By Clark Mindock and David Sirota on International Business Times
Years before more than a hundred media outlets around the world released stories Sunday exposing a massive network of global tax evasion detailed in the so-called Panama Papers, U.S. President Barack Obama and then-Secretary of State Hillary Clinton pushed for a Bush administration-negotiated free trade agreement that watchdogs warned would only make the situation worse.
Soon after taking office in 2009, Obama and his secretary of state — who is currently the Democratic presidential front-runner — began pushing for the passage of stalled free trade agreements (FTAs) with Panama, Colombia and South Korea that opponents said would make it more difficult to crack down on Panama’s very low income tax rate, banking secrecy laws and history of noncooperation with foreign partners.
Even while Obama championed his commitment to raise taxes on the wealthy, he pursued and eventually signed the Panama agreement in 2011. Upon Congress ratifying the pact, Clinton issued a statement lauding the agreement, saying it and other deals with Colombia and South Korea “will make it easier for American companies to sell their products.” She added: “The Obama administration is constantly working to deepen our economic engagement throughout the world, and these agreements are an example of that commitment.”
Critics, however, said the pact would make it easier for rich Americans and corporations to set up offshore corporations and bank accounts and avoid paying many taxes altogether.
“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 noncooperation with other countries on exchanging information about tax matters,” Rebecca Wilkins, a senior counsel with Citizens for Tax Justice, a nonpartisan nonprofit that advocates changes in U.S. tax policy, told the Huffington Post in 2011. “Panama has all three of those. … They’re probably the worst.”
The Panama FTA pushed for by Obama and Clinton, watchdog groups said, effectively barred the United States from cracking down on questionable activities. Instead of requiring concessions of the Panamanian government on banking rules and regulations, combating tax haven abuse in Panama could violate the agreement. Should the U.S. embark on such an endeavor, it could be exposed to fines from international authorities.
“The FTA would undermine existing U.S. policy tools against tax haven activity,” warned consumer watchdog group Public Citizen at the time, saying the agreement would encourage corporations to thwart any U.S. efforts to combat financial secrecy. The group also noted that U.S. government contractors, as well as major financial firms supported by taxpayer bailouts, stood to gain from the trade deal’s provisions that could make it harder to crack down on financial secrecy.
Despite the warnings from watchdog groups, some Democratic lawmakers urged the Obama administration to aggressively push for the Panama agreement. According to a 2009 email sent to Clinton by her top State Department aide, high-ranking then-Sen. Max Baucus, D-Mont., was pushing for passage of the Panama and Colombia free trade pacts, and Rep. Charles Rangel, D-N.Y., said “the president had to lend his star power to pushing them through.” Obama ultimately did just that, hosting Panama’s president at a 2011 Oval Office event touting the proposed trade pact.
Major corporations also lobbied for the deal, including, among others, Rupert Murdoch’s News Corporation, which at the time maintained 136 Panamanian subsidiaries, according to the Huffington Post.
Obama and Clinton’s support of the FTAs, however, was not universally shared within the Democratic Party. Obama received criticism from many lawmakers, including then-Rep. Mike Michaud, D-Maine, who wrote an op-ed in the Hill two months after the new president was sworn in in 2009.
“Talk about a double whammy: another job-killing Bush trade agreement, and with the country that a Government Accountability Office study identified as one of only eight countries — and the only current or prospective FTA partner — that was listed on all of the major U.S. and international tax-haven watchdog lists,” Michaud wrote then, noting that Obama had promised as a candidate that he would renegotiate the trade agreements. Panama’s unwillingness to sign a tax information treaty with the U.S. is just the tip of the iceberg, he said.
Before the agreement was ratified, the Obama administration did forge a tax information sharing agreement with the Panamanian government that it said would increase financial transparency. Public Citizen, however, asserted that the separate agreement “does not remedy these problems” of secrecy, noting that it “merely requires Panama to stop refusing to provide information to U.S. officials on specific cases if U.S. officials know to inquire.”
The Sunday reports on the so-called Panama Papers exposed nearly 40 years’ worth of information that included more than 11 million documents on more than 210,000 companies, trusts, foundations and world leaders with offshore dealings in Panama where money laundering, tax avoidance and crime (including funding terrorism) are made easy. The leak, from financial services firm Mossack Fonseca, shows that the organization helped clients perform all of those acts.
The leaks have revealed a suspected billion-dollar money laundering ring that includes many close allies and associates of Russian President Vladimir Putin, and showed that Icelandic Prime Minister Sigmundur David Gunnlaugson has been hiding interest linked to his wife’s wealth. A total of 12 current or former heads of state and 60 people linked to current or former leaders have been revealed to have had secretive dealings in Panama.