April 15 - To Clean Up Tax Havens, Panama Must Go Beyond "Swiss Cheese"
Public Citizen Memo for Reporters
Tax havens such as Panama came under intense scrutiny at the G-20 summit last week as the Organisation for Economic Cooperation and Development (OECD) issued a new tax-haven list, including Panama among 30 target countries that agreed to adopt international tax norms years ago but failed to do so. Focus on Panama's tax-haven and money-laundering problems intensified in March when U.S. Trade Representative Ron Kirk suggested at his confirmation hearing that the administration might consider bringing to Congress a controversial Bush-negotiated free trade agreement (FTA) with Panama.
The G-20 London Summit Communiqué committed "to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list..."
Unfortunately, it would be predictable for Panamanian officials to attempt to sidestep the issue by imitating the recent announcements by the tax-haven nations of Andorra, Liechtenstein and Switzerland (ALS) that they will address certain tax and banking transparency concerns. Why would Panama, a country whose comparative advantage is providing a haven for foreign firms to avoid taxes, consider such an announcement? Because the plans that the other three secrecy jurisdictions rolled out are far from adequate, full of loopholes, and do not represent a meaningful way forward for them – or for Panama (more on that below). Thus, Panama could try to quell the growing controversy without making serious changes to its excessive banking secrecy and policies that waive taxes for foreign firms.
And controversy about Panama's tax-haven practices was already heating up before the G-20 thanks to a recent New York Times story describing the attempts by bailed out insurance firm AIG to obtain repayment of $306 million in U.S. taxes related to activities of an AIG-affiliated Panamanian corporation, Starr International Company Inc (SICO). AIG's U.S. court filings include demands to retroactively deduct from its taxable U.S. income a stream of cash payments and shares of AIG stock paid as compensation to its employees by the Panama-registered corporation acting on its behalf. The chairman of the Panamanian firm in question, SICO, is Maurice "Hank" Greenberg, the former head of AIG. SICO is AIG's largest private shareholder and an erstwhile provider of reinsurance and other services to AIG, and operated a compensation pool for AIG's top staff, according to press reports.
So, it would be expected that Panama would seek a way to get the spotlight off of its tax-haven problem. And agreeing to what Andorra, Liechtenstein and Switzerland just announced would be a painless – and meaningless – way to do so.
Continue reading the full memo (PDF).