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Issue #1726      April 13, 2016

Culture & Life

Fonseca lifts the lid

The massive leak of documents from Panama-based law firm Mossack Fonseca has focused attention on an aspect of capitalism that is regularly played down whenever it comes to light: the tax avoidance industry. Mossack Fonseca describes itself as a law firm, but its core business it seems is advising its clients on ways to (legally) avoid paying tax. The very rich – the top one percent who paradoxically own most of everything – are very reluctant to share any of their wealth with the State, so that it can be used for the benefit of the majority. In fact, they regard taxation of their profits as nothing short of theft.

Ramon Fonseca, one of the founders of Panama’s Mossack Fonseca law firm.

The methods of tax avoidance are usually complex and often devious, involving dummy corporations or real companies based in off-shore tax havens, taking advantage of foreign countries with laws pertaining to corporate tax that are far more lenient than those in the company’s country of origin. These countries provide their “tax shelter” in return for a relatively tiny share of the profits being “sheltered”. It’s money for nothing, really. Mossack Fonseca provided such services to hundreds perhaps thousands of members of the top one percent from Europe, Asia, the USA, even Australia. At time of writing, the British PM was desperately trying to explain away his connections to the suddenly infamous Tax Dodge company.

The corporate-controlled media, as one would expect, rallied to the defence of the tax-dodging ultra-rich over the debacle, deflecting attention away from capitalism as an institution and directing attention instead towards such luminaries as “friends of Russian President Vladimir Putin” (a case of guilt by association if ever I heard of one).It was also implied that the entire leadership of China was in some suitably vague way caught up in the scandal. The Prime Minister of Denmark apparently really was and fell on his sword as a consequence, which provided another welcome diversion. Anything to stop people taking too close a look at the ramifications of the tax avoidance industry. For that industry is concerned with more than merely maximising corporate profits.

It is concerned with moving – and especially with investing – black money, hidden money on which no tax is paid. Black money includes such things as the massive profits from drugs, gambling and vice, profits from legitimate business which are undeclared and hidden from the government, and money that intelligence agencies like the CIA want to provide to groups like the “Free Syrian Army” without Congressional interference. The instrumentalities set up and operated by tax avoidance companies are the preferred means of moving black money around the world. And it is a multi-million – more probably multi-billion – dollar a year industry.

Mossack Fonseca is based in Panama, but tax avoidance is by no means simply a Panamanian industry. In fact, “the largest location for managing foreign wealth,” as the Economist so politely puts it, is the USA. Mossack Fonseca itself had set up offices in Nevada and Wyoming – described as “two of the most egregious tax havens in the US” by Nika Knight in the on-line news commentary Common Dreams – “so as to better enable the firm to take advantage of those states’ lax laws on behalf of its international clients”.

And those laws really are lax. “The US is one of the easiest places to set up an anonymous shell company to move ill-gotten gains around the world. It’s also one of the most popular places to do so for the criminal and corrupt,” according to the UK-based anti-corruption group Global Witness.

In fact, as the English Guardian pointed out, “in 2015, in a ranking of tax havens most attractive for those looking to hide assets, the US came in third – surpassing Caymans and Singapore.” (Panama only rated number 13.)

Las Vegas Review-Journal columnist John L Smith noted “Although the casino industry is often pointed to as a historical source of money laundering ... shell corporations are by far the biggest money laundering facilitation in Nevada – much bigger than the casinos. Casinos want to keep the money in. Shell corporations are in the business of moving the money out.”

“Shell” companies are paper entities that “real” companies use to hide assets. They are so common in some US states they even advertise their benefits. “A corporation is a legal person created by state statute that can be used as a fall guy, a servant, a good friend or a decoy,” gushes a Wyoming company on its website. “A person you control ... yet cannot be held accountable for its actions. Imagine the possibilities!” And those possibilities extend way beyond tax avoidance.

US group Global Witness notes that anonymous shell companies created in tax havens like Delaware “have been used to make six-figure contributions to super PACs [Political Action Committees] backing nearly every major presidential candidate this election cycle.” Indeed, as Common Dreams reported, the Clintons are in possession of a shell company themselves, and under current US law Hillary Clinton is not required to disclose its existence or its earnings in her campaign finance reports.

“As many have observed, the enormous scale of tax evasion around the world means that countries are relying on middle class and working class people to pay their taxes – while the one percent can secretly hopscotch their cash from haven to haven.” – Nika Knight, Common Dreams.

Globalisation, it seems, has erased the borders of nations for the world’s wealthiest. “The very idea of countries dissolves into an impossibly complex digital network of shady dealings, undertaken by those with no particular loyalty to country and plenty to themselves,” argues Fredrik deBoer in the journal Foreign Policy in a response to the Mossack Fonseca disclosures. “Even referring to the country of origin of the super-rich seems quaint. The rich are their own nation.”

As I have said before: Ain’t capitalism grand?

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