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The Panama Papers ICIJ Investigation

New Financial Secrecy Index

There is much to pick over in the new Financial Secrecy rankings released today by the Tax Justice Network. The last time TJN released its index was in 2015.

TJN’s index seeks to rank places by their secrecy and the scale of their offshore financial activities. It offers a way to both highlight who the worst offenders are in the secrecy world and track those who have improved. The goal is to provide insight into global financial secrecy, illicit financial flows, tax evasion, capital flight and the operation of tax havens.

Since the index’s first appearance in 2009, it has demonstrated that tax havens are not necessarily places with palm trees and tropical breezes.

Once again, the United States is at or near the top of the rankings, number two, in this case. TJN combines both a secrecy score and a weighting based on impact to arrive at its score. The USA is not the most secretive jurisdiction; Vanuatu has that dishonor. While the secrecy number for the US is a significant 59%, its global weighting of 22% is what vaults it to dominance in the rankings.

In the secrecy world – the offshore system through which TJN estimates $21 to $32 trillion flow – the United States and the United Kingdom are the biggest players. These giants set the rules, often by doing nothing. Any abuses that occur happen in part because these dominant players tolerate them.

If the United States is the number two secrecy jurisdiction in the world, Delaware is a big reason why. Delaware is literally the template for incorporation laws from Panama to the British Virgin Islands. The tiny state produced more than 128,000 LLCs in 2015.

Delaware’s public registry pulls in more than a billion dollars a year. Not surprisingly, Delaware has been at the forefront of beating back federal efforts to make the US more transparent.

An estimated $300 billion is laundered through the United States annually. Delaware and states like Nevada and Wyoming play a big role. The U.S. Treasury Department has complained that Eurasian organized crime figures, among other criminals, employ Delaware companies.

According to TJN, the United States was one of the only places to see its secrecy increase in 2015 and the trend continues.

Jürgen Mossack, the founder of the firm whose data formed the Panama Papers, asserted that the biggest beneficiary of the leak investigation into Mossack Fonseca was the United States. He anticipated that the Americans would take advantage of the decline of Panama and the British Virgin Islands to grab a bigger slice of the business.

TJN notes:

Between 2015 and 2018 the US increased its market share in offshore financial services by 14%. In total the US accounts for 22.3% of the global market in offshore financial services.

Number one in TJN’s ranking is Switzerland. The alpine nation still offers the gold standard of secrecy with a score of 76%. In Europe, only Liechtenstein is higher with 78%. Switzerland’s prominence is somewhat surprising after the United States forced the country’s banks to fork over the names of American tax evaders. This was a sizeable crack in the country’s vaunted bank secrecy.

TJN describes the country’s current attitude as “white money for rich and powerful countries; black money for vulnerable and developing countries.” The Swiss bow to powerful nations like the United States but continue to offer the citizens of poorer nations the ability to evade taxes. This along with Switzerland’s “aggressive pursuit” of financial sector whistleblowers helped it earn its leading spot.

Today, Switzerland is lobbying the Trump administration to allow it to return to its old ways.

Luxembourg weighs in at number six. This founding member of the European Union has long acted as a brazen hub of legalized tax evasion. Since it mainly services corporate clients – and its former prime minister Jean-Claude Juncker is president of the European Commission – other EU countries have largely given it a pass despite its beggar-thy-neighbor economic strategy.

The TJN index and the Panama/Paradise Papers investigations reveal a secrecy world that acts like a living organism. It evolves and mutates to perpetuate its existence and evade controls. Also in the top ten are two locales – Singapore and Dubai – that are increasingly becoming the destination of choice for those who are spooked by tightening due diligence requirements elsewhere.

Singapore weighs in at number five:

An IMF report in 2014 estimated that “over 95 percent of all commercial banks in Singapore are affiliates of foreign banks: a testament to its extreme dependence on foreign – and offshore – money.” If you are curious where some of those Swiss accounts that were based in Geneva went, look to Singapore.

Dubai earns the ninth spot. According to TJN:

Dubai has an ask-no-questions, see-no-evil approach to commercial and financial regulation as well as foreign financial crimes. It has consequently attracted large financial flows and some of the world’s most high-profile criminals. A significant slice of the inbound money comes in the form of cash or gold.



Trump Ocean Club Buyers

The flurry of emails began in the spring of 2008. On one side was Marie Williams, representing the Trump Ocean Club International Sales Group. On the other was Mossack Fonseca, the law firm known as Mossfon, whose leaked data became the Panama Papers.

Construction on the 70-story tower in downtown Panama City was not yet complete at the time. Announced in April 2006, Trump Ocean Club International Hotel and Tower Panama would not launch until 2011, when the Trump family came down for a triumphant ribbon cutting alongside President Ricardo Martinelli and developer Roger Khafif.

Ivanka Trump was also there. When Trump first committed to the deal, he told Khafif he was sending Ivanka to Panama. The project would be her baby.

In 2007, Trump Ocean achieved a significant milestone. It pre-sold enough condos to convince Wall Street to back $220 million in construction financing. A significant portion of those early sales went to Russian buyers hiding behind anonymous shell companies. Few were seeking a home in which to live. Some were simply parking cash they had spirited out of Russia. Others, it now appears, were Russian mafia laundering money. They joined money launderers from South American drug cartels who were also buying property at Trump Ocean Club.

In September 2008, Donald Trump, Jr. said at a real estate conference that “Russians make up a pretty disproportionate cross-section of a lot of our assets… We see a lot of money pouring in from Russia.”

Fast forward to last week. The Associated Press broke the news that condo owners in the Trump Ocean Club want to remove President Donald Trump’s name from the development. They also hope to fire his company’s management of the Ocean Club’s hotel.

Occupancy in the hotel has shriveled, according to reports. Condos aren’t selling either. Last August, 202 still-unsold condos were part of a sales package that included the Ocean Club’s restaurants and conference center. Khafif’s firm, Newland International Properties, filed for bankruptcy in 2013. Martinelli is living in Miami, fighting extradition back to Panama, where he faces criminal charges. The development shaped like a sail, or perhaps, as Ivanka Trump said, “a giant D,” is fast becoming an international symbol for money laundering.

How did it all go so wrong? The emails from the Panama Papers help tell the story.

Trump Ocean contacted Mossfon for translation services in June 2008. Khafif wanted the firm to translate the condo sales agreement from Spanish into Russian. It cost $15 a page. The total came to $600. The payment was late.

Trump’s own company was not directly involved in selling the units but it helped with the marketing. Trump reaped millions of dollars from the naming rights and management contract. Estimates are he took in well over $75 million from the development.

During those initial years, hot money was pouring into Panama. Some joked that those who complained about the traffic and parking from the new buildings filling the skyline had nothing to worry about – nobody actually lived in the apartments. The benign view was that these empty properties were awaiting Americans or Canadian snowbirds who would someday quit working and claim their retirement homes. Others suspected the bulk were being used for money laundering or as investments for wealthy elites from places like China and Russia. These buyers were unreliable. They would soon flip their properties, particularly at the first sign of trouble.

Trump and Khafif were not interested in asking too many questions about who purchased the Ocean Club units. They didn’t care that their building was built on a shaky foundation of flighty capital and money laundering. For Trump, it has always been about the quick score, consequences be damned. As long as he could maintain plausible deniability, the origins of the cash handed to him didn’t matter.

In one of her emails sent to Mossfon in 2008, Williams, the Trump sales executive, had another question:

Additionally, we are working with an Iranian broker who has individuals residing in Iran or who are residents in the UK with Iranian passports desiring to purchase in Panama.  Does your firm have experience with Iranians?  Would the visa requirements be any different from someone from Russia or Europe?  You were so helpful with the information your forwarded before pertaining to Russians. I would like to create this same experience for this broker who has connections with the wealthy Iranian nationals.

On the campaign trail and as president, Trump savagely attacked Iran in speeches. He described the country as a “fanatical regime” that “raided the wealth of one of the world’s oldest and most vibrant nations, and spread death, destruction, and chaos all around the globe.”

Yet in private business, Trump grabbed that wealth with both hands.