Panama and the 1%: Shell Games, Taxes, and International Law

By B. Lana Guggenheim

The Panama Papers, as the information leak from a law firm operating in Panama has been dubbed, is the largest information leak in history, clocking in at 11.5 million files, about 2.6 terabytes of data, which is most likely the bulk of law firm Mossack Fonseca’s database, if not its entirety. The well-known Wikileaks cache comparably is much smaller, but is still substantial at 718,000 documents. This event has blown open the operating procedures of offshore tax havens, money saving schemes for the extremely rich, and their less than savory ties to many families, government officials, and rogue regimes all over the world.

Though the story broke only days ago, Mossack Fonseca has been setting up shell companies to shelter funds for decades, and journalists have been poring over the data for months before they released the story. While an anonymous source tipped off the German newspaper Süddeutsche Zeitung, the data they received soon outpaced their ability to process, and they reached out to the International Consortium of Investigative Journalists, consisting of a team of over 400 journalists in over 100 countries, to help. Even so, going through this much data took months.

The results have been immediate and dramatic. Already on Tuesday, the Prime Minister of Iceland, Sigmundur David Gunnlaugsson, tendered his resignation due to he and his wife having been among the many clients who parked their cash in a Panama shell business, Wintris. Considering the scars from the country’s recent financial collapse and painful rebound, there was little tolerance from Iceland residents for their premier's secret money stash, and one tied to the failing investment banks from 2008 at that - which meant there was an enormous and undisclosed conflict of interest. More than $2 billion has been traced to Vladimir Putin and his associates in Russia, and Ukrainian premier Petro Poroshenko, sole shareholder of Prime Asset Partners Limited (PAPL), has come under fire for similar reasons. The candy magnate promised to sell his business when he took office, but Mossack Fonseca set PAPL up as a shell company based in the British Virgin Islands in August 2014, at the time of Russia’s bloodiest attacks on Ukraine, thus saving him millions of dollars in Ukrainian taxes and prompting some to wonder if his priorities were the country he leads or the finances he promised to liquidate. High ranking families in China’s Communist Party are under the lens as well for quietly squirreling their wealth away, and the US and UK don’t have their hands clean either, one client being the late father of British Prime Minister David Cameron. Even Nawaz Sharif, Prime Minister of Pakistan, is under fire, as is the monarch of Saudi Arabia, King Salman bin Abdulaziz bin Abdulrahman Al Saud, and even two cousins of Syrian dictator Bashar al-Assad, Rami and Hafez Makhlouf, among many others all around the world, and in various positions of power.

But how does it all work? One commenter on Reddit charmingly described the issue behind the Panama Papers as people stashing their piggy banks in someone else’s house to hide their savings from their moms, and while some were simply seeking privacy, others were hiding stolen money and engaging in other illegal and unethical activities (you can see it illustrated here.) The reality is slightly more complicated - in order to hide their funds, corporations create new bank accounts and new business ventures based in countries that have low tax rates and/or do not tax on income earned abroad. Such havens include the Cayman Islands, the British Virgin Islands, Luxembourg, Ireland, Panama, and yes, the United States, which is in fact one of the biggest tax havens for foreign money. Ironically enough, the United States holds other countries to a standard of transparency that it does not itself follow, as the USA did not sign on to OECD standards, though Panama did, though with conditions. Because these accounts are held under different names, their origin is hard to trace, and because these countries do not disclose the information to the corporations countries’ of origin, it is easy to avoid disclosing the true extent of one’s assets and thus avoid taxation on it. Banks often seek out relevant law firms, like Mossack Fonseca, on behalf of their clients to complete these services. (Mossack Fonseca created about 200,000 of these offshore entities.) The law firms charge a fee to set shell companies up and maintain this legal fiction, but this fee is often significantly less than the home tax rate rich individuals and corporations are looking to avoid by engaging in this practice. And a legal fiction it is: one building can be home to thousands of companies and accounts that are little more than a mailbox with a gilded name plaque, with no rooms or employees to speak of. But it’s one that allows many to dodge the tax man in a way that beggars belief.

The entire situation is a tangled web of how the top tiers of international finance are open to the rich, but not the average citizen. The offshore banking industry intersects with criminals, terrorists, corporations, and your average billionaire, and often enough, it’s legal - though not always. Academics estimate that about $7.6 trillion is held in overseas tax havens, costing governments a minimum of $200 billion a year in lost tax revenues. Tax havens are an ugly, but integral part of the global banking system. However, not everyone involved in offshore banking is a thieving criminal. Some folks place funds in tax havens totally illegally, but for reasons most of us would support, such as in defiance of authoritarian governments seeking to crack down and restrict potential actors that would upset their monopoly on power.

Mossack Fonseca offices in Panama City. From elcambur.com.ve

Much of Mossack Fonseca’s work isn’t for humanitarian or anti-authoritarian reasons, however. Though the two men behind the firm, Ramon Fonseca and Jurgen Mossack, insist they are the wronged party for having been hacked into and their privacy violated - and they have a valid point - they say that their business is like “selling cars”; they are not responsible if people use their products to do wrong. Still, a number of their clients are involved in some shady business. And while technically their law firm violates no Panamanian laws, among their clients are those placed under international sanctions, and those who have earned their funds through extralegal means. Some of these companies were based in Iran, Zimbabwe, and North Korea, including DCB Finance, which had links to North Korea’s nuclear weapons program. Even in cases when they were not yet sanctioned when Mossack Fonseca helped set up their shell companies, the firm continued to act as a proxy for them after sanctions were put in place. In the case of DCB Finance, Mossack Fonseca continued relations with them until contacted by the British Virgin Islands authorities in 2010 inquiring about a different North Korean company, after which Mossack Fonseca resigned as agents for DCB Finance. They also set up a shell company that hid the millions gained from the infamous 1983 Brink’s-Mat heist at London’s Heathrow Airport, dubbed “the crime of the century.” The company in question, Feberion, was set up a mere 16 months after the crime for the London-based money launderer Gordon Parry, who went to jail in 1992 for his role in the aforementioned robbery, and Jurgen Mossack was aware that Feberion was involved in laundering money from the heist, though the law firm later denied this when pressed. And yet, they only ended relations with Feberion as late as 1995.

The pressure is on, not just for this law firm, but for the various global tax havens to engage in greater transparency and close these legal loopholes. But international banking is likely to face some fallout as well. Banks have already faced an uptick in scrutiny, and are likely to be faced with more, as well as additional regulation and even fines. Untangling the industry’s many offshore entities would also be expensive and traumatic, and would make repairing any reputations difficult, even for banks that claim they weren’t involved in such activities in the first place. Some banks have already begun to overhaul their internal structures. HSBC sold their Panama bank in 2013, and Credit Suisse sold its Gibraltar and Monaco private-banking operations. Some tax havens are also becoming more transparent, as the OECD’s original blacklist of “uncooperative havens” has significantly dropped over the past decade, though Panama, Liechtenstein, and Barbados were still named as such on an EU list last year. Closing all these tax loopholes is going to be a long, messy process, and it is likely that inventive accountants will find new areas to exploit for future clients. But one lesson everyone can learn, from tax accountants to lawyers, is that cybersecurity will be an increasingly significant factor. Leaks this big only happen if someone scrapes the entirety of a database, a security breach that is the stuff of nightmares.

Cited Sources and Further Reading

Beauchamp, Zack. "The Panama Papers Revealed Lots of Shady Stuff. But Some Shell Corporations Aren't so Bad." Vox. Vox, 05 Apr. 2016. Web. 06 Apr. 2016.

Bilton, Richard. "Panama Papers: Mossack Fonseca Leak Reveals Elite's Tax Havens - BBC News." BBC News. BBC, 04 Apr. 2016. Web. 06 Apr. 2016.

Chang, Alvin, and Javier Zarracina. "The Panama Papers Leak, Explained with an Adorable Comic about Piggy Banks." Vox. Vox, 04 Apr. 2016. Web. 06 Apr. 2016.

Clark, Nicola. "How a Cryptic Message, ‘Interested in Data?,’ Led to the Panama Papers." The New York Times. The New York Times, 05 Apr. 2016. Web. 06 Apr. 2016.

Cox, Simon. "Panama Papers: Mossack Fonseca 'helped Firms Subject to Sanctions' - BBC News." BBC News. BBC, 04 Apr. 2016. Web. 06 Apr. 2016.

Díaz-Struck, Emilia, Et Al. "Panama Papers: Who's Who?" The Irish Times. The Irish Times, 04 Apr. 2016. Web. 06 Apr. 2016.

Drucker, Jesse. "Panama Has Company as Bank-Secrecy Holdout, as U.S. Offers Haven." Bloomberg.com. Bloomberg, 05 Apr. 2016. Web. 06 Apr. 2016.

Fitzgerald, Alison, and Marina Walker Guevera. "New Leak Reveals Luxembourg Tax Deals for Disney, Koch Brothers Empire." International Consortium of Investigative Journalists. International Consortium of Investigative Journalists, 09 Dec. 2014. Web. 06 Apr. 2016.

Gardner, Matthew. "Panama Papers and America's Problem." CNN. Cable News Network, 05 Apr. 2016. Web. 06 Apr. 2016.

Garside, Juliette, Holly Watt, and David Pegg. "The Panama Papers: How the World's Rich and Famous Hide Their Money Offshore." The Guardian. Guardian News and Media, 03 Apr. 2016. Web. 06 Apr. 2016.

Golshan, Tara. "The 8 Most Important Things to Read to Understand the Panama Papers Document Leak." Vox. Vox, 04 Apr. 2016. Web. 06 Apr. 2016.

Karmanau, Yuras. "Ukrainian President Under Fire Over Panama Papers." US News. Associated Press, 04 Apr. 2016. Web. 6 Apr. 2016.

Kroll, Louisa. "Panama Papers Fallout: Iceland's PM Resigns, Ukraine's President Pressured, Billionaire Responds." Forbes. Forbes Magazine, 5 Apr. 2016. Web. 06 Apr. 2016.

Maven, Duncan, and Lionel Laurent. "Banks Have a Panama Problem." Bloomberg.com. Bloomberg, 04 Apr. 2016. Web. 06 Apr. 2016.

Mullen, Jethro. "Panama Papers: Rich and Powerful Respond to Claims They Hid Billions Offshore." CNNMoney. Cable News Network, 04 Apr. 2016. Web. 06 Apr. 2016.

Nelson, Libby, and Zack Beauchamp. "How the Panama Papers Brought down Iceland's Prime Minister." Vox. Vox, 05 Apr. 2016. Web. 06 Apr. 2016.

"Panama Law Firm Says Document Leak 'a Crime'" RTE.ie. AFP, 04 Apr. 2016. Web. 06 Apr. 2016.

"Panama Papers: How Did Panama Become a Tax Haven? - BBC News." BBC News. BBC, 05 Apr. 2016. Web. 06 Apr. 2016.

Politi, Daniel. "The Latest From the Panama Papers: Details From the Largest Leak in History." Slate. Slate.com, 05 Apr. 2016. Web. 06 Apr. 2016.

Ryle, Gerard, Will Fitzgibbon, Mar Cabra, Rigoberto Carvajal, Marina Walker Guevera, Martha M. Hamilton, and Tom Stites. "Banking Giant HSBC Sheltered Murky Cash Linked to Dictators and Arms Dealers." International Consortium of Investigative Journalists. International Consortium of Investigative Journalists, 08 Feb. 2015. Web. 06 Apr. 2016.

Schmidt, Blake. "Panama Papers: A Conversation with Jurgen Mossack and Ramon Fonseca." The Sydney Morning Herald. The Sydney Morning Herald, 05 Apr. 2016. Web. 6 Apr. 2016.

Schmidt, Blake. "Panama Papers: Jurgen Mossack Says the Cat's Out of the Bag." Bloomberg.com. Bloomberg, 04 Apr. 2016. Web. 06 Apr. 2016.

Schmidt, Michael S., and Steven Lee Myers. "Panama Law Firm’s Leaked Files Detail Offshore Accounts Tied to World Leaders." The New York Times. The New York Times, 03 Apr. 2016. Web. 06 Apr. 2016.

"Tricks of the Trade." International Consortium of Investigative Journalists. International Consortium of Investigative Journalists, 05 Nov. 2014. Web. 06 Apr. 2016.

Wayne, Leslie, Kelly Carr, Marina Walker Guevera, Mar Cabra, and Michael Hudson. "Leaked Documents Expose Global Companies' Secret Tax Deals in Luxembourg." International Consortium of Investigative Journalists. International Consortium of Investigative Journalists, 5 Nov. 2014. Web. 06 Apr. 2016.

A Deadly Dance: The Police and the Mentally Ill

by B. Lana Guggenheim

Police brutality against citizens, particularly minorities, has been much discussed these past few years. However, one minority group has been ignored: the mentally ill. Across the USA, and beyond, police are frequently the first responders to situations involving the mentally ill, usually with dire consequences for the latter. Reliable statistics on police interaction are difficult to find, but anywhere from one-tenth to a quarter of all police interactions involve the mentally ill, approximately 15-20% of those in jail suffer mental illness, and about one quarter to one half of those shot by police struggled with mental illness. Estimates are that people with mental illness are sixteen times more likely to be killed by the police. While being ill is not a crime, being mentally ill is often criminalized, and problems involving or associated with people with mental illness often involve police, who are often not properly trained to handle such situations.

It is commonly but inaccurately thought that people with mental illness are likely to be violent or engaged in violent crime. While a small percentage are indeed more violent than the general population, this is not true for the majority. Most people with mental illnesses are not criminals, and of those who are, most are not violent. That these non-violent people in need of help often end up in jail or worse is an avoidable tragedy. After all, nurses and other medical staff are unarmed, unarmored, and they aid mentally ill patients every day, with no fatalities on either side.

Part of the problem is that our gutted health system cannot handle the burden of caring for the people who need it most. Many mental health clinics are closing, leaving their patients without the care they need, and they often end up on the streets as a result. And the top mental health institutions in the nation? They are found inside jails like in New York City’s Riker’s Island, Cook’s County, and Los Angeles County. Because the existing system withholds treatment until a mentally ill person becomes dangerous to themselves or others, police officers are forced to act as the front line in mental health work. Instead of treating the illness, people call the police and if things go relatively well, the ill person is arrested for things like loitering, shoplifting, or public urinating. Too often though, they get shot instead.

Riker's Island Correctional Facility

The lack of services is exacerbated by the lack of training. Many officers are ambivalent about being the front-line of mental health services, seeing it as outside their mandate to protect the safety of the public, and that caring for the mentally ill is properly the mandate of the healthcare system. This attitude is reinforced by the lack of training available to police officers about recognizing mental illness, mental health crisis intervention, and lack of contact or cooperation from mental health and emergency services. Police are trained to respond to criminal threats with shows of force and authority, which can escalate a crisis for a person suffering a breakdown. The resulting injuries and deaths are traumatic both for the officers, but especially for the victim, their friends and family, and the wider community as a whole.

The Washington Post reports that most of the mentally ill killed by police are men, and over half of them white. Most of them died close to home. Often, the police are called by family members who are overwhelmed and worried about their relative’s erratic behavior. For example, Yvonne Mote of Alabama dialed 911 in March of last year hoping the police could help her schizophrenic brother, Shane Watkins. He was shot and killed by police instead. While an average of nine out of ten of the mentally ill confronted by police were armed with some kind of weapon, they were mostly less lethal than firearms, including toy guns, or knives, or even pens. A percentage of these people are military or police veterans suffering PTSD as well. And according to the data maintained by the FBI and other organizations, only three officers have been killed by edged weapons in the past decade. However, of the thousands killed by police over the years, only a few officers have been prosecuted. For example, Dallas police officers John Rogers and Andrew Hutchins were not indicted for killing mentally ill Jason Harrison for holding a screwdriver in Dallas in 2014.

Jason Harrison

Some police departments have changed their policies. One such is the Las Vegas police department, who adopted a use-of-force policy in 2009 that put the highest premium on the “sanctity of human life,” which stresses proportionality as a guiding principle to limit the use of force. Four years in, the police shootings have fallen by nearly half. However, restrictive policies are not a panacea, as while they lead to fewer injuries for officer and civilian alike, they also lead to more crime.

While it is tempting to advocate rebuilding both the law enforcement and healthcare systems from the ground up, it isn’t practical advice. A number of communities have recognized the terrible situation for what it is, and developed programs that foster collaboration between police and mental health service providers, with noticeable success. These programs can take a variety of forms, such as mobile teams of police and mental health professionals to respond to crisis events, reception centers where specially trained officers can address persons suspected of having mental illness, crisis intervention teams, and joint protocols between police and mental health clinics or hospitals. Police are trained to de-escalate a situation and increase meaningful communication, including nonverbal communication skills, such as recognizing body language and active listening, alongside verbal communication skills that focused on tone of voice, portrayed empathy, and establishing rapport, rather than the opposite. It is a drastic shift in culture and behavior of traditional policing.

Mental Health Liaison officer Grant Humerickhouse (right) assists
 training with the Madison Police Department

In communities where such programs have been instituted, such as in Houston, Texas, Memphis, Tennessee, and Akron, Ohio, results of implementing these programs have been positive. Results have included getting those in need access to the support they lack, including crisis centers. Individuals referred to mental health services experienced less frequent contact with the police, and in cases where police transported people in need to crisis centers and hospitals, an increased percentage of those transportations were voluntary rather than involuntary, and family members have reported greater comfort in calling the police to request help for a loved one, as well as openly acknowledge the mental illness of their relative. And the police department incurred fewer costs, including less frequent mobilization of high-cost SWAT teams. Interestingly enough, the average number of mental health calls also tended to increase, but the amount of time spent on each call decreased, along with a decreased use of force. This shows that trained officers were better able to both recognize and handle calls that involved individuals with mental illness.

However, relatively few officers have received crisis intervention training, nor is this policy pursued across the country. Combined with the cutbacks in mental health service, the future of more such collaborations looks shaky. That leaves too many people dangerously vulnerable, with nowhere else to turn.

Images courtesy of Daily Mail, Yelp, and the Madison, Wisconsin Police Department

Works Cited

Cordner, Gary. "Center for Problem-Oriented Policing." Center for Problem-Oriented Policing. SUNY: University at Albany, 2006. Web. 16 Mar. 2016.

Corey, E. Fuller, Dr. "Law Enforcement Interactions with Mentally Ill." Law Enforcement Interactions with Mentally Ill. Mental Illness Policy, 2011. Web. 16 Mar. 2016.

Kindy, Kimberly, Marc Fisher, Julie Tate, and Jennifer Jenkins. "A Year of Reckoning: Police Fatally Shoot Nearly 1,000." Washington Post. The Washington Post, 26 Dec. 2015. Web. 16 Mar. 2016.

King, Shaun. "American Tragedy: At Least 50% of Police Shooting Victims Struggled with Mental Illness." Daily Kos. Daily Kos, 5 Apr. 2015. Web. 16 Mar. 2016.

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Landsberg, Gerald. "Neglected Issues -- Police Killings of the Mentally Ill and the Lack of Police and Mental Health Relations." The Huffington Post. TheHuffingtonPost.com, 14 Apr. 2013. Web. 16 Mar. 2016.

Lennard, Natasha. "Half of People Shot by Police Are Mentally Ill, Investigation Finds." Saloncom RSS. Salon.com, 10 Dec. 2012. Web. 16 Mar. 2016.

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"Mental Health Liaison/Officer Programs." Special Units. City of Madison Police Department, 2015. Web. 16 Mar. 2016.

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Tellier, Stephen. "Officers Push for Increased Mental Health Training Funding after 5 EYEWITNESS NEWS Investigation." KSTP.com. ABC Eyewitness News, 01 Mar. 2016. Web. 16 Mar. 2016.

Watson, Amy C., Melissa Schaefer Morabito, Jeffrey Draine, and Victor Ottati. "Improving Police Response to Persons with Mental Illness: A Multi-level Conceptualization of CIT." International Journal of Law and Psychiatry. U.S. National Library of Medicine, 15 July 2008. Web. 16 Mar. 2016.

Wilonsky, Robert. "Dallas County Grand Jury Declines to Indict Officers Who Killed Man Holding Screwdriver." The Dallas Morning News Crime Blog. The Dallas Morning News, 23 Apr. 2015. Web. 16 Mar. 2016.

Mental Health First Aid

Guest Post by Kristin DiMiceli, LMSW

What would you do if you are walking down the street and see someone fall & potentially break a bone? If you are a considerate human being, you might run over to help them and/or call someone for help. Now think about a situation where you are walking & see someone in emotional distress: leaning over, breathing heavily, crying, & looking a bit disoriented. There are a variety of ways one might respond, but think about your initial feelings when imagining this scenario. One might turn the other way, try to solve the problem, or start to look panic stricken themselves. It doesn’t feel as clear cut as when you are addressing a medical problem, right?

To help solve this problem, the National Council for Behavioral Health (NCBH) started a movement to train people in Mental Health First Aid. This training was first created in Australia in 2001 by a nurse, Betty Kitchener, & a mental health literacy professor, Tony Jorm. It has been adapted in 23 other countries & was started in the United States in 2008. The NCBH has trained over 500,000 people, & is working towards the goal of reaching 1 million people with the help of Congress putting $15 million towards their cause. Their training sessions are conducted all over the United States to address helping adults & youth who may be experiencing emotional distress.

As a Licensed Social Worker working in the mental health field, I feel that this is a very important movement that will not only help people find ways to help those in need mentally, but to also reduce the stigma that is so heavily ingrained in our society regarding mental health. Whether we mean to or not, we tend to shy away from helping those who are in need due to mental health problems. First Aiders are trained to address individuals who may be suicidal, experiencing a panic attack, or using drugs.

With this training, one can at least try to help those in need by pointing them in the right direction using the Mental Health First Aid acronym, ALGEE. It stands for:

1. Assess
2. Listen non-judgmentally
3. Give reassurance and information
4. Encourage appropriate professional help
5. Encourage self-help and other support strategies.     

There is no quick fix in the moment, but at least the individual is being addressed & recognized, as opposed to being ignored. You never know if you might be the catalyst for a more positive path in their life. This Mental Health First Aid training is excellent for a variety of professionals, from police officers to teachers, as well as lay people. You don’t have to be a medical professional to give the Heimlich Maneuver & you don’t have to be a mental health clinician to give Mental Health First Aid.   

For more information and to sign up for training sessions, check out MentalHealthFirstAid.org.

Also, don’t be afraid to call 911 if you feel someone may need to be further evaluated.  Emergency rooms can evaluate individuals if they appear to need to be admitted.

Images courtesy of Shutterstock.