Gordon Campbell on living in denial about the Panama Papers

So now we know why New Zealand won all those awards for being the ‘easiest place to do business.’ Evidently, foreign firms that register in New Zealand can operate with impunity when it comes to complying with (a) our money-laundering and terrorism financing laws and (b) our international obligations on such activities. Pity the investors offshore. It would be entirely reasonable of them to assume that a firm that’s registered in New Zealand would be subject to some regulatory oversight (before and after) by the New Zealand authorities – especially when we know from their brochures that some of these shonky firms are actively using their New Zealand connection to convey a sense that First World standards will govern their activities.

No such luck, and no such standards. Now we’re learning – via the Panama Papers – that shady Maltese and Panamanian operators were using shell companies in New Zealand as a key part of their global tax manoeuvres. At a time when politicians claim that there’s only limited tax revenue in the kitty to spend on social services the Panama Papers also reveal that this one firm in Panama had business links to 140 politicians and 72 current or former heads of state as it pursued its ingenious methods of tax avoidance. The foxes not only run this henhouse. In many cases, they built it themselves.

At his post-Cabinet press conference yesterday, Prime Minister John Key ran through the gamut of his Five Basic Crisis Management ploys. In no particular order…

(a) There’s no problem here, move on. The OECD gave us a clean bill of health back in 2013, Key claimed. End of story. In fact, the IRD warned government in 2013 of the reputational risk to New Zealand from a disclosure regime around foreign trusts that compared poorly to those being operated by other similarly developed countries.

(b) Muddy the pool with irrelevancies. “In other words,” Key said yesterday, “it’s all about making sure New Zealanders pay their fair share of tax”. No, it isn’t. It’s about foreigners abusing our reputation, and it’s about us not living up to our international obligations. The G7 for instance, has set up a Financial Action Task Force (FATF) that sets international standards on money laundering and fighting terrorism financing. We are almost certainly in breach of these standards. Unfortunately, New Zealand is not due to be formally monitored by the FATF until late 2019.

(c) Blame Labour. The same system, Key said, has been in place since 1988. Obviously though, the world has moved on since 1988 when it comes to cracking down on money laundering and terrorism financing.

(d) It is a very complex issue. Yeah, right.

(e) Don’t ask him, he hasn’t been briefed on this…. And so on.

In fact, this same problem has existed for almost a decade, and we put out the welcome mat for it ourselves. With almost comical naivete, Treasury’s then-Secretary John Whitehead gave a speech in 2005 that celebrated the turning of New Zealand into a shonky tax haven as being a triumph of Kiwi ‘can do” ingenuity:

Using greater managerial freedom to apply new technology judiciously combined with clear performance expectations, [the Companies Office] was able to reduce the cost of registering a company from $200 in 1995 to $70 in 1999. Its average turnover time for registering a company fell from two weeks to just thirty minutes. The benefits are still evident now – New Zealand has been identified as one of the easiest countries in the world to start up a new business from a compliance point of view.

You bet. In a twinkling, New Zealand became a seed-bed of criminality. As I wrote in 2012:

……Only four years later, criminals from places like Panama were beating a path to New Zealand to make use of that very same “efficiency” to set up bogus shelf companies, and commit fraud, money laundering and tax evasion.

As the then-Commerce Minister Simon Power conceded at the time:

… Simon Power acknowledged New Zealand’s reputation as a good place to do business had been harmed by overseas individuals using New Zealand registered companies “to commit or facilitate crime such as money laundering, tax evasion and fraud, in overseas jurisdictions”.Mr Power also said a lack of enforcement of current company law meant New Zealand authorities had been unable to help international agencies in trying to combat international fraud. He said the misuse of company structures by “a small number” of overseas individuals and New Zealand-based agents “threatens our international reputation as a good place to do business”.

Not such a small number, in fact. In 2012, a Cabinet Paper noted that some 77 trust and company service providers were being monitored by the Companies Office, as they actively worked with companies that were locally registered in New Zealand, but operating offshore. (Does that sound to you like this country is operating as a tax haven? Yeah,it does to me too.) And here we are four years later, and the same story is repeating itself. Oh, MBIE did recently put out a discussion paper listing six ways that we could possibly improve the quality and operations of our Financial Service Providers Register (FSPR). Two of those options entail reducing the public disclosure of information.

If there was a will to do so, a couple of simple steps could transform this dodgy situation. As a useful start, we could require that any firm registered in this country as a financial services provider must comply with our money-laundering and terrorism financing laws, even if all of its clients live overseas. As Interest.co.nz journalist Gareth Vaughn has suggested in several excellent articles on this issue available here and also here we could also require that these NZ registered entities must New Zealand banks. This, as Vaughn says, would have the advantage of putting local banks on notice regarding compliance, since they would be being overseen by the Reserve Bank. Obviously, fresh resources would have to go into these monitoring activities. A readiness to see that there’s a problem – and a will to fight it – would also help.

Why don’t we treat this issue with more urgency? The main reason is that IRD and those running the Financial Service Providers Register can see that their efforts wouldn’t actually result in any more tax revenue flowing back to this country. That’s why the necessary work has fallen down the priority list. Moreover, once a company gets registered here, they derive a commercial gain from it – they can then tout the quality New Zealand brand to the rich and the gullible overseas – and so the chances are, they will fight in court any move to kick them off the FSPR.

For their part, IRD and the rest of the compliance system can see little point in taking them on. Far easier, and much more lucrative to screw down students over paying back their student debt. They’re sitting ducks. Why fight on this financial services integrity front, when you won’t get any money back even if you win? The only damage that’s being done is to New Zealand’s international reputation, and that’s up to the politicians to defend. Not IRD’s job, apparently. Unfortunately, as John Key has shown in the last 24 hours, the government isn’t interested, either. It sees more political gain in denying that a problem even exists. Move on.

The War on Drugs, Further Disappointment…

Sometimes, bureaucrats can speak with a simple clarity that’s almost poetry. Here, for instance, is the opening paragraph of the US Department of Defence audit of the modification of a drug-fighting reconnaissance plane that was supposed to allow the US to detect and destroy opium fields in Afghanistan. It just didn’t quite turn out that way:

In fiscal year 2008 the Drug Enforcement Administration (DEA) expended nearly $8.6 million to purchase an ATR 42-500 aircraft (ATR 500) to support its counter-narcotics efforts in Afghanistan. The Department of Defense (DOD) agreed to modify the DEA’s ATR 500 with surveillance equipment and other capabilities to conduct such operations in the combat environment of Afghanistan in what became known as the Global Discovery program. In addition, through five Memoranda of Understanding (MOU) with the DOD, between fiscal years 2012 and 2015, the DEA received $29,080,137 from the DOD to support both the DEA’s counter-narcotics aviation operations in Afghanistan and the Global Discovery program. As of February 2015, the DEA had expended $10.1 million of this funding for the Global Discovery aircraft. The DOD has also expended an additional $67.9 million in DOD appropriated funds to modify the DEA’s ATR 500 and to construct a hangar at the

Kabul International Airport in Afghanistan for the aircraft. Even though collectively the DEA and DOD have spent more than $86 million on the Global Discovery program, we found that, over 7 years after the aircraft was purchased for the program, the aircraft remains inoperable, resting on jacks, and has never actually flown in Afghanistan.

Wow. So that’s $US86 million and seven years work on fitting out a reconnaissance plane that – literally – never got off the ground.

Moses Sumney, Genius in Waiting

Moses Sumney comes to the stage armed with little more than a guitar, a pedal array, and his amazing voice. Sumney was born in California. At ten, his family moved to Accra, Ghana but reportedly, this wasn’t a happy experience for him – and in his late teens, Sumney returned to the US to study creative writing at UCLA. His early music was produced by Chris Taylor of the experimental band Grizzly Bear, and was released on their label, Terrible Records.

Since then, Sumney has opened for Sufjan Stevens, hung out with Solange Knowles and showed up on the Skrillex remix of the Hundred Waters track “ Show Me Love” alongside Chance The Rapper. Meaning : at 25, he’s become very well connected, and the buzz around him is only just beginning. “ Worth It” is a

stunning track, and “Replaceable “ even manages to make a brief diversion into scat singing seem listenable. Its worth watching him use his body to create the rhythm loop on the final track, “Everlasting Sigh. ” The lyrics to that one fuse together his blackness (“the bed of coal”) with the white gospel tradition of “Leaning On The Everlasting Arms” to create something entirely original :

Sighing on the embers of a fire,
That must be allowed to die
The bed of coal, it must run cold in time
But your body heat, it brings life
Crying in a river running dry
Made your eyes a clouded sky
But if you’re a god
Made from a god, made from a god
Let your whispered word be divine
If vultures can be soul birds, let it die
Leaning on the everlasting sigh…

Footnote : Because “Leaning On The Everlasting Arms” has had such an enduring presence in popular culture, I once wrote an entire column about the background to this hymn. Subsequently, it popped up again, as the theme song of the Coen brothers remake of True Grit.

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9 Comments on Gordon Campbell on living in denial about the Panama Papers

  1. And here, via Reddit,is how someone might explain the Panama Papers to a five year old :

    ‘When you get a quarter you put it in the piggy bank. The piggy bank is on a shelf in your closet. Your mom knows this and she checks on it every once in a while, so she knows when you put more money in or spend it. Now one day, you might decide “I don’t want mom to look at my money.” So you go over to Johnny’s house with an extra piggy bank that you’re going to keep in his room. You write your name on it and put it in his closet. Johnny’s mom is always very busy, so she never has time to check on his piggy bank. So you can keep yours there and it will stay a secret.
    Now all the kids in the neighborhood think this is a good idea, and everyone goes to Johnny’s house with extra piggy banks. Now Johnny’s closet is full of piggy banks from everyone in the neighborhood. One day, Johnny’s mom comes home and sees all the piggy banks. She gets very mad and calls everyone’s parents to let them know.
    Now not everyone did this for a bad reason. Eric’s older brother always steals from his piggy bank, so he just wanted a better hiding spot. Timmy wanted to save up to buy his mom a birthday present without her knowing. Sammy just did it because he thought it was fun. But many kids did do it for a bad reason. Jacob was stealing people’s lunch money and didn’t want his parents to figure it out. Michael was stealing money from his mom’s purse. Fat Bobby’s parents put him on a diet, and didn’t want them to figure out when he was buying candy.
    Now in real life, many very important people were just caught hiding their piggy banks at Johnny’s house in Panama. Today their moms all found out. Pretty soon, we’ll know more about which of these important people were doing it for bad reasons and which were doing it for good reasons. But almost everyone is in trouble regardless, because it’s against the rules to keep secrets no matter what.’

  2. “. . . because it’s against the rules to keep secrets no matter what”

    So another major issue crawls out of the woodwork, all ready to bite everyone in the bum.

  3. In a way, what Prime Minister John Key and this government is doing with New Zealand financial reputation is another form of asset stripping which is what it basically runs on. They are using up the reputation that New Zealand has built up over a century for their own benefit.

  4. http://www.bloomberg.com/news/articles/2016-01-27/the-world-s-favorite-new-tax-haven-is-the-united-states
    I believe further research and thinking is required about the Panama revelations…please follow the link to Bloomberg and maybe you could also ponder ..Like nearly everyone I have felt some outrage at the Panama leak of the tax evaders however the more you look into this the more it seems like a set up…why?…public are only seeing extractions of the leaks not the full details??…media is focusing on apparent connections with Putin and Assad??…..no Americans of any importance are implicated?? I believe this whole deal is a smoke screen…read this article from Bloombergs on how America is now one of the biggest tax havens in the world …then draw your own conclusions…by the way do some research on who funds the group who investigated the leak and the stink turns putrid!!

  5. Wow Gordon thanks for the introduction to Moses Sumney. I think tonight will be one of the nights where I can say where I was when I first heard Moses Sumney. A small side point, I couldn’t help but notice he has amazingly beautiful hands. Genius hands possibly.

  6. Right. So we are not a Tax Haven, because, you know, in a Tax Haven you don’t have to declare any fiscal comings and goings, but here you do, right? So all these shell companies registered here would have to divulge all their financial stuff to the appropriate authority, right? Because that’s what you do in a place that isn’t a Tax Haven. So would it not be incumbent upon us to furnish the appropriate authorities in their country of origin, with this information, otherwise it would look like we’re a Tax Haven and we’re not.

    As for “Leaning on the Everlasting Arms” can I force a re-appraisal of the version by Iris DeMent at the end of “True Grit”. It was lifted from her 2004 album “Lifeline”, inspired by memories of her mother’s devotion to the healing power of those “old church songs” and she nails it. No sugar there mate.

  7. Not about the music.

    About the post.

    The nats have succeded in turning nz into a Wall Street/Washington slut.

  8. Please don’t tell me that John Key has been so out of touch that he has never, ever, known of the Panama fiddle.

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