By Alan Gomez
10 April 2016

MIAMI (USA TODAY) – Anyone familiar with Panama's economic history isn't surprised by revelations of shell companies and hidden assets created by a law firm based in the small nation.

"I've been screaming about it for decades," said Jack Blum, an attorney and former U.S. Senate staffer who focused on international tax evasion.

In fact, Panama has been a widely used tax haven for nearly a century, a practice that goes all the way back to U.S. industrialist John D. Rockefeller that has evolved into a complex relationship between the country's banking, legal and financing sectors. That long, secretive history came crashing out this week with the release of the Panama Papers, which revealed exactly how Panama has created conditions for foreigners to hide their assets through corporations there.

The influx of foreign cash to take advantage of that system is so big that Panama's financing sector accounts for 7% of the country's entire GDP.

"You can walk into a bank there with a stack of U.S. money and they just say, 'Fine,'" Blum said. "This has been going on for so long, and is so obvious and problematic, that the question is, 'How come nothing was done about it before?'"

Nations involved in the 'Panama Papers' scandal. Graphic: USA TODAY

Several other countries allow foreigners to hide their assets, but few are as well-positioned to do so as Panama.

The Central American country took its first step into that shady world nearly 100 years ago, when the government first allowed foreign companies to register foreign ships, according to a report from the Norwegian Center for Taxation. That move was designed to help Rockefeller's Standard Oil avoid taxes in the U.S., and set the stage for a 1927 law that allowed foreigners to establish tax-free, anonymous corporations with few questions asked, according to the report. […]

Critics in the U.S. are also pointing to the 2011 Free Trade Agreement, first negotiated by President George W. Bush and ultimately signed by President Obama.

The White House has defended the agreement, saying it helped force Panama to sign on to a separate tax information exchange treaty, which has improved transparency into deals that take place in Panama. But Lori Wallach, director of Public Citizen's Global Trade Watch, said the free-trade agreement's fundamental problem was that it gave Panama a "U.S. stamp of approval." […]

The International Monetary Fund conducted an investigation into Panama's regulations and found gaping holes still exist. The country's anti-money laundering law, for example, is designed to regulate banks and other financial institutions. But the IMF found that the law didn't cover lawyers, accountants, insurance companies, notaries, real estate agents or dealers of precious metals and stones.

"Because Panama is an important international financial and corporate services center … this lack of coverage is a key systemic deficiency," the report found. [more]

How Panama became a tax haven to the world



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