The Ripple Effect of the Panama Papers

The ripple effect of the Panama Paper revelations could mean stricter financial regulations around the world.

September 19, 2016

By: Bobby Casey, Managing Director GWP

offshore bankingWhen the whole Panama Papers “scandal” surfaced, I knew the purpose was to vilify and “crack down” on offshore banking. There is a cynical part of me that wonders if this wasn’t just more of a political strategy than an authentic leak. Nothing like rallying your voter base with pitchforks and torches to burn the rich!

The Panama Papers in many ways is like the 9/11 of offshore banking. Once we have people worked up and angry, the government all but has a free pass with the full faith and trust of the righteously indignant and scared to do what is necessary to put this evil down.  Remember, however, that the Panama Papers was a leak of information.  Everyone involved in that leak was not guilty of a crime, however.

This is how the powerful build and make their cases to do unspeakable things from wars, to spying, to full confiscation of assets, to indefinite detention. The IRS already has FATCA in its arsenal, but wouldn’t it be nice to get other governments on board beyond just that of IRS compliance? It would make their jobs so much easier!

Panama’s Foreign Ministry had this to say about the whole ordeal:

Panama wants to make clear that this situation which has been misnamed ‘Panama Papers’ is not our country’s problem, but that of many countries whose legal and financial structures are still vulnerable to being used for purposes that do not represent the common good of citizens.”

I actually find myself agreeing to some of this sentiment. It’s not Panama’s problem. It’s the problem of other governments that don’t like Panama’s policies. If I get mad at you, that’s not YOUR problem, that’s mine. Same goes for governments. Panama was perfectly FINE with its policies. And considering the United States is one of the biggest tax havens for those hailing from other jurisdictions, I’d say this is a case of the US protesting too much.

Well it was bound to happen, and while I’m disappointed, I can’t say I’m shocked.  Not long after this great reveal, the Panamanian government agreed to evaluate its financial systems practices as well as collaborate with other governments to investigate “criminal activity”. (I put that in quotes because it includes tax evasion.)

A little over a week ago, a bill was brought up for a vote.

It “establishes penalties ranging from suspension of corporate rights to the dissolution of the company in cases where there is failure to comply with the payment of taxes and presentation of accounting information. The project also obliges companies to keep accounting records for registered companies, even if they do not have operations in the country.”

A few key points about this legislation:

  • Businesses can be hit with fines of up to $5,000 with $500 per diem until they resolve their issues.
  • Once a suspension has been registered in the Public Registry, the company may not initiate legal proceedings, conduct business or dispose of its assets. Also, a two year dissolution process begins. If you pay your fines and reregister, you can go back to business. If you don’t, the company is dissolved entirely.

Talk about cutting off your nose to spite your face. Destroying economic stimuli for failure to pay taxes, fines, fees, or file proper paperwork? Are there people out there who really think this is principled?

And it’s NOT just Panama who’s decided to take action against those who wish to preserve some modicum of financial privacy… or preserve some modicum of their own personal wealth! This has also had a ripple effect around the world with other global institutions.

The US and Hong Kong requested more information from 13 financial institutions around the world. Mexico expanded its investigations to about 100 jurisdictions and into some nationals who were named in the Panama Papers.

United Kingdom created a public registry to track the ultimate owners of British corporations. Australia has followed suit, making them the second major economy to create such a register. They will be entertaining ideas such as, “imposing a requirement on Australian firms with foreign branches or subsidiaries to evaluate the gaps in anti-money laundering and terrorism financing regimes between jurisdictions abroad and those at home and to apply the higher standard”.

The EU has drafted a proposal to issue sanctions against nations that are known tax havens. They are also having their member countries reevaluate their respective penalties toward such infractions as money laundering, tax evasion, and tax avoidance.

Not to be outdone, the US has some measures of its own:

The US government unveiled a new set of financial regulations on May 19 which, once approved, will force companies to disclose more information about their owners, including the customer due diligence (CDD) rule, which had been under consideration for four years. The CDD rule—which the government hopes will come into effect in May 2018—requires banks to verify the identity of ultimate beneficial owners, develop adequate risk profiles of their clients, and conduct regular monitoring to report suspicious transactions and ensure that customer information is up-to-date.”

There’s something to keep your eye on: the “Customer Due Diligence Rule”. Not a law passed by congress. Just a rule, passed by bureaucrats that carries the same weight as a law.  In all likelihood, enforced by the Department of Treasury’s FinCEN… the same folks who offered up vague guidance on crypto currency.

Regulatory compliance comes with a cost. There is the obvious monetary cost to the financial institutions. Regulations get to a point where additional staff is needed just to handle the paperwork and protocols. It’s no secret this is what happens in the medical industry from hospitals and doctors’ offices to even the pharmaceutical companies: all of them have a regulatory compliance staff of some sort. That staff ain’t free by the way.

Banks in this case will likely also need consultants, lawyers, or staff just to monitor regulatory changes across multiple jurisdictions.

Beyond the dollars and cents, however, there is the inevitable effect these regulations will have on consumer behavior. IF in fact the criminal nature of offshore banking customers is really as nefarious as these fear mongers make them out to be, what will their next move be? The basic law-abiding guy who just wanted to keep litigious jerks from railroading him in court is hung out to dry. The human trafficker on the other hand won’t be stopped that easily. For truly devout criminals, regulation is the mother of invention.

Like I said, the Panama Papers “scandal” was the 9/11 of the financial industry. After 9/11 we got the Patriot Act. After the Panama Papers we get the Customer Due Diligence Rule. Your assets, your money, your privacy, and your civil liberties are all about to be on the chopping block.

This isn’t supposition anymore. This is a matter of time. 2018 to be exact. Please don’t get caught in the wave of regulations coming from all this.

If this has you thinking about your own assets, CLICK HERE to set up a FREE 15 minute consultation with our consultant, Michael Eisbrener.   He’s ready to help you discuss some options!

1 thought on “The Ripple Effect of the Panama Papers”

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