries have more than $2.5 trillion offshore which is more than twice their external debt. So a lot of this is motivated by taxation, but it's also motivated by political risk, kind of the ruling elite.

But I think what you have to imagine is something like the Star Wars bar scene where you have the drug dealers, the tax dodgers, the corrupticrats, the people worried about being raided by the political police, all gathered around using the same basic facilities which are offshore companies and trusts which are very easy to set up in other people's names, with nominee directors. There was one lady who was a secretary for Fonseca who was listed as a director for 24,000 letter box companies that were set up, all of them owned by nonresidents of Panama. So it's this financial secretive facility – the lack of any registration of so-called beneficial owners – so we don't know who owns what. And I think that's one big contributor to this. But it's also this network of unscrupulous law firms, banks and accounting firms that are channeling all this business to these people and the public officials that have failed for 40 years to crack down on this.

BETWEEN THE LINES: Well, just a final quick one here. What would be the top actions you would like to see the U.S. government take in coalition with other governments around the world to close off these tax loopholes and make the playing field more even for all taxpayers?

JAMES S. HENRY: An international commission with subpoena power like what they have in Guatemala, I'd like to have beneficial ownership registration on a public register so we tell who owns what. I'd like to have public officials have to release their tax returns and declare their offshore and onshore wealth. And I'd like to have tougher penalties for the banks and other enablers that are in this business and I'd like to have a blacklist for havens that keep getting caught doing this over and over again, like Panama and to some extent like Delaware.

For more information visit "The Panama Papers: Politicians, Criminals and the Rogue Industry that Hides Their Cash," at panamapapers.icij.org/; the tax justice network at taxjustice.net; Columbia University's Center for Sustainable International Investment at ccsi.columbia.edu.

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