The Panama Papers and the End of Privacy

By now you have probably heard of the latest sensation in the financial media—the so-called Panama Papers. It seems that 11.5 million files were leaked from the Panama-based law firm of Mossack Fonseca which purport to reveal the secret ownership of bank accounts and companies in 21 offshore jurisdictions.

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The information from the Papers now being reported in the media is the result of a year-long collaboration between a German newspaper, Süddeutsche Zeitung, the International Consortium of Investigative Journalists and more than 100 media outlets. The journalists say they have exposed “a cast of characters who use offshore companies to facilitate bribery, arms deals, tax evasion and drug trafficking.” So, it appears that our intrepid reporters, as self-appointed judge and jury, have determined that if you are mentioned in these Papers, you are probably guilty of some sort of criminal behaviour.

In Canada and the U.S., it is certainly not illegal to have an interest in an offshore account or private company, as long as you have met the requirements for disclosure. There are many valid and legal reasons to have offshore arrangements. But now the sensationalist reporting, which is designed to sell newspapers, will tar with the same brush everyone who invests in a lower tax environment. The very real right to privacy is being destroyed in the process. Many people who have legally set up their affairs offshore such as yours truly could suffer the same indignities as the criminals.

Clearly, leaking the Papers was itself a crime but the journalists are happy to jump in and participate in it. No scruples about illegality there.

In this world of social media and the internet, privacy is no longer as valued as it once was and insisting on it is even considered somewhat suspicious. That is the world we now live in. How often do you have people say that they aren’t concerned about all the new rules limiting financial transactions or the rising amount of surveillance by government agencies because “I have nothing to hide”? This to me represents a childish faith in the authorities to act properly and not to misinterpret innocent behaviour. The authorities make mistakes too but their mistakes are much harder to unwind than yours or mine.

What is most disturbing to me is the utter hypocrisy involved in the media coverage. The biggest tax haven is not Panama or some sunny island in the Caribbean. That award goes to the good old U.S. of A.

In 2013, an Argentine prosecutor’s report linked Nevada-incorporated shell companies involved in a major corruption scandal in that country to Mossack Fonseca, the original home of the Panama Papers. Why is Nevada important? Because according to a recent investigation by Bloomberg, “The World’s Favorite New Tax Haven Is the United States”. The Bloomberg article quotes Andrew Penney of Rothschild & Co as saying that the U.S. “is effectively the biggest tax haven in the world”.

After years of targeting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as the leading tax and secrecy haven for rich foreigners. By resisting the new global disclosure standards it is imposing on everyone else, the U.S. is now attracting accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota. The money is rushing in for one simple reason: foreign – and local – money is welcome in the U.S., no questions asked, shielded by the most impenetrable tax secrecy available anywhere on the planet.

Going for gold

So, what do you do if you want your wealth to retain its privacy? Buy physical gold and take possession of it. Stocks, bonds, real estate—all these assets require that you register your ownership and their value depends on your property rights being respected by others. Gold has no such registry and it does not require anyone else to fulfill their obligations to you. It’s yours and it is private.

If you have not acquired gold as a protection for your wealth, you are relying on the fairness of a social and economic system that is increasingly intent on attacking people with wealth. The authorities are not going to protect you. You need to protect yourself.