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A funny thing happened on the way to banking transparency in Panama

Mubarak Family Takes Advantage of Bank Secrecy in Panama

The entire world has focused on the inspiring and peaceful revolution in Egypt that pushed the Hosni Mubarak regime from power. One of the primary tasks that Egyptians will face in the coming months is tracking what if any wealth the Mubarak regime stashed abroad. As the New York Times reported,

As attention turns to tracking the Mubaraks’ purported wealth, rumors of vast real estate holdings by the family have swirled. But the only property outside of Egypt that has emerged is the London townhouse at 28 Wilton Place in Knightsbridge where Gamal Mubarak lived when he was an investment banker there.

But determining the precise ownership of the house shows why investigating the family’s wealth is complicated. A woman answering the front door of the house said the Mubaraks had sold it, but property agents said there was no record of a sale, and neighbors said they had seen Gamal Mubarak and his family entering it several times recently.

According to British records, the home is owned by a company called Ocral Enterprises of Panama. The registered agent for the company in Panama is a local law firm. A lawyer at the firm said that he could not reveal Ocral’s owner. The lawyer said his firm received its instructions regarding Ocral from a company in Muscat, Oman, which he declined to identify.

Though Swiss banks have begun the search for Mubarak family assets, experts said any money would be returned to Egypt only if its new government formally demanded them.

“Egypt has to run a criminal investigation,” said Daniel Thelesklaf, director of the International Center for Asset Recovery in Switzerland. “A lot will depend on the new Egyptian government.”

As we've discussed often on the blog, Panama is ground zero for rich individuals and corporations looking to avoid taxes and regulation. Despite overwhelming international attention on the tax haven abuses in Panama, the country has responded by threatening WTO action on any country that tries to target the abuses, and then slow-walked any micro-reforms. Thus, instead of getting rid of the bearer shares that allow drug traffickers to launder money, Panama has bragged that it has merely set in place a lesser untested solution that some records be kept on owners.

The grand "compromise" brokered by Treasury Secretary Tim Geithner (and intended to jumpstart the talks on a U.S.-Panama trade deal that was delayed when Congress started asking questions about Panama's tax practices) was to get Panama to sign a so-called Tax Information Exchange Agreement and "understanding". But the deal does not require Panama to automatically share tax information, and instead forces regulators to jump through tons of hoops on investigations that are already far along. (Good luck having the enforcement capacity for that during a time of budget austerity and cuts.)

Moreover, the deal is full of loopholes, like allowing Panama to dodge a U.S. request for tax information if fulfilling the request "would be contrary to the public policy" of Panama. Since Panama's public policy is to attract foreign monies through low to non existent regulations, the TIEA seems likely to give Panama substantial room to be uncooperative.

And not to mention that, unlike the U.S.-Panama FTA, there's no meaningful enforcement regime with the TIEA. Say Congress or the public pushed the administration to block financial transfers to and from Panama until Panama started disclosing the assets of corrupt dictators. Any Panama-registered investor that didn't like the action could force the U.S. into international arbitration, where U.S. taxpayers might have to actually cough up money to the regulation-dodger. In contrast, the "soft law" of the TIEA is all based on genteel requests, and contains no enforcement mechanisms.

This corresponds to a broader problem in international law, documented in a recent academic journal issue: when it comes to measures to build economic stability or enforce transparency (like minimum capital requirements or tax transparency), governments opt for unenforceable mechanisms. But when it comes to measures that get in the way of company profits, we opt for mechanisms (like FTAs) that are not only strongly enforceable, but which companies can themselves directly enforce.

Double standards like this bode poorly for the ability of democracy activists everywhere to push for accountability from those who govern them.

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