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Mossack Fonseca did not create 214,000 companies only for their Panamanian customers. Cross-border mentality is integral to tax evasion, avoidance and other forms of illicit financial activity: concealing money from your own authorities almost always involves transferring it over any number of borders to secrecy jurisdictions and eventually back to your own pocket. Mossack Fonseca’s customers came from all over the world but even if the legal practice was (in)famous for its ability to alleviate tax liabilities, its customers didn’t flock in by themselves. It was other lawyers, investment bankers and the like who connected the buyer and seller. The Panama Papers data gives you an idea where these customers and their middlemen are from: Hong Kong, Switzerland, the UK and Luxembourg all had more active intermediaries working with Mossack Fonseca than Panama, or any other country in the Americas. The success of Mossack Fonseca was not caused by the lack of oversight of Panamanian regulators, even though it had its part to play in the equation as well. This particular Panamanian legal practice was just one node of a wide network of actors who together weaved the web of offshore secrecy. The data shows that the search for the other nodes is best started in Europe.

Naturally, Panama Papers populated the headlines of European newspapers and with public pressure mounting, the European Union had to respond to the revelations as well. The bloc’s legislative proposal for new rules to rein in tax abuse and money laundering came in early July. In many ways, it continued the initiatives against tax avoidance taken earlier this year: Taxation has been high on the agenda of the current European Commission, not least because its leader Jean-Claude Juncker’s prominent role in favorable tax rulings for big multinationals was revealed in a huge tax-related scandal (nick-named LuxLeaks) just after the Commission had taken office. Besides proposing changes to internal rules, the Commission and other European institutions have been calling for international solutions and cross-border collaboration to tackle both tax avoidance and evasion. Considering the sprawling web of intermediaries, this seems to be a sensible approach. However, a closer look at the proposed policies shows that the European idea of cross-border action follows two separate tracks: While strengthened cooperation and information sharing is envisaged between the EU and perhaps other OECD countries, the rest of the world is offered more sticks than carrots.

Carrots for followers

The EU often holds back from taking significant steps to curtail financial secrecy by explaining that Europe should not outpace international consensus on the issue. The roadmaps and recommendations for these international efforts come from the OECD and FATF/GAFI (the Financial Action Task Force, a standard setter on anti-money laundering and anti-terrorism financing that shares offices with the OECD in Paris). Both bodies’ membership comprises predominantly rich countries, with European countries forming majorities. The “international” consensus is crafted by the most powerful countries in the world.


In the past few years, automatic exchange of information (AEoI) has gained prominence within this consensus. After the OECD facilitated an agreement to exchange financial account information between jurisdictions, a similar approach was taken with the biggest multinational companies’ country-by-country reports in the BEPS process, again conceived under the auspices of the OECD. It was rather unsurprising that the first response to Panama Papers by Germany, France, the UK, Italy and Spain (countries having both EU and G20 memberships) was the announcement of plans to create an automatic exchange platform for information on beneficial owners (BOs) of companies. The rest of the EU quickly endorsed this, notwithstanding the fact that they had agreed a year earlier to set up national, centralised BO registers that could be made public, providing information instantaneously to citizens and governments alike.


Exchanging information makes some wiser, but not all.  Only countries adhering to the “international” rules can hope to receive information from others. This divides countries into two groups, the information haves and have-nots. While the former will be in a stronger position to combat the avoidance and evasion of their domestic taxes, the latter will be left in the dark. At the same time it creates powerful incentives for countries who are not members of the OECD, FATF or the EU to endorse their initiatives just to get into the information loop. This is exactly what has happened with the OECD and its BEPS project: the new Inclusive Framework invites non-member countries to the table right after the decisions have been made.

Sticks for outsiders

On top of not being part of the information sharing systems, some of the countries not abiding by the OECD and FATF recommendations are put on EU blacklists. During the first half of 2016 the European Commission has proposed drawing up two blacklists: one in the Anti-Tax Avoidance Package and the second as a part of the response to Panama Papers. While both of these lists are yet to be published, the Commission has stated that the latter blacklist reflects closely an FATF list of high risk countries regarding money laundering and terrorist financing. Strikingly, none of the jurisdictions prominent in the Panama Papers appear in the FATF list (including Panama), and none of the countries on the FATF list appear prominently in the Panama Papers. On top of that it is highly unlikely that the EU would blacklist its own members or close allies such as the US and Switzerland, regardless of whether they follow the OECD and FATF rules or not.

Transparency instead of information exchange

To avoid the pitfalls of AEoI, all countries (including the EU) should strive for transparency. This is especially the case with BO information: It should be open to public, not something traded in secret between government authorities. One obvious response to Panama Papers is to create public registries of BOs in an open data format, and the European Commission is waking up to this fact. In July it proposed public registries for BOs of companies but did not go so far with all trusts and similar legal arrangements. It remains to be seen whether the member states are willing to concede to this partial increase of financial transparency. As long as companies or trusts set up under EU laws are used in tax evasion and/or money laundering schemes somewhere in the world, the EU is enabling criminals to enjoy their ill-gotten gains.

Looking at the mirror

The Panama Papers made it loud and clear that the EU regulatory measures against tax evasion are not sufficient. Before the EU can wield the stick it needs to put its own house in order and do something about the admissive culture for tax evasion and avoidance it nurtures. Most of Mossack Fonseca’s clients and their intermediaries have just shrugged their shoulders and stated that none of their actions were illegal per se. The EU has to strengthen its rules for intermediaries offering tax evasion schemes and for customers using them. While the Panama Papers has not led to confirmative action, the next big revelation should amount to adequate sanctions to those who set up the tax evasion structures.


To conclude, there is a great deal that the EU and its member states should do before they can go cast stones at other jurisdictions. Beneficial owners of European companies, trusts and other legal arrangements should be public and not exchanged with a certain set of countries, and this should be the goal when it comes to multinational company reporting as well. The EU should crack down on European nodes of secrecy structures and on the admissive culture of aggressive tax planning in general. Last but not least, the focus should shift from the sources of illicit money to its destinations. Money launderers have invested heavily in the real estate markets in European capitals. Also luxury goods are in high demand for those who want to wash their assets clean, and four of the seven biggest luxury goods markets are located in the EU. Even after scoops about several dictators and their prodigies having bought flats in London and Paris and that, e.g., the former President of Tunisia and his family spent hundreds of millions of dollars on luxury goods, it is still possible to buy both real estate and luxury cars and yachts anonymously without explaining the origin of the money spent. Europeans would do more good by closing down these huge laundromats for corrupt individuals and large scale criminals than by pointing fingers at other countries for not playing by their rules.


Henri Makkonen is based in Brussels where he works as the EU Advocacy Advisor for the Financial Transparency Coalition. His work focuses on the EU legislation of financial transparency and anti-money laundering rules.


This appears in Spanish in ALAI’s magazine América Latina en Movimiento (No 516, August 2016) titled “El laberinto de la evasión fiscal” (the Labyrinth of tax evasión) – a coedition ALAI-Latindadd.



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