Panama Papers Expose Another Way Our Trade Agreements Fail Us

Before the Panama trade agreement was approved, individuals, organizations and even politicians warned repeatedly that the agreement would enhance the ability of corporations and individuals to hide wealth and taxable income from governments and criminal investigators.

In 2011, Vermont Senator Bernie Sanders, for example, gave a speech on the Senate floor opposing the trade agreement, warning that Panama's entire economic output at the time was obviously too low to be of any benefit to American workers. "Then why would we be considering a stand-alone free-trade agreement with Panama?" Sanders said the real reason for the agreement is that "Panama is a world leader when it comes to allowing wealthy Americans and large corporations to evade taxes." He said it "will make this bad situation much worse."

To show how Panama enables people and corporations to hide behind corporate secrecy, an intern at Public Citizens set up her own personal Panama shell corporation. Here's what The Huffington Post's Arthur Delaney wrote about this:

"It's so easy for U.S. corporations to set up an offshore tax haven in Panama, an intern could do it. Really! To make this point, Public Citizen's Global Trade Watch division had one of its interns call up some Panamanian law firms for advice on starting up a shell company.

"'Panamanian corporations basically pay no taxes on foreign-derived income,' one man explained to the intern, Jessica. Another said: 'You're protected by the strictest banking secrecy laws in the world,' thereby 'totally removing you from the legal trail.'"

Public Citizen was warning that the Panama Free Trade Agreement (FTA) did not fight and in fact further enabled the secrecy:

"'It would give investors registered in Panama new rights to challenge U.S. anti-tax haven regulations and other initiatives for taxpayer-funded compensation,' said Todd Tucker, research director for Public Citizen's Global Trade Watch division, in an interview with The Huffington Post.

"Tucker said that the Panama FTA would compromise the Obama administration's recently-announced crackdown on tax havens, which the president said would save $210 billion over the next decade. (A 2008 Senate report estimated that the U.S. loses $100 billion to tax havens every year.)"

With so many groups and individuals warning that the Panama agreement would boost the ability of people and corporations to dodge U.S. taxes using subsidiary shell corporations and secret bank accounts, the Obama administration announced in 2010 a "Tax Information Exchange Agreement with Panama." This agreement had a loophole letting Panama set aside tax transparency provisions if Panama decides they are "contrary to the public policy" of Panama. Of course, Panama invoked the loophole because so much of Panama's income comes from bank secrecy, tax-free status and the ability to set up anonymous Panama shell corporations.

This week Public Citizen's Lori Wallach issued a statement on the revelations in The Panama Papers:

"Nearly five years after the U.S.-Panama Free Trade Agreement (FTA) vote, the Panama Paper leak proves once again how entirely cynical and meaningless are the American presidents' and corporate boosters' lavish promises of economic benefits and policy reforms from trade agreements. The top promise about the benefit of the U.S.-Panama FTA was that it would end Panama's financial crime secrecy protections and tax haven and money laundering activities, but what this leak shows is that, if anything, Panama's outrageous financial crime facilitation has intensified while the FTA's investor protections and official U.S. stamp of approval have increased inflows of dirty money to Panama."

Our Isaiah J. Poole writes, in "Panama Papers Controversy Offers An Opportunity To Push For Transparency":

"The silver lining in the Panama Papers scandal is that the world's attention is being focused on a global problem in which the wealthy and powerful act beyond the reach of law, playing by a different set of rules from the rest of us. The United States does not have to go it alone in addressing this problem. But our elected officials, and the people running to be our next president, should lead. Supporting legislation that supports more transparency would be a start."

Countries that allow banking secrecy, the formation of anonymous shell corporations and tax-haven status should be considered rogue, outlaw countries. There should be international sanctions against individuals and corporations that do any business with such countries. There certainly should not be "free trade" agreements with such countries.

Harmonizing international tax law and prohibiting anonymous shell corporations should be at the center of our trade negotiations. Unfortunately, our corporate/billionaire-dominated trade process appears to have worked toward just the opposite. We the People and all of trade's stakeholders -- labor, consumer, human rights, environmental, democracy and other such groups -- need to have seats alongside our businesses and government representatives at the trade negotiating table.