GUEST ARTICLE: The Panama Papers - How Not To Hold Assets Offshore

Asher Rubinstein, May 4, 2016


A prominent US lawyer takes aim at the continuing drama around the Panama Papers.

Asher Rubinstein, of Rubinstein & Rubinstein, a New York-based law firm, has written about wealth management issues before for this publication and the editors here are again pleased to share these insights from him, this time around the Panama Papers leaks. As always, we invite readers to respond with their views.

Last month, the “Panama Papers” were released, which purportedly show how one law firm in Panama City with branches from Switzerland to Hong Kong used offshore entities and bank accounts to hide money for a worldwide clientele of wealthy people, including political leaders in various governments.

While foreign entities and bank accounts are legal, it is against the laws of many countries to hide income from taxation, to launder bribe money and other proceeds of corruption and criminal activities. If the reports are true, the Panamanian law firm of Mossack Fonseca participated in tax evasion and money laundering on a global scale.

The Panama Papers raise issues, not for the first time, about foreign tax havens, banking secrecy and offshore asset protection.

In 2012, I visited Panama and met with trustees, attorneys and bankers, all eager for business and client referrals. While I was witness to the explosion of Panama’s banking industry, and I knew that Panama banks were a gateway for doing business in Central and South America, I have not sent a single client to Panama nor recommended Panama as an asset protection jurisdiction. Years earlier, we had made the decision that we preferred other jurisdictions for asset protection, for reasons including: the strength of local laws, the degree of difficulty for outsiders to challenge those laws and asset protection structures, and our contacts and experience with other jurisdictions.

One of the factors that we look for in an asset protection jurisdiction is the social, economic and political stability of that country. Panama was ruled by a military dictatorship from 1969 to 1989. In 1989, within recent memory, US troops entered Panama to arrest its president, who was also a military general and drug dealer. While the Panamanian banking system developed since those years, and Panama City skyscrapers soared, the prior history made us hesitant. Other jurisdictions offered better laws, a better record of political stability, and lawyers, trustees and bankers who we already knew to be professional and honest.

The Panama Papers is apparently the second time that a whistleblower has offered Mossack Fonseca documents to tax authorities. The first instance resulted in raids and tax fraud prosecutions in Germany, and the information was then shared with the UK and US governments. The current situation arose as a result of a hacker penetrating Mossack Fonseca’s computer system and transferring millions of documents to the International Consortium of Investigative Journalists, which released the documents.  

In the “computer age”, nothing is immune from hacking and therefore there is no real secrecy. Four days before the Panama Papers were made public, it was reported that elite New York law firms Cravath, Swaine & Moore and Weil, Gothal & Manges were hacked. JP Morgan Chase, the biggest bank in the US, was hacked in 2014.

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