Yesterday morning, a breaking story appeared in The Guardian about the biggest data leak in history – 11.5 million documents detailing the activities of a Panamanian law firm that set up over 240,000 offshore companies for clients around the globe.
After reading the piece in English, I began surfing Panama news sites to get a sense of what Panamanians thought. For the next hour I clicked from one site to another: La Prensa, Crítica, El Siglo, Panamá América, Mi Diario, La Estrella and Metro Libre.
By 3 pm, the piece had already appeared in every major news portal in the U.S. and Europe.
Late wake up call for Panama
Not until early evening did the story finally appear in Panama with the headline (in Spanish), “Offshore world of Mossack Fonseca under scrutiny“.
Why such a delay? I was puzzled. But after some reflection, I realized that Mossack Fonseca was the 4th largest provider of offshore services in the world, the crème of Panama’s elite. The firm’s partners have served as informal ambassadors, and have been on panels to reform the nation’s financial sector.
Ramon Fonseca, the firm’s co-founder, is one of President Juan Carlos Varela’s closest friends and political allies. Until recently, Mr. Fonseca headed the Partido Panameñista, the ruling party, and served as special adviser in the president’s cabinet. Mr. Fonseca’s son, Eduardo, is the Consul General in Dubai for Panama; and his brother, Alfredo, is the director of the nation’s Civil Aeronautical Ministry.
It’s clear why Panamanian publishers would think twice before running the story.
But there seemed to be something else at play, something even bigger than payback by powerful politicians. After reviewing comments in 7 different Panamanian publications, the reason suddenly became clear: people were afraid for Panama.
Anguish between the lines
By Monday morning, the story was in every Panamanian publication. The big question on everybody’s mind was now “How bad will this be for the nation?”
People who worked in the financial, legal and shipping sectors were skittish. For many, the leak confirmed what they had long suspected. Here are some excerpts of comments from various Panama publications (my translations):
- I asked myself if I live in the twilight zone because this story didn’t show up in a Panamanian newspaper until after appearing in every major site on the planet. Finally I see that it matters in Panama!
- The laundry mat has been unplugged! And just one of many. Panama is an international crime center but no one says anything because their mouths and pockets are sealed tight with dollars.
- No one in Panama can be happy about this. This is going to seriously damage the nation’s image, and may lead to economic crisis.
- Every law firm in Panama is involved. The publication goes right to the jugular of the offshore industry and leaves little doubt that Panama is a fiscal paradise.
- This can really sink Panama… not just Mossack Fonseca. We need to be very careful.
Ironically, the first “Industry News” item on Mossack Fonseca’s site earlier this week was news about Paraguay’s decision to remove Panama from its trading black list. The site lauded the Central American government’s “efforts and commitment regarding the transparency of Panama’s financial, business and trade systems”.
Many people now wonder how long this reinstatement will last. For what does “transparency” mean if some activities can be kept secret, and others no? Who gets to decide?
These questions will be debated. For now, Panamanians are doing their best just to keep calm.
Wheeling and dealing is, after all, their life blood, and in many ways a point of national pride. Pro-business reforms have helped fuel over 10 years of continuous economic growth. Despite the fact that the nation still has the second-most unequal income distribution in Latin America, it now also ranks second in competitiveness and fifth on the Human Development Index.
Far from its roots as a “banana republic”, Panama City is now a bustling international business and banking hub. The city teems with workers of every nationality. Services such as banking, shipping, tourism, insurance and law, among others, account for over 80% of the nation’s GDP.
Inequality and the global elite
In a way, the timing of the leak couldn’t be worse. Many media outlets have been recently obsessed with dramatic inequality. This incident is just another stark reminder that the global financial system favors the rich and powerful.
As The Guardian stated: “What has broken out of the vaults of Mossack Fonseca is one over-riding sense. The sense that normal rules do not apply to the global elite. In a new gilded age, taxes would – once again – appear to be for the little people“.
Although many ordinary Panamanians suspected that illicit offshore activity represented a big part of their nation’s economy, most never realized how much.
Like a car factory
So far, Mossack Fonseca has denied any wrongdoing and calls itself the victim of a campaign against privacy.
In a hastily arranged interview, Mr Fonseca claimed that he shared no responsibility for what his clients did with their offshore holdings. He compared his firm to a “car factory” whose liability ends once the vehicle is sold. Blaming Mossack Fonseca for the unlawful behavior of its clients, he said, would be like “blaming an automaker if the car was used in a robbery”.
He insisted that Panama was being “singled-out” because “certain countries don’t like it that we’re so competitive in attracting companies”.
Mr. Fonseca didn’t mention anything about lax or complicit gatekeepers — the intermediaries that set up and oversee offshore companies. Nor did he mention money laundering or tax evasion, or discuss why employees of his firm would be tempted to become whistle-blowers.
But the leaks now clearly reveal a world whose dimensions few people had grasped. They show how banks, law firms and asset management companies secretly oversee the estates of the world’s rich and famous: politicians, businessmen, sports officials, celebrities, fraudsters, athletes and criminal cartels. Over- and under-the-table earnings mixed to an extent few ever imagined.
Which all means that even if Mr. Fonseca is not found guilty, the Panama Papers will have sparked discussion on every continent about the nature of offshore activity. What should be tolerated? What shouldn’t?
The debate will shake Panama’s economy to its core.