Despite their name, the Panama Papers are not mainly about Panama. They are not even primarily concerned with Panamanian companies. The more than 11 million documents, illegally hacked and released early this month, relating to previously undisclosed “offshore” corporations, is roiling the world with revelations of the vulnerability for rampant abuse of legal financial structures by the wealthy.
They are unfairly called the Panama Papers because this particular trove of documents came from a single law firm based in Panama. However, the problem of tax evasion is a global one.
Panama does not deserve to be singled out on an issue that plagues many countries, but it is willing to accept the responsibility for fixing it, in part because greater transparency is ultimately a continuation of reforms we have recently undertaken.
The world must tackle this problem collectively and with urgency, and Panama stands ready to lead the way.
The scope of the information is breathtaking: The files include information on more than 14,000 banks, law firms, corporate incorporators and other middlemen from more than 100 countries, which is just a small part of a worldwide industry that harbors trillions of US dollars.
That some people are capable of rigging the system to hide their wealth is not merely unjust; it directly harms global development by siphoning off needed revenues that otherwise could be directed to education, healthcare and infrastructure.
Contrary to media reports, Panama does not make special allowances for “offshore” structures. The association of Panama with offshore activities comes from the fact that it only taxes income derived from within Panama, not from outside, which remains taxable pursuant to the laws of relevant jurisdictions.
These corporate laws, based on laws in New York and Delaware, originated in 1927 and are common today. While these laws have been buttressed by additional regulations, they can still be manipulated for illicit purposes.
Under previous governments, Panama was, no doubt, a target of money launderers. Today, Panama is committed to adopting all transparency reforms needed to satisfy the international community.
In the 21 months of my administration, Panama has taken steps to increase the transparency and strength of its financial legal systems. It developed a robust treaty network that allows exchange of information. “Know your client” regulations were substantially enhanced and extended not only for financial and corporate providers, but also for key non-financial industries vulnerable to abuse.
In addition, as of January, Panama requires identity certification of shareholders of all Panama companies.
I have announced a commitment to the automatic exchange of financial and corporate information, and we have proposed procedures that we believe are consistent with the goals of the international community, including the Organization for Economic Cooperation and Development (OECD) through its Common Reporting Standards proposal.
The reforms have been recognized and validated by the international community, including the Financial Action Task Force on Money Laundering, which cited Panama’s “significant progress” in combating money laundering when it removed us this year from its “gray list.” Removal from that list occurred in record time.
Our financial transparency ranking with the non-governmental organization Tax Justice Network has steadily improved since 2013, and we now rank well ahead of Japan, Germany and the US. We have also progressed positively in a peer review by the OECD’s Global Forum for Transparency and Exchange of Information for Tax Purposes. These reforms in Panama, along with other international efforts, have been paying dividends, as the records show that, since 2009, there has been a consistent decline in the number of active offshore companies.
Still, more work needs to be done to eliminate the problem of tax evasion in Panama and around the world. To this end, I have announced that Panama’s Ministry of Foreign Affairs is to create an independent committee of international experts to evaluate our practices, determine best practices and propose specific measures that are to be shared with other countries to strengthen global financial and legal transparency. We expect their findings within six months.
Panama will continue to cooperate with other jurisdictions to prosecute offenses outlawed in its Criminal Code, and it will continue to exchange financial and legal information to comply with the many international treaties ratified by Panama.
After decades of dictatorship, Panama is a stable democracy, the regional headquarters of more than 100 transnational companies and a country where the rule of law — not personal caprice — reigns.
To fulfill our democratic evolution, we must have a government committed to transparency, accountability, the separation of powers and the strengthening of institutions. Our response to the current crisis will test our resolve and our potential.
Juan Carlos Varela is the president of Panama.
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