Here's my Top 10 items from around the Internet over the last week or so. As always, we welcome your additions in the comments below or via email to email@example.com.
My must read is #4 from Michael Field on the original Panama Papers...in the Pacific, and please do visit Dilbert for plenty more laughs. This week's edition is a bit of a Panama Papers special. Simply because it matters and New Zealand is a big player in all of this, unfortunately. Read #5 to understand how awful the whole connection really is.
1. Nailed it - It's not often that stand-up comedians can completely understand a complex financial issue and make it funny.
Raybon Kan did just that today in this piece on New Zealand as a 100% pure tax haven.
The Government's defence this week of the current rules is awfully weak and Kan does a great job here of exposing it:
Our PM and Tax Minister have both said there's full disclosure in our foreign trust regime. I think full disclosure means zero disclosure. My impression is that the only disclosure required is the name of the NZ puppet (who I'll call "the stooge") who agrees to play the role of trustee. The NZ Government doesn't want to know what assets (I'll call it "loot") are vested in the trust; who the beneficiary is of the trust; or the identity of the person (according to me, the "criminal") who transferred those assets to the trust.
This information exists, written in the trust deed, but this document is secret and untouchable within the the office of the lawyer (my technical description, the "scammer") who set up the foreign trust ("scam").
It seems to me it doesn't matter if the loot is containerloads of cash, dripping in blood from the exit wounds of your competing drug cartel, or an arms deal that would be illegal if anyone found out, or if the money comes from the treasury of that country of which you are president - the New Zealand Government won't embarrass you with questions. Apparently none of these details are our business. After all, it's not like anyone's accusing you of infringing Hollywood copyright.
Instead, I believe our tax regime politely and discreetly offers you a bucket of soapy water, a sponge, and after you're done, an opaque, temperature-controlled box to keep the money dry. Welcome to New Zealand: 100% pure.
2. We were warned - The whole Panama Papers may seem like a bombshell to most, but many have warned about and reported on this issue -- the not least of which is all the excellent reporting from Interest's own Gareth Vaughan.
But just in case you think it was just a bunch of pesky reporters and anti-tax-haven-lobbyists, here's what our IRD advised Bill English and then Revenue Minister Todd McClay to do in August 2013.
In a section headlined "Review the tax treatment of foreign trusts," on page 15 it said:
"Our foreign trust rules continue to attract criticism, including claims that New Zealand is now a tax haven in respect of trusts. This is largely because the mismatch between our rules and those of other countries may result in income not being taxed either in New Zealand or offshore. To protect our international reputation, it may be necessary to strengthen our regulatory framework for disclosure and record-keeping.
"This would result in increased administration costs for Inland Revenue and divert compliance resources away from the general business of collecting New Zealand tax. This, in turn, raises the question of whether our foreign trust rules are sustainable. We will report to you on this matter, including whether keeping the existing tax treatment of foreign trusts is sustainable in the long term."
The Government ignored the advice, judging IRD had higher priorities elsewhere.
3. We were warned by others - Repeatedly.
Transparency International has been warning our Government about weaknesses in corporate ownership and trust legislation for years, as it points out here.
The Integrity Plus 2013 New Zealand National Integrity System Assessment (NIS) clearly described the concerns. It also recommended straight-forward improvements to Trust structures which to date have been ignored, according to TINZ Chair Suzanne Snively. These loopholes allow people to hide money gained through crime and/or money laundering using Trusts registered in New Zealand.
“We have repeatedly warned that these factors are being exploited by overseas interests. They are setting up shell companies and trusts for those involved in corrupt and illegal activities, including tax evasion and money laundering.” says Snively. "The recent amendment to the Companies Act of 1993, while strengthening requirements to have a New Zealand Director, fails to require companies to identify all their beneficial owners". She further notes that Trusts in New Zealand often do not come to the attention of tax authorities or law enforcement agencies because there is no transparent mechanism for reporting them. They have no presence in measurements of funds held in New Zealand and are often hidden in solicitors’ trust accounts.
"The picture of New Zealand that emerges from the Panama Papers is another huge blow to its reputation as one of the least corrupt countries in the world," says Snively. "New Zealand's trade – essential to our prosperity and the well being of our country’s residents – relies on our reputation for integrity”.
4. Jurgen Mossack and The Pacific - Michael Field has written an excellent piece over at The Spinoff detailing how Mossack Fonseca is very familiar with the Pacific. I recommend a click through to read it in full. Here's a taste.
Jurgen Mossack came to Auckland to shut me up. For a moment it felt like a war movie cliché. Steely eyed and ramrod straight, Mossack could have clicked his heels just as his German Waffen-SS father had.
It was March 2000 and the 52-year-old co-founder of Panamanian law firm Mossack Fonseca had already threatened me with legal execution in the form of a libel writ. In a rent-an-office space in Hobson Street, across the road from the Auckland District Court, he wanted a halt to my stories on his firm’s operations in Niue.
Instead, by chance, I got one of the few media interviews he ever gave. I asked him whether his Niue tax haven operation was morally right. He thought a moment and replied: “There is a big grey zone, there is no clear cut area.”
5. Mossack Fonseca is no stranger either - Here's Ken Silverstein at Vice News from December 2014 explaining the Modus Operandi of Mossack Fonseca. In particular, he focused on Rami Makhlouf, who is Bashar al Assad's bagman and a controller of a company called Drex.
To conduct business, shell companies like Drex need a registered agent, sometimes an attorney, who files the required incorporation papers and whose office usually serves as the shell's address. This process creates a layer between the shell and its owner, especially if the dummy company is filed in a secrecy haven where ownership information is guarded behind an impenetrable wall of laws and regulations. In Makhlouf's case—and, I discovered, in the case of various other crooked businessmen and international gangsters—the organization that helped incorporate his shell company and shield it from international scrutiny was a law firm called Mossack Fonseca, which had served as Drex's registered agent from July 4, 2000, to late 2011.
Founded in Panama in 1977 by German-born Jurgen Mossack and a Panamanian man named Ramón Fonseca, a vice president of the country's current ruling party, it later added a third director, Swiss lawyer Christoph Zollinger. Since the 70s the law firm has expanded operations and now works with affiliated offices in 44 countries, including the Bahamas, Cyprus, Hong Kong, Switzerland, Brazil, Jersey, Luxembourg, the British Virgin Islands, and—perhaps most troubling—the US, specifically the states of Wyoming, Florida, and Nevada.
This is the company we're now keeping.
6. 'The vintage wines of the money laundering business' - Silverstein went deep into the world of Mossack Fonseca and what he found was ugly.
A year long investigation reveals that Mossack Fonseca—which the Economist has described as a remarkably "tight-lipped" industry leader in offshore finance—has served as the registered agent for front companies tied to an array of notorious gangsters and thieves that, in addition to Makhlouf, includes associates of Muammar Gaddafi and Robert Mugabe, as well as an Israeli billionaire who has plundered one of Africa's poorest countries, and a business oligarch named Lázaro Báez, who, according to US court records and reports by a federal prosecutor in Argentina, allegedly laundered tens of millions of dollars through a network of shell firms, some which Mossack Fonseca had helped register in Las Vegas.
Documents and interviews I've conducted also show that Mossack Fonseca is happy to help clients set up so-called shelf companies—which are the vintage wines of the money-laundering business, hated by law enforcement and beloved by crooks because they are "aged" for years before being sold, so that they appear to be established corporations with solid track records—including in Las Vegas. One international asset manager who talked to Mossack Fonseca about doing business with them told me that the firm offered to sell a 50-year-old shelf company for $100,000.
If shell companies are getaway cars for bank robbers, then Mossack Fonseca may be the world's shadiest car dealership.
7. The story behind the story - The Panama Papers are quite a thing from journalistic point of view. The scale and sophistication of the reporting was quite something. Unfortunately, though, there were no New Zealand reporters behind the wall on this one.
Here's USA Today with the story:
By tradition news outlets are very competitive. They like to be first. They like to break news. They are not crazy about sharing. And the same goes for the reporters who work from them.
Yet the Panama Papers, the largest leak in history and the source of numerous high-profile stories with global impact, represented a joint effort by 376 reporters at more than 100 news outlets in nearly 80 countries.
How did that happen? Blame it on "radical sharing."
Once it was unencrypted, the material still wasn't searchable. So ICIJ used a technology called Optical Character Recognition to make it so. It then uploaded the data to a secure platform called Blacklight that enabled participating journalists worldwide to access it. For example, Walker Guevara says, journalists could upload a list of the names of all the members of the House of Lords and match it to the data.
The second front, of course, was lining up the journalists. ICIJ turned both to its roster of 200 affiliated journalists in 65 countries and to other reporters who came highly recommended. That's where the "radical sharing" came in. "We wanted the best investigators and the best collaborators," Walker Guevara says. "No lone wolves. We were not interested in reporters who didn't want to share anything."
This tax transparency is not just a matter of celebrity gossip or embarrassing the boss. It has had radical consequences for Norway.
It started when Norway won its independence and needed to set up a central bank. Taxes were raised and to make sure everyone was paying their fair share, all the details were published.
As an attempt to increase openness and stop corruption, the news was also available to the illiterate - town criers stood on village greens and announced the whole village's taxes.
As a result Norway is one of the least corrupt countries in the world.