Panama Trade Agreement: Was Tax Evasion The Point All Along?

Dave Johnson

The Bush administration negotiated the Panama free trade agreement without addressing Panama’s bank and corporate secrecy. Panama has little to “trade” with the U.S., so maybe leaving secrecy out of the agreement wasn’t an accident; it was the point. It provided a stamp of legitimacy and protections for “investors” moving their money to Panama.

Panama Trade Agreement

The Panama–United States Trade Promotion Agreement, negotiated by the Bush administration, was finalized by the Obama administration and went into effect in 2012. The U.S. Trade Representative (USTR) website promotes the agreement as removing “barriers to U.S. services, including financial services.” It removed some duties and tariffs on U.S. exports and phased out others, like agricultural goods and technology products. It provided “protections” for U.S. “investors.”

Panama gave up revenue collected on imports. So what did Panama get in exchange? And why did the U.S. really put all that effort into negotiating a special “trade” agreement with one small country?

Warnings

During the debate over the agreement Sen. Bernie Sanders (I-Vt.) pointed out one problem. He began with this question: “No one can legitimately make the claim that approving this free trade agreement will significantly increase American jobs. Then, why would we be considering a stand-alone free trade agreement with Panama, tiny little country?”

Answering his own question, Sanders went on:

“Well, it turns out that Panama is a world leader when it comes to allowing wealthy Americans and large corporations to evade U.S. taxes by stashing their cash in offshore tax havens. And the Panama free trade agreement will make this bad situation much worse. Each and every year, the wealthiest people in our country and the largest corporations evade about $100 billion in U.S. taxes through abusive and illegal offshore tax havens in Panama and in other countries. So, according to Citizens for Tax Justice — and I quote — “A tax haven… has one of three characteristics: It has no income tax or a very low-rate income tax; it has bank secrecy laws; and it has a history of non-cooperation with other countries on exchanging information about tax matters. Panama has all three of those. … They’re probably the worst.”

Panama had “no income tax or a very low-rate income tax; it has bank secrecy laws; and it has a history of non-cooperation with other countries on exchanging information about tax matters.”

Sanders was far from alone with these warnings. At the time Public Citizen wrote of the Panama agreement:

A long list of labor, consumer, environmental, faith, family-farm and other organizations oppose the Panama FTA because of the agreement’s actual NAFTA-replicating terms.

However, the problems with the notion of a U.S. FTA with Panama extend beyond what is contained in the pact’s text. Despite Panama’s status as one of the world’s top venues for tax evasion and money laundering, the FTA does not remedy Panama’s problems with tax evasion and money laundering. In fact, if the Panama FTA were adopted, it would make these matters of bipartisan concern worse.

During the 2012 election, after the agreement went into effect, Public Citizen wrote this about the effects of the agreement:

“…the pact restricts U.S. policies now available to counter tax evasion by U.S. firms and wealthy individuals who move their money to Panama. The pact also empowers firms incorporated in Panama, including offshored U.S. corporations, to use international tribunals to demand U.S. taxpayer compensation over U.S. policies, such as anti-tax-evasion measures, that the firms claim undermine their “reasonable expectations.”

With this treaty, people moving money to Panama would be given special protections. The U.S. government would provide its stamp of approval to a country that helps wealthy people and companies in the U.S. and around the world evade taxation and disguise corporate ownership.

Those were the warnings.

Were Tax Evasion And Corporate Secrecy The Point Of The Panama Agreement?

Ending Panama’s bank and corporate secrecy was not a part of the Bush administration’s “trade” negotiations with Panama. A last-minute “side agreement” with the Obama administration did nothing to fix the problems. The agreement actually restricted the ability to do anything about Panama’s bank and corporate secrecy.

Since this was the main effect of the agreement – regardless of how it was sold to us – maybe that was the point all along.

Lori Wallach, Director of Public Citizen’s Global Trade Watch, writes about this in “Panama, Trade Agreement Promises & The TPP” at The Huffington Post:

An actual review of the data … shows that the FTA seems to have incentivized more tax haven activity in Panama, not less.

… the [Panama Papers] firm increased its use of Panama to shelter its clients’ assets at the very time that the trade pact talks were gearing up. … the firm began to shift to Panama as a prime tax haven venue in 2003, the year the Bush administration notified Congress it intended to start FTA negotiations. By the time talks were formally launched in 2004, the firm’s use of Panama had doubled. When the pact was concluded in 2006, the Panama number had tripled.

Wallach explains how the free trade agreement (FTA) with Panama consolidated that country’s position as a place for the wealthy and corporations to go to evade taxes and transparency:

The standard U.S. FTA model forbids limits on inflows or outflows of capital, providing security for those seeking to stash funds offshore. It also provides additional foreign investor protections that have been interpreted to require signatories to compensate an investor if the government changes policies, for instance its secrecy and tax haven laws, on which investors relied in making investments.

Tax evasion and corporate secrecy, maybe that was the point all along.

It is time to reform our country’s entire trade policy process. The result of our trade policies so far are tax evasion; jobs shipped out of the country; companies empowered to threaten workers with moving their jobs out of the country, too, if they ask for raises and benefits; corporations granted special courts with which to overrule regulations and protections …

So far it looks like the point of the whole game is helping the wealthy and corporations evade the borders of our democracy. So far it looks like maybe that was the point all along.

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