Panama – The No Man’s Land

Tax Evasion Concept

With so many National leaders, Kingdom Kings, Political leaders, Public officials, Film stars, Sports persons, Luxury yacht owners, Gold miners, Diamond merchants, Royal artefacts owners, Drug kingpins, Ponzi scheme originators, Fiscal bond owners, Forbes riches, Grandees and many more Personages stationed in the Republic of Panama through various entities, the country still continued to be a no man’s land – a package of complete non-disclosure of identity.

Mossack Fonseca a lesser known global law firm outfit, having originated first out of Panama, was established almost four decades ago to provide comprehensive legal and trust services. With its principal office in Panama, now an infamous Tax Sanctuary, it has another 34 or more offices across the globe of which 8 alone being in China. Proving in itself that China has been its main source of clientele and in effect revenue. Ironically, this legal services company is member of Association of Certified Anti-Money Laundering Specialists.

Republic of Panama, a Central American nation is bordered by Costa Rica, Colombia, the Caribbean and the Pacific Ocean. It is said and believed that Panama’s jungles are home to an abundance of unique animals found nowhere else on the planet. Now, it has come to light that it is also home to innumerable heaps and piles of monies belonging to rich & famous, wealthy & affluent, politicians & celebs and launderers & criminals. Perhaps no other nation on the planet to have that list to its credit.

The so called `Panama Leak’ of 11.1 million files and documents belonging to Mossac Fonseca (MF) – by a Washington based International Consortium of Investigative Journalists (ICIJ) has shaken the entire fiscal and legal professionals’ industry apart from several other stakeholders. The records and documents show rich and famous who have their monies stacked if not hid include 12 current or former heads of some prominent nations, 18 close relatives including children of current or former heads of some prominent nations and more than 3 dozen current or former public officials of some prominent nations. Records expose the offshore holdings of more than 100 politicians, public officials and celebs including film and sports personalities from around the world. More than 200,000 offshore entities were used by these individuals belonging to 200+ countries and regions. Even some key international banks role has been murkier as they became facilitators of non-disclosure and masking regime by ensuring that these companies hid their accounts in offshore havens. ICIJ promises to soon publish the complete list of entities and actual beneficiaries thereof. Many people are likely have sleepless nights and restless days ahead.

Of these offshore companies so constituted by MF and monies thereof as managed by key international banks include those blacklisted by US government for doing business with Mexican drug lords, terrorist organizations or North Korea.

The Tax Havens are of two kinds – one which offer zero taxation but no protection as to disclosure; and the other category being of the likes of Panama, which offer zero taxation and absolute drape and cover to the identity. These Tax Havens aren’t illegal because some of these even have Tax treaties with prominent nations. The legal jurisprudence does not bar Tax structuring (in crude words also referred to as avoidance of tax) but what is unacceptable in law is Tax evasion. Any person or entity can have an offshore account as per cross border regulations prevalent in the most progressive countries of the world except that any monies credited therein should be disclosed to the government of the country of citizenship and residency of the account-holder concerned. This is essential for the purposes of payment of taxes or filing of returns. Non-disclosure of having foreign banks accounts and also going a step ahead by forming offshore entities and trust structures with names of actual beneficiaries hidden tantamount to gross and massive wrongdoing and felony. More so when the monies therein are also generated out of exceedingly illegal means like bribery, kickbacks, drugs dealing, money-laundering, extortions etc. However, if there is disclosure of source of income (and the same being not illegal) and payment of taxes thereupon (if so payable) then it is fair and compliant.

But the instant leak out of Panama has gone to establish the involvement of lawyers in tandem with banks in becoming accessory (accomplice) to a massive criminal offence and fiscal illegality. MF appears to have – a) knowingly advised clients on a structure which constituted offence as per the laws of origin of the concerned client (though not under the Panama laws); b) knowingly advised rogue clients; c) collaborated with banks in catering to these clients (with banks apparently foregoing the KYC and due diligence requirements) and d) concealed identity of rogue clients and illegal transactions.

The law firm Mossack Fonseca though lesser known in the legal circle, operated belligerently to shield its clients’ enigmas. It is gathered from sources that MF buffered itself and its clients against police enquiries, investigations and legal actions in U.S., U.K., Brazil etc. by eliminating evidentiary paper and digital records. MF recurrently undertook to predate documents to aid its clients gain benefit in their financial dealings. However, MJ strongly denies their deeds being illegal or fraudulent. They claim their advisory and structuring including signing backdated documents is well-founder and accepted practice.

Under the garb of client confidentiality, how far can a law firm go to breach a law is a moot point now. Lawyer can become an abettor or accomplice in crime in no time. Where does the accountability of a lawyer lie in representing a criminal?

Mossack Fonseca argues that their clients are people and bodies who instruct on behalf of its clients meaning these middlemen are its real clients, not the ultimate customers who use offshore companies. Does that argument hold good in today’s times? It appears so bald and unsustainable.

It is gathered from the sources that several well-known international banks orchestrated bank accounts with drapes and curtains on the identity of the real beneficiaries.

The culprits in effect are not the lawyers or accountants or banks or the clients but it is the offshore system itself. This system is draconically capitalistic and overwhelmingly criminal. It prevents the circulation of monies and hugely widens the gap between rich and poor – haves and have nots. On the criminal front, this system provides watertight opaque chamber for offenders to hold their monies. It is the law of nature that system reboots itself when the malfunctioning happens. Perhaps, its reboot time for offshore Tax havens. They may stay and they should stay but with a condition precedent as to transparency and accountability.


Author of this article Hemant K Batra is a globally renowned specialist of cross-border investment legal regime rules. He is founder of Kaden Boriss Legal.