Monday Reads: Global Intrigue EditionPosted: April 4, 2016
We have the Wisconsin primary coming up tomorrow evening but I thought I’d take a break from political chaos to cover some global financial chaos today. I’m not sure if you’ve heard about The Panama Papers yet but there was a “Giant Leak of Offshore Financial Records” this weekend that “Exposes Global Array of Crime and Corruption. Millions of documents show heads of state, criminals and celebrities using secret hideaways in tax havens.” The linked documents and lists of account names are eye popping. Check out some of the global dirty rotten scoundrels and grab your pitchfork.
A massive leak of documents exposes the offshore holdings of 12 current and former world leaders and reveals how associates of Russian President Vladimir Putin secretly shuffled as much as $2 billion through banks and shadow companies.
The leak also provides details of the hidden financial dealings of 128 more politicians and public officials around the world.
The cache of 11.5 million records shows how a global industry of law firms and big banks sells financial secrecy to politicians, fraudsters and drug traffickers as well as billionaires, celebrities and sports stars.
These are among the findings of a yearlong investigation by the International Consortium of Investigative Journalists, German newspaper Süddeutsche Zeitung and more than 100 other news organizations.
The files expose offshore companies controlled by the prime ministers of Iceland and Pakistan, the king of Saudi Arabia and the children of the president of Azerbaijan.
They also include at least 33 people and companies blacklisted by the U.S. government because of evidence that they’d been involved in wrongdoing, such as doing business with Mexican drug lords, terrorist organizations like Hezbollah or rogue nations like North Korea and Iran.
One of those companies supplied fuel for the aircraft that the Syrian government used to bomb and kill thousands of its own citizens, U.S. authorities have charged.
“These findings show how deeply ingrained harmful practices and criminality are in the offshore world,” said Gabriel Zucman, an economist at the University of California, Berkeley and author of “The Hidden Wealth of Nations: The Scourge of Tax Havens.” Zucman, who was briefed on the media partners’ investigation, said the release of the leaked documents should prompt governments to seek “concrete sanctions” against jurisdictions and institutions that peddle offshore secrecy.
Que the James Bond theme. The Guardian appears to be the paper that’s most on top of the story. I’ve had a fascination with s0-called Treasure Isles for some time which offshore investment accounts of the world’s richest people since it appeared Mitt Romney had managed to plant some money offshore. This was revealed during his run for President. Most of the leaked accounts are from world leaders who are stealing their nation’s Treasury and probably take bribes. Nothing says I hate my country more than these things.
I’ve actually written about this before here because it is so fascinating. As a former banker and a financial economist that studies the financial systems, I can state with assurance that this situation plagues nations trying to develop because it takes much needed money out of circulation in the country. It also is a major argument against giving the richest any more money. They just take it straight out of the country where they gamble on the world’s financial markets. Most of them couldn’t create a job if their life depended on it because they’re busy hiding their fortunes.
The Guardian, working with global partners, will set out details from the first tranche of what are being called “the Panama Papers”. Journalists from more than 80 countries have been reviewing 11.5m files leaked from the database of Mossack Fonseca, the world’s fourth biggest offshore law firm.
The records were obtained from an anonymous source by the German newspaper Süddeutsche Zeitung and shared by the International Consortium of Investigative Journalists with the Guardian and the BBC.
Though there is nothing unlawful about using offshore companies, the files raise fundamental questions about the ethics of such tax havens – and the revelations are likely to provoke urgent calls for reforms of a system that critics say is arcane and open to abuse.
The Panama Papers reveal:
- Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.
- A $2bn trail leads all the way to Vladimir Putin. The Russian president’s best friend – a cellist called Sergei Roldugin – is at the centre of a scheme in which money from Russian state banks is hidden offshore. Some of it ends up in a ski resort where in 2013 Putin’s daughter Katerina got married.
- Among national leaders with offshore wealth are Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Davíð Gunnlaugsson.
- In the UK, six members of the House of Lords, three former Conservative MPs and dozens of donors to British political parties have had offshore assets.
- The families of at least eight current and former members of China’s supreme ruling body, the politburo, have been found to have hidden wealth offshore.
- Twenty-three individuals who have had sanctions imposed on them for supporting the regimes in North Korea, Zimbabwe, Russia, Iran and Syria have been clients of Mossack Fonseca. Their companies were harboured by the Seychelles, the British Virgin Islands, Panama and other jurisdictions.
- A key member of Fifa’s powerful ethics committee, which is supposed to be spearheading reform at world football’s scandal-hit governing body, acted as a lawyer for individuals and companies recently charged with bribery and corruption.
- One leaked memorandum from a partner of Mossack Fonseca said: “Ninety-five per cent of our work coincidentally consists in selling vehicles to avoid taxes.”
The company has flatly denied any wrongdoing. It says it has acted beyond reproach for 40 years and that it has had robust due diligence procedures.
The document leak comes from the records of the firm, which was founded in 1977. The information is near live, with the most recent records dating from December 2015.
The firm’s leaked records offer a glimpse into the tightly guarded world of high-end South Florida real estate and the global economic forces reshaping Miami’s skyline.
And MF’s activities bolster an argument analysts and law-enforcement officials have long made: Money from people linked to wrongdoing abroad is helping to power the gleaming condo towers rising on South Florida’s waterfront and pushing home prices far beyond what most locals canafford.
The leak comes as the U.S. government unleashes an unprecedented crackdown on money laundering in Miami’s luxury real-estate market.
Buried in the 11.5 million documents? A registry revealing Mateus 5’s true owner: Paulo Octávio Alves Pereira, a Brazilian developer and politician now under indictment for corruption in his home country.
A Miami Herald analysis of the never-before-seen records found 19 foreign nationals creating offshore companies and buying Miami real estate. Of them, eight have been linked to bribery, corruption, embezzlement, tax evasion or other misdeeds in their home countries.
That’s a drop in the ocean of Miami’s luxury market. But Mossack Fonseca is one of many firms that set up offshore companies. And experts say a lack of controls on cash real-estate deals has made Miami a magnet for questionable currency.
Iceland’s prime minister is this week expected to face calls in parliament for a snap election after the Panama Papers revealed he is among several leading politicians around the world with links to secretive companies in offshore tax havens.
The financial affairs of Sigmundur Davíð Gunnlaugsson and his wife have come under scrutiny because of details revealed in documents from a Panamanian law firm that helps clients protect their wealth in secretive offshore tax regimes. The files from Mossack Fonseca form the biggest ever data leak to journalists.
Opposition leaders have this weekend been discussing a motion calling for a general election – in effect a confidence vote in the prime minister.
On Monday, Gunnlaugsson is expected to face allegations from opponents that he has hidden a major financial conflict of interest from voters ever since he was elected an MP seven years ago.
This should be huge and there’s no doubt that a number of Americans may show up . It should also spur a movement for regulation if the Dems give good spin and the Republicans cower from fear of their angered populist base. I want to spend more time analyzing this and will provide you with some more thoughts when I can. I’ll be with students the next few days so you’ll have to be patient and let me know if you’re interested.
You can read “How Reporters Pulled Off the Panama Papers, the Biggest Leak in Whistleblower History” at Wired. This article covers the leak process and the reporter with the original contact.
The Panama Papers leak began, according to ICIJ director Ryle, in late 2014, when an unknown source reached out to the German newspaper Suddeutsche Zeitung, which had reported previously on a smaller leak of Mossack Fonseca files to German government regulators. A Suddeutsche Zeitung reporter named Bastian Oberway says that the source contacted him via encrypted chat, offering some sort of data intended “to make these crimes public.” But the source warned that his or her “life is in danger,” was only willing to communicate via encrypted channels, and refused to meet in person.
“How much data are we talking about?” Obermayer asked
“More than you have ever seen,” the source responded, according to Obermayer.
Obermayer tells WIRED he communicated with his source over a series of encrypted channels that they frequently changed, each time deleting all history from their prior exchange. He alludes to crypto apps like Signal and Threema, as well as PGP-encrypted email but declines to say specifically which methods they used. Each time the reporter and source re-established a connection, they would use a known question and answer to reauthenticate each other. “I’d say ‘is it sunny?’ You’d say ‘the moon is raining’ or whatever nonsense, and then both of us can verify it’s still the other person on the device,” Obermayer says.
After seeing a portion of the documents, Suddeutsche Zeitung contacted the ICIJ, which had helped to coordinate previous tax haven megaleaks including a 2013 analysis of leaked offshore tax haven data and another leak-enabled investigation last year that focused on assets protected by the Swiss bank HSBC. ICIJ staff flew to Munich to coordinate with Suddeutsche Zeitung reporters.
I can’t wait to follow the money frankly. International Financial Economists try to estimate the flows of dark and black currency around the world and its impact on a nation’s capital accounts. This may give us a hint of the level and types of activities as well as their frequency. Like I said, I’m chomping at the bit like an Ann Romney dressage horse to get the actual activity details. Meanwhile, enjoy the international outing of the billionaires who have more in common with each other than the people in their countries.
Anyway, here’s a few other links to keep you busy!
From Newsweek: White City: The new urban blight is rich people
From Bloomberg News: Louisiana Crisis Shows Risks of Republican Candidates’ Tax Plans
Voters in Wisconsin’s Republican primary Tuesday can choose among Donald Trump, John Kasich and Ted Cruz, all of whom promise tax cuts that could cost as much as $10 trillion in revenue over 10 years — and an ensuing economic boom as spending is unleashed. Yet voters need look no further than Louisiana, Kansas and Oklahoma to see what happens when economies fail to grow as promised.
From Washington Monthly (satire): Apologies to Bernie Sanders By Mark Kleiman
New York Magazine: OPERATION TRUMP: Inside the most unorthodox campaign in political history.
In a unanimous result, the court said a state can draw legislative districts based on total population. At issue in the case was the “one person, one vote” principle dating back to the 1960s, when the court held that state legislative districts must be drawn so they are equal in population.
What’s on your reading and blogging list today?