by Joan Warner
I got one fine laugh out of the Panama Papers, the International Consortium of Investigative Journalists’ recent account of a vast document leak from corporate services firm Mossack Fonseca. The firm, headquartered in Panama City, helps wealthy individuals stash assets in offshore accounts, where they are difficult to monitor and tax. My favorite story is about the Russian classical cellist with a personal fortune of $100 million that Mossack Fonseca sheltered for him. This cellist happens to be an intimate friend of Vladimir Putin, who insists the money really does belong to the cellist and is used to buy instruments for his music students. Coincidentally, I too am close friends with a number of musicians, all penniless. (Bonus joke: What do you call a musician without a girlfriend? Homeless.)
But most of the Panama Papers make for sobering reading. Alongside the political leaders who conceal money in shell companies are Ponzi scheme runners, a drug cartel kingpin, sex-slave traffickers, and companies selling fuel to the Syrian air force—all availing themselves of Mossack Fonseca’s expertise. Furthermore, one of many narratives emerging from the leaked documents concerns the global banks that work with offshore firms to hide clients’ wealth. Subsidiaries of Credit Suisse, HSBC, UBS, and Société Générale are among the top 10 banks hiring the Panama firm on clients’ behalf.
Of course, it’s not necessarily criminal for individuals to open anonymous offshore accounts. Doctors, athletes, and CEOs with significant net worth who worry that a lawsuit might wipe them out financially often secure assets in such havens. It’s perfectly legal—provided you declare them on your tax returns. Alas, many succumb to temptation and forget that little detail. So the general citizenship tends to look askance at holders of offshore accounts, assuming the worst.
The Panama Papers raise important questions about international taxation. As long as jurisdictions like Luxembourg, the Isle of Man, and the Cayman Islands maintain the banking-secrecy laws that used to characterize Switzerland, wealthy people will ask their lawyers and financial advisors to take advantage of them. But I believe the Mossack Fonseca scandal may have widespread fallout. If nothing else, people and institutions will exercise extreme caution when choosing an offshore firm to work with. If it’s privacy you’re after, the last thing you need is to be associated with high-profile criminals.