The Panama Papers have thrown ‘the shell game’ into disarray, and now is the time to act if the global elite are to join the world most of us already live in

“Only the little people pay taxes,” Leona Helmsley, New York’s “Queen of mean” once famously opined. The statement, delivered in court by one of her “little people” helped send the late billionaire real estate mogul to jail for 19 months for failing to pay her dues.

It’s hard not to think of the late Leona amid the revelations still pouring out from the Panama Papers. The massive treasure trove of 11.5m documents from the Panamanian law firm of Mossack Fonseca leaked to the media has disclosed a staggering amount of detail about how the rich and powerful have used shell companies to hide their wealth from the taxman and others around the world.



Done right – the way that the lawyers at Mossack Fonseca promised their super-wealthy clients they would be done – shell companies are almost untraceable. And that enabled those clients to use them to stash money made from illegal weapons, human trafficking or drugs, or shelter cash from the taxman or other kinds of regulatory scrutiny.

What are the Panama Papers? A guide to history's biggest data leak Read more

It’s just another way that the rich can take advantage of breaks that would elude us even if we wanted them. Sure, you or I could set up a shell company of sorts, by establishing a limited liability company. But our names, and our social security numbers, are attached to it. And it’s domiciled here in the US. While there are ways to use US shell companies fraudulently, most of us would have a hard time doing it without paying big bucks for the assistance of high-priced attorneys.

Not so for all those whose names are becoming public. If you’re the king of Saudi Arabia, the president of the Ukraine or Argentina, or the former interim prime minister of Iraq, you’re wealthy enough to do whatever it takes to set up a string of holding companies that, without the Panama Papers leaks, probably would have prevented anyone from ever knowing just what you own or control.

In India, some 500 of the country’s richest and most famous citizens have been linked to the list, from Bollywood stars to property developers. Members of the inner circle of Vladimir Putin are part of this, with transactions including what appear to be fake share deals and extravagant fees for unspecified “consulting” services helping to smooth the transfer of huge sums.

Particularly disheartening – that’s the most diplomatic word I can find at the moment – is David Cameron’s situation. As British prime minister, he is responsible for shaping his own country’s fiscal policy and determining just how to apply taxes, how to collect them and how severely to punish those who he deems don’t comply. In the past, he has pledged to crack down on those responsible for fraud and error in welfare benefits. Now come revelations that his late father established an offshore fund that never paid tax in Britain; Cameron has dodged questions about whether he stands to benefit in any way from that trust.

There are several names of US citizens on the list, too, if few of those you might imagine to be logical suspects – politicians and hedge fund managers, say. Some of those identified so far tend to already have had run-ins with the Securities and Exchange Commission (SEC) or other law enforcement agencies.

The good news – and there is some good news – is that these revelations come when the subject of taxes is finally on the political agenda in the US. Barack Obama has promised reforms and even implemented some. This week US drug company Pfizer’s mega merger with Ireland’s Allergan collapsed thanks to Obama’s tightening of the rules around US companies doing such deals in order to escape US taxes.

Obama had railed against “inversions”, the name given for these tax-inspired changes of corporate citizenship, “one of the most insidious tax loopholes out there”.

It’s a sad world where the wealthy go shopping for passports while refugees drown in the Mediterranean

Corporations are people too, at least according to the supreme court, so let’s hope Washington will decide their flesh and blood counterparts need a clampdown too. And there are signs it is happening.

Already, trying to find a safe place to hide your money is a lot more complicated than it used to be. Forget about hopping on a plane to Zurich or Geneva and just walking into a Swiss bank. That’s why these high-priced specialists, creating layers of shell companies, exist in the first place.

What can we do?

If you’re an ordinary citizen, you’re stuck with your citizenship of birth – and its tax policies. If you’re wealthy, you’ve got options, as Atossa Araxia Abrahamian pointed out in a new book, The Cosmopolites. Buying and selling second or even third passports is just as lucrative as flogging shell companies has been for Mossack Fonseca. The cheapest deal is a $100,000 Dominican passport. Malta was offering citizenship for €1.15m ($1.3m) and required only a year’s residency (increased after howls of outrage from fellow EU members followed the island nation’s initial proposal to sell off its passports for about half that price and have no residency requirement).

It’s a sad world where the wealthy go shopping for passports while refugees drown in the Mediterranean.

These dodges have real-world impact. Less money for schools, roads, more money for drug barons and worse. Want to know who is buying up those apartments for cash and driving up property values? People with shell companies.

If we want to stop this, there are some steps that we can take.

The Panama Papers: leaktivism's coming of age | Micah White Read more

In the wake of the Panama Papers revelations, the obvious one is to increase transparency with respect to shell companies, and not take comfort in the fact that (so far) there seem to have been relatively few high-profile US celebrities like film director Pedro Almodóvar or footballer Lionel Messi whose names have popped up on the documents. US citizens may use other law firms, or other options.

Congress has demonstrated it wants to crack down on average individual taxpayers. New rules mean that anyone owing the IRS more than $50,000 won’t be able to renew their passports and could have their passports revoked. Congress could go a step further, passing legislation that would require states to insist that real owners of shell companies disclose their names.

The Incorporation Transparency and Law Enforcement Assistance Act, which would require states to collect information about the true owners and controllers of shell companies, is just sitting there, waiting for someone to act. Delaware, Nevada and other states that are making it so easy to set up shell company shops may object. But the Panama Papers have thrown the shell game into disarray and now is the time to act. Then, perhaps, we could move forward in creating a global registry of companies – another step in insisting that ultra-wealthy global citizens live in the same kind of transparent world that most of the rest of us already do.