The dust is starting to settle after the revelations in the Panama Papers that were finally released after one year of sifting and filtering by an international consortium of journalists. The mind-boggling amount of data – taking up 2.6 Terrabytes of digital storage space – encompassing forty years of work by the Panamanian law firm Mossack Fonseca to hide the financial transactions of their more than 14,000 clients via 215,000 plus corporations, had to have been released by a whistle blower with inside access.
The firm, however, in what has to be a rear-guard effort to prevent its severely embarrassed clients from suing it for negligence is claiming to have been “hacked”. Holding the number four position among law firms specialising in dealing in the arcane business of sequestering funds – legally or illegally obtained as the even severely restricted list of clients revealed to date – Mossack Fonseca is clearly determined to continue its business, which it ironically declared is all “above board”.
Among its clients are ten of the largest banks in the world including HSBC, Britain’s biggest bank which with its affiliates created more than 2,300 shell companies with Mossack Fonseca. At this time chief executive of Austria’s Hypo Landesbank Vorarlberg became one of the first top bankers to quit over reports. Switzerland, just behind Hong Kong in having the largest number of clients with the Panamanian firm, has long been the lead destination in hiding private wealth from prying eyes – whether of the taxman or of the lawman. It claims its “wealth management” institutions handle over US$2.5 Trillion in assets.
What the Panama Papers reveal is the business of secreting wealth has moved a long way from simply depositing it in anonymously numbered “Swiss accounts” protected by secrecy laws since the Middle Ages. The modern variant, exemplified by Mossack Fonseca, begin with law firms that are located in “tax havens” – locales that have notoriously low or non-existent tax regimes but which more pertinently do not require the identity or residency of owners of corporations.
In a variant of the three-card monte game, a bewildering string of corporations are formed in the the tax havens spread across the globe – Cayman Islands, Barbados, Britain’s Jersey and London, US’s Delaware, and Singapore, etc. – so that it is almost impossible to trace the money trail of a client.
There were not any American Banks among the ones identified up to this time in the Panama Papers but that may be due to the fact that the state of Delaware alone accounts for 20% of the US$25Trillion laundered through tax havens overall. For purposes of comparison it is useful to remember than the entire U.S. economy is around US$7Trillion.
While the Panama Papers leak has focused attention on money laundering and tax evasion, this is not the first time the issue has been highlighted, Just two years ago, another whistleblower uncovered just as damning revelations in Luxembourg with not much change precipitated. It is clear that the world’s financial institutions – especially banks and their regulators have one set of rules and standards for large depositors and the well connected, and another for smaller “others”. And the Governments of the developed world such as G-20 that formed the Financial Action Task Force (FATF) to crack down on money laundering go along with those double standards.