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April 29 - New Report: Panama FTA Would Undermine U.S. Efforts to Stop Offshore Tax-Haven Abuse and Regulate Risky Financial Conduct

Trade Deal Would Leave Tax Shelters for AIG and Narcotraffickers Intact While Removing Existing U.S. Tools to Combat Tax Evasion and Other Financial Crimes


WASHINGTON, D.C. – President Obama's ability to deliver on his campaign commitments to close tax loopholes that promote offshoring and re-regulate the financial sector would be dealt a sharp blow if the U.S.-Panama Free Trade Agreement (FTA) is passed, according to a Public Citizen report released today (PDF).

The new report details how Panama explicitly created an industrial policy designed to create a "comparative advantage" in tax-evasion and money-laundering services for entities such as the bailed-out American International Group (AIG) and Mexican and Colombian narcotraffickers. The report also examines how specific FTA rules would remove key policy tools – such as limitations on transfers from tax-haven countries that are used to combat financial crimes – and would also conflict with U.S. government efforts to combat the global economic crisis by re-regulating finance. "Members of Congress wouldn't vote to let AIG not pay its taxes or to give Mexican drug lords a safe place to hide their proceeds from selling drugs to our kids, but that's in essence what the Panama FTA does," said Lori Wallach, director of Public Citizen's Global Trade Watch division. "The Obama administration has discarded or altered many leftover Bush initiatives, so why would it push a Bush trade pact that directly conflicts with its priority campaign goals of closing tax loopholes and regulating finance?"

The Panama deal, negotiated by the Bush administration, is modeled on the controversial North American Free Trade Agreement (NAFTA) template. It includes the controversial private "investor-state" enforcement system, which would give new powers to hundreds of thousands of private investors from around the world that are registered and have operations in Panama. This includes the right to challenge U.S. anti-tax haven policies and financial service regulations in foreign tribunals to demand taxpayer-funded compensation.

Among the key findings:

  • Some of the largest recipients of U.S. federal procurement contracts and money under the Troubled Asset Relief Program – including Citigroup and AIG – have a combined dozens of subsidiaries in Panama that would be empowered with expansive new rights if the FTA is implemented. These firms have been among the top advocates for the Panama FTA;
  • Panama is one of only 13 countries – and the only current or prospective FTA partner – that is listed on all of the major tax-haven watchdog lists that also does not have U.S. tax transparency treaties.
  • In the face of recent pressure to reform related to the G-20 Financial Crisis summit process, Panama wrote to the Organisation of Economic Cooperation and Development (OECD) defiantly outlining its refusal to adopt key reforms, such as lifting the veil of secrecy on beneficial ownership of bank accounts and automatic exchange of tax information;
  • The April 2009 OECD tax-haven watch-list includes Panama among 30 countries that agreed to conform to international tax norms but failed to do so. Indeed, the OECD report notes that Panama made its commitment in 2002 and since has completed not a single agreement to implement its promise. In contrast, other countries on the list have completed as many as eight compliance agreements – which is still not adequate to be taken off this list.
  • According to the U.S. Department of Justice and other entities, Panama is also a major financial conduit for Mexican and Colombian narcotraffickers' money laundering activities;
  • According to the U.S. State Department, Panama has more than 350,000 foreign-registered companies, all of which face low to no taxes and regulation. This high rate of foreign incorporation – Panama is reportedly second only to Hong Kong – makes the country a magnet for tax evasion. According to a Panamanian law firm's advertisement touting Panama's lax standards: "Even Switzerland cooperates on income tax cases if the return is filed falsely like all income was not declared, things were omitted or so the complaining government says. Belize has tax treaties, as do most of the so-called 'tax havens.' There is no better jurisdiction than Panama today!!!!!!!"
Continue reading the full press release, or download the full report (both PDFs).


Posted: 4/29/2009

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