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Panama Papers: Rich Americans Used Law Firm To Evade Tax Laws Too

Though the initial stories on the massive leak of documents from Panamanian law firm Mossack Fonseca—popularly known as the Panama Papers—focused on non-American political and economic figures, continued investigations and reporting have revealed some noteworthy American clients.

On Sunday, The New York Times published a story linking Mossack Fonseca to rich Americans looking to game or possibly violate US tax laws. Those cited include hedge fund manager William Ponsoldt and former Citigroup CEO Sanford Weill.

It looks as though American clients used Mossack Fonseca’s services to hide assets under another name for non-specified purposes in some cases, though based on correspondence reviewed by the Times it also is clear gaming, if not cheating the US tax code, was a primary objective.

In the case of the Ponsoldt family, it seems rather clear that the point of using the Panamanian firm and its connections to offshore banks was to avoid gift taxes, with William Ponsoldt’s son, Christopher Ponsoldt, receiving a “pre-inheritance distribution.”

“Please notify me when the money is deposited in American dollars,” Christopher Ponsoldt wrote to the law firm a few months after his father’s accounts had been set up and $800,000 was in the process of being transferred to another offshore account Christopher Ponsoldt controlled via the firm. “I want to have U.S. dollars, Australian Dollars, Indian Real’s and some kind of China index, to be determined.”…

“After receiving the money, we will explain to them the nature of this transaction without giving details of your name,” the firm explained to William Ponsoldt, regarding the Caribbean bank through which the money was moving to his son. “Please let us know if you agree with this and if you will instruct the relevant parties to execute the wire transfer.”

Federal law generally limits such tax-free transfers between family members to $14,000 a year. But for this transfer, described as a “pre-inheritance distribution,” the documents give no indication that any United States gift taxes were paid, as would most likely have been required, said Jack Blum, a lawyer and expert in international tax evasion who served for more than a decade as a consultant to the Internal Revenue Service. [emphasis added]

In other words, Mossack Fonseca helps American clients avoid taxes by hiding taxable assets and transactions. That’s the point of secret holdings and secret transactions-to break the law.

The notion that wealth is “private” under a free enterprise system is a contradiction in terms. The very capitalistic institutions that protect those assets rely on a public accounting of claims on resources.

As we saw in the recent foreclosure crisis, when no one can account for who owns what, everything goes to hell—which raises a deeper point.

Offshore banks become financial roach motels-money goes in, but it can’t come out because no other financial institutions will do business with those banks.

How long could Mossack Fonseca and other seedy law firms helping the rich offshore their assets operate if the jurisdictions involved were no longer allowed to do business with the rest of the international financial system?

It would not be a perfect system—cash and other forms of currency could still make it out—but it would considerably cripple the offshore banking system, which is, at its heart, a tool for money laundering.

Dan Wright

Dan Wright

Daniel Wright is a longtime blogger and currently writes for Shadowproof. He lives in New Jersey, by choice.