The Panama Papers Moral: Close All Havens, Open All Files

A French economist specialized in tax havens says only tough new international standards can eliminate the many gray areas that allow the wealthy to pay by their own rules.

View over Panama City
View over Panama City
Gabriel Zucman*


What have we learned from the Panama Papers? Mossack Fonseca, the law firm from which 11 million documents have been revealed by the International Consortium of Investigative Journalists, of which Le Monde is part, is just one link in a vast industry in New York, London or Singapore that employs thousands of young graduates from the world's best universities: It is an industry built to protect the interests of the wealthiest people in the world.

The lesson from the Panama leaks is simple: The regulation of that industry and of the territories that shelter it needs to be rethought from top to bottom. This challenge is essential to limit the rise of inequalities and to avoid the risk of drifting toward a global oligarchy.

Preserving wealth has been a century-long activity that developed exponentially during the 1980s. The industry was transformed into an all-out pursuit of one objective: evade the taxman. There are legal ways (exploiting tax breaks or loopholes), other ways that aren't legal (stash your money in undeclared offshore accounts), and there is also a vast grey area, sometimes illegal and sometimes not, without anybody really being able to know.

The "Panama Papers" revelations have set off a global reaction because they expose these ploys in a crude light, at a time when wealth inequalities deepen and economic growth slows. The revelations show that a small elite has access to increasingly sophisticated and varied means to make their assets grow and avoid taxation, while the immense majority of the population has to pay. They bring to light the clockwork mechanism of oligarchic societies, that defend their amassed capital, identified by Jeffrey A. Winters in his 2011 masterpiece, Oligarchy.

But there's something even more disturbing. There is, at the heart of financial regulation, an essential, though ambiguous, distinction between legitimate and illegitimate wealth. Anti-money laundering rules demand of financial institutions that they identify their clients, and forbid them to conduct transactions with drug traffickers, criminals, corrupted officials and money launderers. The Panama leaks reveal that many of these institutions located in tax havens show little concern for this distinction. For them, any business is good business. In 2015, among the 14,086 front organizations located in the Seychelles, Mossack Fonseca knew the effective beneficiaries of only 204 of them.

In other words, a small elite can not only make their money yield a tax-free profit, but nothing tells us that their wealth is even legitimate. An industry whose job is to protect wealth simply cannot be trusted to make any sort of selection of who gets in and who doesn't.

It's high time we drew the appropriate conclusions of this state of affairs. Since the Financial Action Task Force was created in 1989, the fight against money laundering consisted of making rules, expanding the number of participating countries and sending in a few investigators every now and then.

Too much cash at stake

Sure, these anti-money laundering norms and systems have been greatly improved over the years, but the recent revelations show that the ground rules â€" in particular about the identification of the effective beneficiaries, and of people exposed politically â€" continue to be violated on a regular basis. Though necessary, relying on offshore locations to enforce the legislation isn't enough. There's too much money to be made by helping fraudsters and launderers, and too much money to be lost due to the lack of concrete international sanctions.

Mossack Fonseca headquarters in Panama â€" Photo: Valenciano

So we need a new, stronger approach. We know that Panama, the British Virgin Islands, the Cayman islands, and others are home to hundreds of thousands of letterbox companies. Why are we accepting the existence of such a developed financial industry in the British Virgin Islands, especially when we know that it's being used, at least partly, by criminals?

The United States and the European Union should immediately impose sanctions on these territories and maintain these sanctions until it's been proven that all effective beneficiaries of all shell companies established there have been correctly identified.

If the financial crisis and successive scandals should teach us one thing, it's that some financial actors will unscrupulously break the law if there's enough money to be gained. A sanctions-based approach could change people's behaviors, for example by making fraud and money-laundering more costly than they are nowadays.

Finally, the wealth of these front companies isn't in Panama or on the British Virgin Islands: It's invested in real estate in London or New York, in French equities or German bonds. One of the main issues concerning financial regulation and the fight against inequality lies in identifying the effective beneficiaries of that wealth. There are two ways to do this.

Europe and the U.S. could politely ask Swiss banks, Luxembourger investment funds or Panamanian shell company creators to give them this information. This is the spirit behind the current efforts by the Organization for Economic Co-operation and Development (OECD) and the G20 to establish a global system of automatic exchange of information. Some will fulfill their obligations, others won't.

There is another approach: Europe and the U.S. could improve the tracking of wealth on their own soil â€" the apartment buildings of Manhattan or Chelsea, stocks in Paris or German bonds. In practical terms, this would consist of keeping estate and financial registers in which the effective beneficiaries of all European and American buildings, lands and financial equities would be entered.

Having such public registers would be benificial not only to our economies, but also to the developing world, where elites too often still hide their wealth in Western countries. A European and American financial registry would be a public good for the world. And it's the core issue of the fight for financial transparency.

*Gabriel Zucman is assistant professor of economics at the University of California, Berkeley.

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How Thailand's Lèse-Majesté Law Is Used To Stifle All Protest

Once meant to protect the royal family, the century-old law has become a tool for the military-led government in Bangkok to stamp out all dissent. A new report outlines the abuses.

Pro-Democracy protest at The Criminal Court in Bangkok, Thailand

Laura Valentina Cortés Sierra

"We need to reform the institution of the monarchy in Thailand. It is the root of the problem." Those words, from Thai student activist Juthatip Sirikan, are a clear expression of the growing youth-led movement that is challenging the legitimacy of the government and demanding deep political changes in the Southeast Asian nation. Yet those very same words could also send Sirikan to jail.

Thailand's Criminal Code 'Lèse-Majesté' Article 112 imposes jail terms for defaming, insulting, or threatening the monarchy, with sentences of three to 15 years. This law has been present in Thai politics since 1908, though applied sparingly, only when direct verbal or written attacks against members of the royal family.

But after the May 2014 military coup d'état, Thailand experienced the first wave of lèse-majesté arrests, prosecutions, and detentions of at least 127 individuals arrested in a much wider interpretation of the law.

The recent report 'Second Wave: The Return of Lèse-Majesté in Thailand', documents how the Thai government has "used and abused Article 112 of the Criminal Code to target pro-democracy activists and protesters in relation to their online political expression and participation in peaceful pro-democracy demonstrations."

Criticism of any 'royal project'

The investigation shows 124 individuals, including at least eight minors, have been charged with lèse-majesté between November 2020 and August 2021. Nineteen of them served jail time. The new wave of charges is cited as a response to the rising pro-democracy protests across Thailand over the past year.

Juthatip Sirikan explains that the law is now being applied in such a broad way that people are not allowed to question government budgets and expenditure if they have any relationship with the royal family, which stifles criticism of the most basic government decision-making since there are an estimated 5,000 ongoing "royal" projects. "Article 112 of lèse-majesté could be the key (factor) in Thailand's political problems" the young activist argues.

In 2020 the Move Forward opposition party questioned royal spending paid by government departments, including nearly 3 billion baht (89,874,174 USD) from the Defense Ministry and Thai police for royal security, and 7 billion baht budgeted for royal development projects, as well as 38 planes and helicopters for the monarchy. Previously, on June 16, 2018, it was revealed that Thailand's Crown Property Bureau transferred its entire portfolio to the new King Maha Vajiralongkorn.

photo of graffiti of 112 crossed out on sidewalk

Protestors In Bangkok Call For Political Prisoner Release

Peerapon Boonyakiat/SOPA Images via ZUMA Wire

Freedom of speech at stake

"Article 112 shuts down all freedom of speech in this country", says Sirikan. "Even the political parties fear to touch the subject, so it blocks most things. This country cannot move anywhere if we still have this law."

The student activist herself was charged with lèse-majesté in September 2020, after simply citing a list of public documents that refer to royal family expenditure. Sirikan comes from a family that has faced the consequences of decades of political repression. Her grandfather, Tiang Sirikhan was a journalist and politician who openly protested against Thailand's involvement in World War II. He was accused of being a Communist and abducted in 1952. According to Sirikhan's family, he was killed by the state.

The new report was conducted by The International Federation for Human Rights (FIDH), Thai Lawyer for Human Rights (TLHR), and Internet Law Reform Dialogue (iLaw). It accuses Thai authorities of an increasingly broad interpretation of Article 112, to the point of "absurdity," including charges against people for criticizing the government's COVID-19 vaccine management, wearing crop tops, insulting the previous monarch, or quoting a United Nations statement about Article 112.

Juthatip Sirikan speaks in front of democracy monument.

Shift to social media

While in the past the Article was only used against people who spoke about the royals, it's now being used as an alibi for more general political repression — which has also spurred more open campaigning to abolish it. Sirikan recounts recent cases of police charging people for spreading paint near the picture of the king during a protest, or even just for having a picture of the king as phone wallpaper.

The more than a century-old law is now largely playing out online, where much of today's protest takes place in Thailand. Sirikan says people are willing to go further on social media to expose information such as how the king intervenes in politics and the monarchy's accumulation of wealth, information the mainstream media rarely reports on them.

Not surprisingly, however, social media is heavily monitored and the military is involved in Intelligence operations and cyber attacks against human rights defenders and critics of any kind. In October 2020, Twitter took down 926 accounts, linked to the army and the government, which promoted themselves and attacked political opposition, and this June, Google removed two Maps with pictures, names, and addresses, of more than 400 people who were accused of insulting the Thai monarchy. "They are trying to control the internet as well," Sirikan says. "They are trying to censor every content that they find a threat".

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