As Panamanians celebrated the expansions of the Panama canal this weekend, the country’s officials expressed concern that the historic moment could be overshadowed by the Panama Papers.
The leak of 11.5m files from the database of Mossack Fonseca, a Panama-based law firm, shone a bright light on the world of offshore tax planning. In addition to its headquarters in Panama, the firm employed 600 people in 42 countries and was the world’s fourth-biggest offshore law firm.
Ivan Zarak, Panama’s vice-minister of economy, said that referring to the Mossak Fonseca leak and the ensuing scandal as “Panama Papers” was unjust.
“It’s not about Panama, it’s about one company. Nobody called it the Texas fraud when Enron [went] bankrupt,” he said. “It’s unjust. You are holding accountable the whole country for the actions of one company.”
Following the Panama Papers revelations, the company’s affiliate in Nevada resigned as the agent for 1,000 companies it administered there. The firm also decided to close its offices in British-dependent territories of Jersey, Isle of Man and Gibraltar.
“We certainly believe that we have done so much in terms of the story of success for people to be talking about the success of Panama and not about the Panama Papers, which do not define the Panamanian reality,” Gian Castillero, adviser to the government of Panama and a corporate services lawyer, told reporters on Saturday.
Mossack Fonseca data seen by the Guardian covered more than 200,000 companies for which the firm acted as registered agent. The British Virgin Islands held more than 100,000 companies.
“More than half of the companies were established in the British Virgin Islands. Why don’t call it BVI papers? Or the British Commonwealth papers? We take the issue with the fact that it was called the Panama Papers. Call them Mossack Fonseca papers. I don’t care,” he said.
Mossack Fonseca remains under investigation in the British Virgin Islands.
In their conversation with reporters, both Castillero and Zarak defended Panama as a financial center.
“Panama is not a tax haven. We wish Panama was a tax haven. We pay taxes as you do in any of your countries,” said Castillero. He explained that Panama has a territorial tax system which requires Panamanians to only pay taxes on income earned within Panama.
“We only have four million people and this is the type of fiscal system that works for us. It was not created to stimulate tax evasion. Basically, we are such a small number of Panamanians that if we would have worldwide taxed income, perhaps the efforts of collecting the taxes abroad would be far more expensive than what you would have collected in the first place,” he explained.
Zarak noted that even prior to the leak, Panama had been committed to transparency and had made a commitment to automatic exchange of information with countries deemed secure for such information exchange. This commitment was “not a knee-jerk reaction” to Panama Papers, he said, adding: “The steps that we have been taking are not because of the Panama Papers. These were decisions that were made before the Panama Papers came out.”
“We are bad communicators and we have not been able to successfully put forward all the effort that Panama has made in terms of transparency and exchange of information, how strong our commitment to that is,” explained Castillero. “And service provider economy that depends dramatically on international services, we are very much aware that our main asset is reputation and that we cannot get isolated from international community by not meeting international regulations.”
Panamanian trade analyst Ernest Bazan told Reuters that Panama’s reputation has “unfortunately been affected [by the Panama Papers] and that undoubtedly affects the business climate, including the Panama canal”. According to analysts, the scandal was one of the reasons why a just dozen of the 70 heads of states who were invited were scheduled to attend the Sunday’s ceremony. Jill Biden, second lady of the United States, attended as part of the US delegation.
Castillero noted that “the damage to the reputation is mainly in the layman persons who do not understand and read the papers and get the impression that there could be something wrong about Panama”. The reputation in the financial sector has not suffered much and as a result “there has been no reduction in demand of Panamanian services after Panama papers,” he said.
