Available to drug barons, tax dodgers and prime ministers

Panama and how we are ruled

Tax havens are an integral part of modern neoliberal capitalism, argues Yassamine Mather

Last week the initial reports about the Panama papers and the million of files from the database of one of the world’s most important offshore law firms, Mossack Fonseca, were released. It is sometimes referred to as a family trust, but seems to specialise in money-laundering by ‘third world’ leaders who used the good offices of this ‘reputable’ firm to hide their own financial activities.

Twelve current national leaders, 60 past heads of state and another 70 senior politicians from around the world are named in the documents. They include Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; and Alaa Mubarak, son of Egypt’s former president.

Of course, as the week progressed, it became clear that this is only part of a much bigger story: some 215,000 firms are named in the terabytes of data released by the leak. For all the talk of ‘civil society’ and ‘law-centred democracy’ in the west, it should be evident to anyone examining these documents that behind such terms lies a web of deceit, covering up semi-legal operations, such as the use of ‘judicial arbitrage’ (the exploitation of loopholes in tax law, playing one country’s tax regimes off against another and concealing transactions in ‘secrecy jurisdictions’).

The revelations confirm that both senior politicians and owners of capital throughout the world, both amongst so-called pro-western democracies and ‘third world’ dictatorships, use major legal, accounting and finance companies to hide their wealth; and that in all these countries there is one law for the rich and powerful and another for ordinary people. In this respect the money laundering by rulers of Iran, North Korea, Zimbabwe and Russia share many features, not to mention a particular law firm, with the tax-dodging trust funds of the Icelandic prime minister or David Cameron’s father. They are given a helping hand by transnational, London-based accountancy firms, including KPMG, Ernst and Young, Deloitte, and banks such as HSBC, Credit Suisse and the Royal Bank of Scotland.

The current revelations are only the tip of the iceberg when it comes to offshore funds. The US National Bureau of Economic Research claims that roughly 15% of the countries in the world are tax havens. Transnational companies have numerous ways of reducing their tax payments and at any given time they use several types of tax haven.

Primary tax havens, such as Panama, are where subsidiary ‘shell’ companies are registered. These companies are entitled to collect profits from the given corporation’s intellectual property through the transfer of funds from the parent company. Semi-tax havens, such as the Netherlands, are countries where ‘flexible regulations’ allow for the production of goods for sale mainly outside their own borders and such regulations - free trade zones, territorial-only taxation, and similar inducements - are sold as a means of encouraging job growth. Finally conduit tax havens, such as Luxemburg, are where income from sales is collected. They pay back money to the primary tax havens and in this way match outflow to income. They do not hold any capital and as a result of this their role remains invisible.


So let us not be sanctimonious about the kinds of wealth hidden away in offshore accounts. For example, money gained as a result of the sanctions imposed on Iran by the United States because of its alleged military nuclear programmes (while ignoring similar programmes in Israel) is not less legitimate than the funds hidden by Blairmore Holdings. The media’s attempts to make such a distinction in relation to the Panama papers has already backfired - as far as most people are concerned, avoiding the payment of taxes by corporations and wealthy individuals is completely unacceptable, especially at a time when governments are imposing stringent austerity measures, which adversely impact upon the most vulnerable sections of society.

Historically, economic sanctions have a poor track record and the recent leaks confirm the role of western legal firms in allowing the rich and the powerful - indeed the very same people who are supposed to be targeted - to benefit from them. The leaders of other imperialist and advanced capitalist countries basically follow the US lead when it comes to imposing them. At times, sanctions have acted simply as a form of trade barrier (in contrast to the claims of those who champion free trade) and the targets are invariably countries who dare diss the United States.

However, no-one should have any illusions about these ‘third world’ dictatorial regimes, or the 22 individuals currently on sanctions blacklists drawn up by the US and the EU, and named as individuals connected to companies managed by Mossack Fonseca. Some were directors of such companies, while others were shareholders or beneficiaries, but they faced sanctions because the current or previous administrations in the United States sought to punish them for their political stance. Of course, this does not mean we should defend their respective idiotic positions (from Vladimir Putin’s stance on the Crimea to Mahmoud Ahmadinejad’s exaggerations about Iran’s nuclear capability), but the fact that the Saudi royal family, the leaders of Persian Gulf countries and Turkey - all facing serious accusations of human rights abuse, as well as charges of backing Islamic State - are not facing any sanctions, shows their arbitrary nature.

Mossack Fonseca’s clients include Russians close to Putin, a cousin of Syria’s Bashar al-Assad, as well as those associated with nuclear programmes in North Korea and Iran. The ‘targeted sanctions’ were supposed to stop dealings with individuals who may have supported a particular regime, or companies in key industries such as arms, oil and gas. Clearly that was not the case.

International lawyers tell us the world of economic sanctions is a complicated one. The Mossack Fonseca network could go where the USA’s own ‘tax havens’ in Nevada and Wyoming could not - as far as these states were concerned, US sanctions on Iran, North Korea, Syria and Russia applied, but that was not the case in Panama. In the British Virgin Islands, European Union sanctions apply, but once again not in Panama. In the Seychelles, only UN sanctions apply. So it is possible to move funds from one place to another and no-one would be any the wiser.

Now in the west most people have forgotten about Ahmadinejad, but the Iranian people, who are still paying the price as a result of the sanctions imposed because of his nuclear programme, have not forgotten his time in power - especially now that he is embarking on a political comeback. Ahmadinejad was the candidate who claimed during his first presidential campaign to be a man of the people. He wore a simple sports jacket and promised to represent the poor and disinherited, so it is ironic that he ended up as a client of Mossack Fonseca, along with the very well connected (and ‘well inherited’) David Cameron, the son of stockbroker Ian!

Mossack Fonseca told The Guardian:

We have never knowingly allowed the use of our companies by individuals having any relationship with North Korea, Zimbabwe, Syria, and other countries or individuals sanctioned by the United States or European Union. Once these types of situations are identified, we routinely discontinue the provision of our services.


However, the leaked documents tell a different story. In some aspects they are very clear when it comes to Iran’s ex-president Ahmadinejad. Mossack Fonseca acted for an Iranian state oil company, Petropars, which was blacklisted by the US, but registered in the British Virgin Islands. The Panamanian law firm also serviced another Iranian outfit called Petrocom. Leaked emails suggested that in the case of both companies the ultimate owner was … Mahmoud Ahmadinejad.

In fact, according to documents presented to an anti-corruption court in Iran in March 2016, Ahmadinejad was the owner of a number of companies involved in money-laundering. His ally and co-conspirator was an Iranian entrepreneur, Babak Zanjani, who is currently facing the death penalty for tax fraud. Zanjani worked closely with Ahmadinejad during his presidency and it is alleged they pocketed considerable profits from sanctions-busting activities. In fact the current government under president Hassan Rouhani has claimed that corruption and the payment of illegal commissions thrived under Ahmadinejad’s rule - Iranian media have put the sums involved as high as $13.5 billion.

International examples

Let us look country by country at some of the date released so far from the millions of leaked documents.

Australia: The leaked documents include 120 people linked to an associate offshore provider in Hong Kong. Amongst them is Philip de Figueiredo, partner at an accounting firm based in the Channel Islands, who was jailed for two years for running what amounted to a massive tax evasion scheme. Another partner, Philip Egglishaw, is under investigation - Interpol had issued an arrest warrant for him before the leak - and the Panama papers list him as a facilitator.

Azerbaijan: The family of that political maverick, president Ilham Aliyev, who was ‘elected’ in 2003, when he took over from his father, clearly owns a major offshore empire. The leaked documents show that, in the summer of 2003, the then tax minister, Fazil Mammadov, set up a company called AtaHolding, which has since become a major conglomerate. While Mammadov remains a major beneficiary, the Aliyev family are also involved. AtaHolding has interests in Azerbaijan’s banking, telecommunications, construction, mining, oil and gas industries. According to corporate data it filed in 2014, it held over $490 million in assets. This wealth includes banking, telecoms, goldmines and London mansions.

Also among the Panama Papers is a firm called Exaltation Ltd. It belongs to President Aliyev’s daughters, Leyla and Arzu. Exaltation was set up in 2015 specifically to buy and manage UK properties. Another firm of solicitors, Child and Child, which has offices in Knightsbridge, registered it, falsely claiming the two sisters had no political connections.

Iceland: The prime minister, Sigmundur Davíð Gunnlaugsson, and his wife, Anna Sigurlaug Pa´lsdo´ttir, owned a company registered in the British Virgin Islands, Wintris Inc. This was set up in 2007 with one aim: hiding Pa´lsdo´ttir’s shares gained from the sale of her father’s car business. In 2009, while he was a backbench MP, Gunnlaugsson sold his 50% stake in the company to his wife for a symbolic $1. Both in 2009 and 2013, when he became prime minister for the centre-right Progressive Party, he failed to declare his offshore firm.

The people of Iceland have, of course, suffered from successive devastating economic crises. In 2008 the country faced economic meltdown as a direct result of the recklessness of bankers and businessmen - who, ironically, had used offshore companies to conceal their dealings in high-risk financial products.

Argentina: The country’s recently elected rightwing president, Mauricio Macri, is linked to an offshore company based in the Bahamas in the years between 1998 and 2009. However, on two occasions - first when he became mayor of Buenos Aires in 2007 and then in 2015, when he campaigned to become Argentina’s president - he should have listed the company in his declaration of interests. He failed to do so.

This is of particular interest regarding the 2015 presidential election campaign, which Macri contested on a platform of opposition to political sleaze. Prosecutor Federico Delgado, speaking this week ahead of an inquiry, said he wanted to determine if Mr Macri had “omitted with malicious intent” mention of his reported role in the Bahamas-registered offshore company, Fleg Trading. Argentina’s national tax authority and anti-corruption office have been asked to provide information to the inquiry

Iraq: Patrick Cockburn, writing in The Independent on April 8, refers to massive corruption in Iraq after the ill-fated occupation of the country. He describes how the billions of dollars of international aid pocketed by its Shia rulers were held in accounts in Arab and international banks. He adds:

There is no obvious link between the revelations in the Panama papers, the rise of Islamic State and the wars tearing apart at least nine countries in the Middle East and North Africa. But these three developments are intimately connected, as ruling elites, who syphon off wealth into tax havens and foreign property, lose political credibility. No ordinary Afghans, Iraqis and Syrians will fight and die for rulers they detest as swindlers. Crucial to the rise of Isis, al Qa’eda and the Taliban in Iraq, Syria and Afghanistan is not their own strength and popularity, but the weakness and unpopularity of the governments to which they are opposed.

The danger of citing extreme examples of corruption from exotic and war-ravaged countries like Iraq, Afghanistan and Syria is that these may sound like events happening on another planet. But the political and economic systems in Iraq and Afghanistan were devised under the tutelage of the US and allies like Britain. They were proponents of free-market economics which in the west may increase inequality and benefit the wealthy, but in Kabul and Baghdad were a licence to steal by anybody with power.



In this issue of the Weekly Worker Michael Roberts deals with the fall-out in the UK following the leaks from Panama. However, the question remains, why did so many rich British individuals and companies place money in such a distant tax haven in the first place? Why not invest somewhere nearer home, like Monaco or Luxemburg? Mainly because those involved would have had to reside in those countries and taking up residence in Monaco would not go down well with the electorate. But also, when it comes to politicians and public figures, the main concern is hiding one’s wealth in remote locations.

Obviously there is widespread anger about Cameron’s family connections with Panama. His administrations have imposed austerity on ordinary citizens, claiming that the deficit in the country’s balance of payments is a major reason for such policies. Yet, as everyone knows, every year tax avoidance costs the treasury billions of pounds. And, while the Conservative government tells us that reducing benefits for the disabled is an unfortunate but necessary measure to balance the books, the prime minister’s own family has been involved in tax avoidance schemes.

In addition, now that doubts have been raised about one of his father’s accounts, no-one believes this is the end of the story. Cameron’s denials have done little to appease ordinary people. According to Downing Street, in 2011 the British prime minister received a gift of £200,000 from his mother. But we do not know where this money came from. Was it previously held in Blairmore Holdings or in other offshore accounts?

There is also some doubt over ‘offshore discretionary trusts’, sometimes referred to as family trusts. These are trusts where the beneficiaries and/or their entitlements to the trust fund are not fixed, but determined by the criteria set out in the trust instrument. One of their advantages is that they allow the trustees considerable flexibility when it comes to changes in circumstances (and, in particular, changes in revenue laws). Of course, it gets even more complicated if you are part of the government proposing and overseeing such legislation.

There is another reason why people are angry. More than a week after the revelations, it appears that the only concern of sections of the media is the speed with which the prime minister dealt with the issue. We are told his initial comment that this was a private matter, and then the ‘drip by drip’ admissions, amounted to a ‘public relations disaster’. In fact in his statement to parliament on April 11, Cameron’s only apology was over the way he dealt with the revelations about his father’s account. The reality is that the way he dealt with the issue is only relevant in that it demonstrated his wish not to reveal the details of his connection to offshore accounts, despite the fact that the leaked papers had shown the link to the Panama-based firm.

In that respect the British prime minister is no better than Putin or Ahmadinejad, who also deny any wrongdoing. No-one in their right mind - in Russia, Iran or the UK - will accept such denials.

And, as far as Mossack Fonseca is concerned, there is no sign of admitting to any wrongdoing either. “We are not involved in managing our clients’ companies,” it said in a statement. “Excluding the professional fees we earn, we do not take possession or custody of clients’ money, or have anything to do with any of the direct financial aspects related to operating their businesses.” They only admit to one ‘illegal’ episode - the leaking of the documents!

Sections of the media are heralding all this as a victory for press freedom. And they claim that new regulations promised by the European Union and other international organisations will reduce the ability of the rich to hide their income in offshore accounts. However, the reality is that tax havens exist with the collusion of the major imperialist powers and are an integral part of modern neoliberal capitalism.