The Panama Papers (UPDATED)

Over the weekend, a massive leak from Mossack Fonseca revealed how the Panamanian law firm helped tyrants, their cronies, and their families around the world hide money stolen from their own peoples. Nearly the entire focus of Sunday’s coverage surrounded the network of Putinists that helped him become one of the wealthiest men in the world while – in perfect Mafia style – having little or no assets or income with his name on it (WaPo). The lone exception was in Asia, where the various financial harbors for several relatives of high-ranking Chinese Communist cadres were the focus of the day – including the brother-in-law of current boss Xi Jinping. Naturally, the CCP has made any discussion of the cadres’ ill-gotten gains illegeal (WaPo, WasEx). Iceland’s government may fall over revelations that the Prime Minister had (and refused to disclose) holdings managed by the firm (UPDATE: the PM has just resigned, but it looks like the government itself will not fall – BBC). The father of Prime Minister David Cameron used the firm to set up a company to avoid UK tax – which pretty much ended coverage of any other part of this within the British papers. As of this writing (10 AM on Tuesday) there does not appear to be any major American involvement; if that changes, I will update this post.

Ironically, the things that Mossack Fonseca did that actually risked running afoul of the law – like helping folks from the CCP’s northern Korean colony avoid international sanctions (BBC – to be fair, that apparently stopped in 2010), helping a cousin of Bashar Assad avoid the same (same link), and helping Brazilian government officials hide money embezzled from Petrobas (Forbes) were nearly drowned out in the vituperative reaction to the tax avoiders. This forecasts conventional wisdom most assuredly taking us in the wrong direction regarding the discolsures.

The supposed lesson: avoiding taxes is bad. Never mind that avoiding taxes is something just about anyone who owns a home does – or do you know anyone who gladly pays taxes on mortgage interest? Or pre-withdrawn 401K earnings? Governments around the world are more than willing to turn this into a way to guilt their people to hand over more money – including money which said people are entitled to keep by law. Of course, this also makes sure the actual corruption revealed is less noticed, and more easily forgotten.

The actual lessons (in fact, there are two).

First, money will always find a way to escape higher taxes. If you don’t want to believe me, go back to that mortgage interest line and read it again. Of course, when one has more money than can be covered with real estate debt (or corporate debt, for that matter), one has other options. Among them, as we now know, include a law firm from Panama to help create “off-shore” companies. Put aside for the moment the irony that the term “off-shore” is still used in the modern, globalized economy. When supply-siders talk about how higher taxes damage an economy by forcing capital to the sidelines, this is now Exhibit A, B, C, D, E . . .

Meanwhile, as an added problem, the high taxes vs. tax avoidance issue leads to a dangerous conflation . . . and the second lesson.

To wit, this is about tyrants stealing from their own people. While the Putin network has gotten most of the attention, we shouldn’t forget the relatives of eight current and former CCP Politburo members used Mossack Fonseca to hide money, including the Xi’s brother-in-law. Given that Xi has built is his power base – i.e., wiped out his internal Party enemies – on a series of “anti-corruption” campaigns, this is more than a little embarrassing.

The CCP are experts on how to govern in fear while stealing from the governed: opaque state-owned enterprises ripe for embezzlement (also an issue in Russia and Brazil – see above), contracts to build gleaming cities with zero residents, blurring the line between gangs and governance, etc. Yet in the demand for law-abiding wealth owners to hand more money to capitals than the law demands, we risk forgetting how much of this exposure is about the other way around – government officials ripping off their consituents/subjects/victims and stashing their ill-gotten gains where no one can find them (until this weekend).

So while I can understand Britain’s fascination with David Cameron’s father, I do hope they (and we) pay more attention to Vladimir Putin’s cronies, the Chinese Communist cadres’ relatives, Bashar Assad’s cousin, and Brazil’s former president. The criminals aren’t those looking to avoid giving their governments what they are not obliged to pay, but rather the governments who hide from view the money they were not allowed to take from their peoples in the first place.

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