Clinton's Pro-Free Trade Policies Lead to Wider Illegal Money Laundering in Panama

In 2011, President Obama and Hillary Clinton, then Secretary of State, sold the U.S./Panama Free Trade Agreement as a fix for Panama's secret tax haven and money laundering operations. Obama asserted at the time: "Thanks to the leadership of President Martinelli, there have been a range of significant reforms in banking and taxation in Panama. And we are confident now that a free trade agreement would be good for our country."

Last week, President Obama appeared to be singing a different tune. Obama said that activities like those exposed by the release of the eleven million plus Panama Papers were a result of poorly designed laws. However, some analysts say that the relevant regulations were not exactly poorly designed, but were skillfully concocted to facilitate certain privileged interests.

Lori Wallach, director of Public Citizen's Global Trade Watch, said this week that the Panama Papers show, once again, how entirely cynical and meaningless are American presidents' and corporate boosters' lavish promises of economic benefits and policy reforms from trade agreements.

Dennis Bernstein: Lori Wallach, you actually say that those actions in 2011, strongly supported by Obama and Secretary of State Hillary Clinton, made it safer and easier to launder money?

Lori Wallach: Absolutely. It's important for listeners to understand the history of Panama and how outrageous it would have been for the United States to even contemplate a free trade agreement with the country. In the 1970s the Omar Torrijos dictatorship was eager to pursue a new industrial policy. All they had were some banana exports. And so he literally recruits some University of Chicago-trained economists to come down to Panama and design laws that can make the country's comparative advantage a financial crime. They take the Swiss version of banking secrecy, and they cook up what are called "bearer" shares stock certificates, where the corporate entity is issued paper. So I can subscribe as a lawyer as the official owner of those shares and now I sell them to whomever. And they are never tracked. The tracks are not tracked. So whoever has the paper is actually in charge of the companies, so you have no idea what the company is.

And then they have a dual taxation system, where all of these foreign, fake, double-hidden companies can have secret banking and secret ownership, plus there are foreign registered companies that are subject to no reporting, no taxation, in no country or any place else. And that designed program was what we were saying to the Bush administration that the free trade agreements were. Not surprisingly, the majority in Congress in 2009 said, "We're not going to pass that, that's ridiculous."

So the Obama administration came in and instead of actually setting out to fix the Panama disaster, and actually make some demands of Panama about really changing things, they set out on a mission to figure out what to do to pass this free trade agreement. They did a lot of talk and not a lot of action and ultimately had a list of important improvements, as President Obama said, that now made it worthwhile to pass the agreement.

Meanwhile the agreement itself makes it safer and easier for particular U.S. companies to use Panama to hide their money from taxation, to basically obscure who owns what. And the specific rules are Chapter 9 of that agreement. You can see that online at tradewatch@ustr.gov in the investment chapter. It guarantees things like inflows and outflows of capital without limitation. Compensation from the government of any policies that an investor relied on to make an investment were changed, i.e., incentives not to clean up any of those criminal laws that drive the investments. And, moreover, compensation from the government if anything happens with your money, against the rights given in the agreement.

That provision serves like a risk-free insurance to offshore your money to Panama. So the chickens have now come home to roost, with the Panama Papers. Because you can see, number one, nothing's changed and number two, the extent of the criminality.

DB: Well, just help us understand the extent of the criminality referenced in these papers. And it's just beginning to unfold. We haven't heard a lot about the U.S., and I'm going to ask you about that in a moment. Explain how people use this stuff and how it works against us common folk.

Wallach: Well, there are a couple of different things that happened. There are legitimate U.S. businesses creating offshore tax haven shells to move money through and have profits earned through the companies that are incorporated in those shells, just to simply avoid taxes, and avoid paying their fair share. That's the least nefarious. There are individuals who hide income and assets by creating various shell corporations that become the earners of assets that would otherwise be subject to U.S. taxation.

But then there's the even more nefarious stuff. Panama is the financial nerve center for Colombian narco-traffickers and paramilitaries. They pass freely across the unguarded border between the two countries. And because they can very easily register a foreign subsidiary in someone else's name " you have Pablo Escobar, who is actually holding the paper for some of these bearer shares. The first time it gets registered, whoever is the first issue, could be a Panamanian lawyer who gives it to whomever. And then the entity suddenly can be doing banking in secrecy.

There are so many layers of non-transparency. That's a great place for money laundering. It's a great place to basically wash money. When the FTA was put into place there were somewhere between 350,000 and 400,000 offshore corporations, which is the highest number of subsidiaries of foreign investors outside of Hong Kong.

DB: Say a little bit more about what these corporations are doing in Panama.

Wallach: Some of them were doing some of the run of the mill tax evasion. Some of them were laundering drug money, weapons running money. There was a period where people thought there was a lot of terrorism-related money getting washed through Panama. And that is the country where, like the TPP we now face, promises of "Oh, if we do a trade agreement, that's all gonna get cleaned up, and this is our leverage." And you're hearing the same kind of thing about Malaysia and their horrible human trafficking and human rights abuses. Or Bruni, and their policy of stoning to death single mothers and gay people. "So this agreement is going to fix those things, don't you worry."