How to Blag Your Way Through the Panama Papers

This piece was made possible by Sony Pictures.

by Jack Blocker, Illustration: Dan Freeman
20 May 2016, 5:11am

This piece was made possible by Sony Pictures

Following the release of the Panama Papers last month, thousands took to the streets of London to call for the UK Prime Minister's resignation. For once, David Cameron's genetics had hindered his career: he was now implicated in a network of taxation trickery due to his connection to an offshore account originally set up by his father, Ian Cameron.

And so the people marched.

They marched in Hawaiian shirts, in a nod to the exotic locales where rich people hide their money; They marched in Panama hats and they marched in Bermuda shorts. They stomped around Downing Street and demanded that David step down. A few of them even donned rubber pig masks, in reference to the PM's alleged dalliance with a spit-roasted porcine pal at university.

Yet while the idea of the Prime Minister in flagrante with a farm animal may be tremendous banter, it was overshadowed on the day by the protest's primary grievance: The Prime Minister had supposedly broken his social contract. He'd shown that, yes, there is one rule for the elite and another for regular pond-scum like you and me; and while we strive to fund our crumbling public services with the taxes deducted from our pathetic wages, Dave diverts his cash through a daisy chain of complicated loopholes and dodgy jurisdictions – just like Putin, just like the Prime Minister of Iceland, and just like the thousands of faceless bankers who drove the global economy into the ground in 2008.

Or so we'd like to think. In reality, Dave has so far done nothing illegal. He's not going the way of Bernie Madoff any time soon. As the world's most famous white collar criminal reportedly once said, "Anyone who is anyone has a good accountant who sets him up a shell corporation and stashes his money in an offshore account. And why shouldn't they? It's perfectly legal."

While he may be doing 100-plus years of time, Bernie was kind of right. But if you have no idea why, here's a bluffer's guide to offshore accounts, tax loopholes and how all the rich guys get away with it.


Since the release of the Panama Papers, there's been a lot of discussion about the difference between tax evasion and tax avoidance. Put simply, avoidance is legal and evasion is not.

According to Alex Cobham, Research Director at Tax Justice Network, a global organisation fighting for tax transparency, the difference comes down to this: "In practice, avoidance shouldn't involve hiding information from the tax authorities. What you're doing is presenting an interpretation of a particular structure that you've created, and arguing that within the rules your tax liability is less than the authorities might have otherwise thought."

For example, over 50,000 New York City households paid zero income tax in 2013, despite taking $1.8 billion in capital gains, dividends, interest and wages. Wait, what? According to Doug Turetsky, the chief of staff for the city's budget office, these people "know how to find and use tax shelters to generate paper losses." If you have no idea what that means, you're not alone. But in short, a tax shelter is usually seen as a property or business that fails to appreciate in value or generate a profit, meaning the owner does not have to pay tax on it. If you're extremely rich, you probably have a few properties or businesses, so you can pick the crappiest one and declare your earnings against that. Boom. No income tax – and it's all completely legal.

Evasion, on the other hand, "involves pretending that you're doing something you're not," like "claiming that you don't own a company or a bank account that you do own." One champion of flagrant tax evasion was my man, all-American hero, Blade himself, Wesley Snipes. Back in the 90s, Wesley failed to file his tax return for several years in a row, despite making millions of dollars off movies like White Men Can't Jump, Demolition Man and To Wong Foo, Thanks for Everything! Julie Newmar. Some joke he wrote "$0" on his form, when he was supposed to write "$50,000,000". Others claimed he declared he was a non-resident alien, despite being born in the USA. Whatever the case, Snipes was convicted of tax fraud and sentenced to three years in prison.


Well, outside of the dictionary, the word "legal" is open to many interpretations, meaning the practise of "avoidance" can get within a gnat's pube of "evasion", shitting all over the man on the street's sense of morality and fairness.

As Cobham says, "Every day, in courts all over the world, there is one set of lawyers arguing that a particular thing was declared and is a legitimate avoidance technique, and the other side is arguing it involves a degree of misrepresentation and evasion. And every day a judge decides that one of these sets of lawyers is right and one is wrong."

That's why when it comes to taxation, Cobham argues that "there's an enormous grey area."

And that grey area becomes even murkier if it's established away from Wall St or The City.


Having an account offshore isn't actually problematic. As Cobham points out, "Everywhere is offshore to somewhere else." However, when you have a Swiss bank account owned by a Panamanian company headed by a guy who has the same name as your pomeranian, the Harry Redknapp "I write like a two-year-old and can't spell" defence becomes a little less plausible.

The fact is, if you're going to such lengths to stash your cash, you've probably got something to hide. A husband doesn't buy milk at 4AM unless he's heading to the local brothel, just as a billionaire doesn't invest in a banana republic unless he's dodging an enormous tax bill in his own country. "It's bad for society," Cobham tells me. "It's the process, not of being offshore, but of using and abusing secrecy in preference to more transparent alternatives. In short, it's because the people involved "have something to hide."

And don't you dare start to think that these tax havens only exist on tropical isles. Some of the biggest corporations in the world share a legal address in an unassuming office building in Wilmington, Delaware. That's right, Delaware: The first state to ratify the Constitution; land of Joe Biden; and the home to some of the friendliest corporate tax laws in the world. Even friendlier than the Cayman Islands, according to some.

So what can be done to stop these havens from popping up in these offshore jurisdictions? Cobham says we need to set up public registers that will compel these jurisdictions to agree to "the automatic exchange of tax information." Though given the complex nature of federalism, this probably won't happen in Delaware.


Yes. Once full investigations have been conducted, we'll probably see a lot of rich and powerful people in cuffs due to the Panama Papers. For example, we already know the documents detail the laundering of assets related to a powerful Mexican drug ring, so whoever's implicated in that will probably be muy triste once the judge overseeing the case bangs his gavel for the last time.

Away from the Panama Papers, connections to tax havens have historically resulted in a lot of rich people having a very bad time indeed. As previously mentioned, Ponzi schemer extraordinaire Bernie Madoff held money in a number of shady jurisdictions, and he was hit with a 150 year sentence.

Similarly, 1980s corporate raider Paul Bilzerian, who did time for securities fraud, hid most of his money in offshore havens. However, the conviction hasn't seemed to hamper him too much, especially if you're one of the people who believes he's funding his son's notorious, internet-famous lifestyle.

On a much more enormous scale, former Greek Prime Minister George Papandreou reckons the country could have avoided a bailout were it not for the $21 trillion (his figure, not ours) stashed away in tax havens around the world. They could have really done with swerving that one, seeing as they're currently experiencing one of the gravest financial crises of the 21st Century.


Not a lot. Except for a huge sense of shame and a deeply entrenched feeling of distrust emanating from the public he governs. But when you've already survived #piggate, that doesn't seem like such a big deal. "It's embarrassing for Cameron," Cobham argues. "But as far as we can tell the payments he received and his declarations to tax authorities were all above board. Where I think he was wrong was in saying that his father's company was not set up for tax avoidance."


Iceland's Prime Minister, Sigmundur Davíð Gunnlaugsson, has already stepped down from his post after the Panama Papers revealed that he and his family had allegedly hidden away millions in offshore accounts. He made the decision after a string of public protests; the kind of civil action that worries some politicians, but will have absolutely no effect on those made of sterner stuff. Like everyone's favourite recreational sports-loving authoritarian leader, Vladimir Putin, who was also implicated in the leak.

I doubt any unrest will cause Val to relinquish his role. And even if Interpol show up for a "quick chat", I struggle to see how the KGB will allow them to swing by the Kremlin and/or live to tell the tale.

As for Barack Obama's relationship to shady offshore accounts? There isn't one. Barack is chill. Barack is closing out his term with his finances all above board. And that kind of economic transparency is sure to continue if the world's greatest negotiator succeeds him. Terrific.


Since the release of the Panama Papers, the world is asking a lot of questions. Will global leaders continue to hide their riches in offshore accounts? Will island jurisdictions continue to operate as unregulated piggy banks? Will the world see more Jordan Belforts, more Paul Bilzerians and more dodgy funds tied to the people who govern our lives?

Unfortunately, yes, it probably will. However, it does seem as if the tide is turning. Although the protest I mentioned earlier might not have achieved much, it did suggest that we're mad as hell, and we're not going to take it any more, or something. As Cobham stresses, "This is a moment of accountability, rather than outright criminality. The anger of the public is about a wider sense of the elite stepping outside of the rules which the rest of us are expected to comply with every day."

But haven't we heard this all before? Has this anger not simmered to the surface in years past, only to fizzle out when another newsworthy crisis swallows it up? From the Occupy protests to this month's calls for Cameron to resign, financial treachery by the powers that be has enraged us no end. The housing market has crashed and we've endured a great recession, and yet the suits who orchestrated it still managed to squirrel their money away thanks to a complex network tax havens and legal loopholes. The British Prime Minister inherited half a million off his parents. Putin is rumoured to be richer than God and he's dating Wendi Deng. As it is, some say the system is broken. Perhaps it's broken to a point where it can't be fixed?

Cobham doesn't think so. "My feeling is we are actually going to see the biggest shift that there's ever been, because I don't think that the anger is going away. People are demanding a real stand for transparency now.

"Politicians will drag their feet but we're going to get there in two or three years."

I guess we'll just have to wait and see.

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