Tax haven scandal in Panama: What has happened so far; what are the next steps?

Panama - so far the biggest tax haven scandal

Money laundering, tax evasion and tax avoidance: these are probably the three most important words describing the events of recent years in Panama. In April 2016, a group of journalists brought the probably biggest scandal concerning the tax haven so far to light. Documents, which were leaked to the editors, show how corporations, the super rich and politicians engaged in money laundering on a large scale and squirreled large amounts from the taxman. Based on new information, the European Parliament has set up a separate committee of inquiry, which shall disclose more details about the Panama systems and its instigators. First results are definitely surprising.

Founders of law firm Mossack Fonseca arrested in Panama

The current scandal concerning the tax haven Panama, has its origin in the law firm Mossack Fonseca. An informer close to the firm, gave the media an extensive collection of documents from the law firm. They included the names of numerous European top politicians. The Islandic Prime Minister Gunnlaugsson resigned after it had become known that his wife has a letter box company in Panama. The French Budget Minister Cahuzac also had to vacate his position. And the then British Prime Minister Cameron and the current Home Secretary Amber Rudd are also part of the letter box system in Panama.
Shortly after the first media reports on the affair, called Panama Papers, the Panamanian authorities initiated investigations against Mossack Fonseca, which in February 2017 led to the arrest of its two founders, Jürgen Mossack and Ramón Fonseca. As disclosed by Süddeutsche Zeitung, Panama’s President, Juan Carlos Varela, had previously distanced himself from his friend and advisor Ramón Fonseca.

PANA committee of inquiry in the European Parliament investigates the Panama network

Within the scope of several hearings, MEPs have invited bankers, solicitors and accountants to the committee of inquiry to shed more light on the Panama network, whereby the hearing on 9 February focussed on the German Berenberg Bank and the NORDEA Bank. Both financial institutes were highly active with regard to setting up of letterbox companies in Panama.
In the case of Berenberg, the former employee of the Bank, Katrin Keikert, informed her superiors that she had discovered a money laundering network, whereby money laundering had taken place on behalf of Hezbollah. However, her superiors wanted nothing to do with it and banned her from speaking out.
According to Süddeutsche Zeitung, she was ultimately dismissed because she did not want to let go. As stated by Berenberg Bank boss Hans-Walter Peters, who unfortunately did not appear before the committee of inquiry, the bank has seized dealing with some previous customers. The financial institute did not want to assist customers in hiding money from the public purse.
However, according to NORDEA employee, Matthew Elderfield, it would be very difficult to determine whether a company was economically active in a tax haven country or not (if so, it would be a letter box company). It was also difficult to trace back capital movements, said the bank’s representative, who helped to set up 500 letterbox companies in Panama. According to NORDEA, rules, which would determine what to define as an economic activity, would be helpful.
So far, MEPs have been disappointed by the banks’ lack of willingness to cooperate. The banks and others involved were not prepared to create more transparency. Unfortunately, the European Parliament does not even have the right to summon witnesses. Thus, the competencies of the European Parliament also require changes to make it possible to put more pressure on the people involved.
The PANA Committee expects to submit a draft report on the results of the investigations as early as March. The European Parliament intends to adopt a relevant resolution at the end of June 2017.