The Panama Papers’ impact in the United States: The calm before the storm?

The United States has been spared by the Panama Papers scandal so far.

The fact that no American celebrities or major U.S. banks have been named in this huge scandal has astonished global public opinion.

But could it be the calm before the storm?

Law firm Mossack Fonseca’s core business is to create shell companies for wealthy citizens wanting to avoid taxes or to keep their dealings, legal or otherwise, under wraps.

The Süddeutsche Zeitung, the German newspaper to which the mystery source leaked the secret information, reports that the Panamanian law firm has dozens of offices around the world. “It sells shell firms in cities such as Zurich, London, and Hong Kong – in some instances at bargain prices. Clients can buy an anonymous company for as little as US$1,000. However, at this price it is just an empty shell. For an extra fee, Mossack Fonseca provides a sham director and, if desired, conceals the company’s true shareholder. The result is an offshore company whose true purpose and ownership structure is indecipherable from the outside.”

Mossack Fonseca nonetheless works with 617 intermediaries in the United States. None of them has yet been named.

But according to a Wall Street Journal blog, the U.S. ranks fourth in terms of intermediaries. The first Süddeutsche Zeitung journalist contacted by the source releasing the leaked documents has promised new revelations involving Americans.

In the meantime, the Justice Department is reviewing the documents for evidence that could lead to prosecutions on U.S. soil. For the moment, the only U.S. citizen named is a little known life coach, Marianna Olszewski, who used Mossack Fonseca’s services in 2009 to recover money hidden in a tax haven.

Mossack Fonseca provided her with total anonymity. The BBC used Olszewski’s case to show how the Panamanian law firm used front men to sign documents instead of the beneficiaries, to make the transactions untraceable.

 

Tax havens within the United States

One reason has been widely put forward as to why so few Americans have been exposed by the scandal: the United States has tax havens on its very own soil.

Three states are particularly lax when it comes to setting up businesses, collecting taxes and facilitating the creation of shell companies: Nevada, Delaware and Wyoming.

A U.S. citizen wanting to set up an opaque structure to avoid taxes has less of a need to set up an offshore shell company, since the practices revealed in the Panama Papers are standard and legal in these three states.

“A very small number of states are notorious for allowing pretty much anybody to start a company in the state without requiring even the most basic information,” says Matthew Gardner, executive director of the Institute on Taxation and Economic Policy with Citizens for Tax Justice, to the New York-based online news publication International Business Times. “There are a few states that effectively make the U.S. a privacy haven in exactly the same way that Panama is being described here.”

The 500 largest U.S. companies hold an estimated US$2.1 trillion in offshore accounts, which represents US$620 billion in lost tax revenues for the country, according to a study by two think tanks, considered to be left leaning, quoted by Reuters.

Another study by the Tax Justice Network, a British association, places the United States in third place in its global financial secrecy index, not far behind Switzerland.

The NGO talks of a race to the bottom between several U.S. states offering ever-greater financial secrecy. The spotlight will probably be turned on them in the coming weeks.

In the context of the U.S. elections, the steady flow of revelations emerging from the Panama Papers could give democrat Senator Bernie Sanders a boost in his head-to-head contest with Hillary Clinton for the Democratic Party presidential nomination.

The Panama Papers support his strategy of denouncing the conduct of the country’s richest 1%, which, he insists at his rallies, “are buying the election”, passing the laws that benefit them, and turning the country into a de facto oligarchy.

His rival, Hillary Clinton, is the candidate with the most to lose in this affair, having accompanied Obama, in her capacity as Secretary of State, in the push for ratification of the “Panama Agreement” in 2011.

The free trade agreement was condemned at the time by many NGOs and Bernie Sanders, who in a speech to the Senate described Panama as a world leader in tax evasion.

 

This article has been translated from French.