BY DAVID FRANCIS
MAY 6, 2016 - 1:09 PMTHE FOREIGN POLICY GROUP
The White House seized Friday on fallout from the so-called Panama Papers — the leak of 11.5 million documents from the Panamanian law firm Mossack Fonseca — to curb widespread offshore tax evasion and money laundering and strengthen financial transparency.
Through a series of measures, the White House said it would target “tax cheats, kleptocrats, and other criminals” who “abuse the financial system or shell companies and other legal entities.” Some of the new rules will be carried out by the IRS and Treasury Department; others need congressional approval.
If approved, the legislation would for the first time create a central federal registry to track owners of all companies operating and created in the United States. Separately, a Treasury Department rule will require U.S. banks and other financial institutions to verify personal data of owners of offshore businesses known as shell companies.
Speaking to reporters on Friday, President Barack Obama called on Congress to “close the loopholes” that allow wealthy individuals and corporations with “fancy lawyers” to skip out on taxes.
They “should play by the same rules as everybody else,” the president said, adding the rules were spurred by the disclosure of the Panama Papers.
The documents, initially shared with the German newspaper Suddeutsche Zeitung, show that 140 politicians from more than 50 countries — including 12 current or former heads of state — did business with Mossack Fonseca. They include data from more than 214,000 offshore entities across more than 200 countries and cover the period from the 1970s to last December.
The International Consortium of Investigative Journalists, which is made up of more than 100 publications from nearly 80 countries, led a yearlong investigation into the files. It’s the biggest leak in whistleblower history.
Among the world leaders fingered in the papers is British Prime Minister David Cameron, who is hosting an anti-corruption summit in the United Kingdom next week. After the documents were made public, he was forced to admit he soldshares in Blairmore, his father’s tax-free offshore investment fund. Close associates of Russian President Vladimir Putin were also implicated in the leak. Iceland’s prime minister, Sigmundur David Gunnlaugsson, stepped down after the papers showed he kept cash in an offshore account.
No U.S. officials were named in the leak, although two states — Nevada and Wyoming — are mentioned as tax havens for Mossack Fonseca’s clients. Tax shelters aren’t technically illegal but are frowned upon by the countries where these firms do business: governments want their fair share in taxes. According to the IRS, $458 billion in taxes go unpaid each year.
On Monday, the journalism consortium is expected to release a database allowing public search of corporate information contained in the Panama Papers, if not the documents themselves. In an interview published Friday in the Guardian, the unidentified source of the leaks noted that shell companies are often linked to criminal tax evasion.
The Panama Papers “show beyond a shadow of a doubt that although shell companies are not illegal, by definition they are used to carry out a wide array of serious crime,” the source said. “Income inequality is one of the defining issues of our time.”
So far, the new U.S. rules have received a relatively muted reaction beyond the Obama administration. “Some of the proposals, like the new anti-money-laundering bill, are valuable, but others are disappointing,” Elise Bean, former staff director of the U.S. Senate Permanent Subcommittee on Investigations, toldMcClatchy.
House Speaker Paul Ryan’s (R-Wis.) office referred questions about the new rules to the House Financial Services Committee. A representative for Senate Majority Leader Mitch McConnell (R-Ky.) said he would review the proposals, according to Bloomberg.