Better in their words…

Couldn’t say it any better.
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WSJ 4/9/2016

So far the one certain crime, in the so-called Panama Papers scandal, is the theft and distribution of a Panamanian law firm’s private property, its confidential documents. With the U.S. government railing this week against the Pfizer-Allergan deal, even the media might notice that the world’s convoluted tax codes actually incentivize people legally to hold certain assets offshore, in the U.S. case $2 trillion in U.S. corporate profits. Yet David Geffen, a Pritzker heiress (and relation of President Obama’s secretary of commerce), British Prime Minister David Cameron’s late father, and Iceland’s now-ex PM are all being treated as criminals on no evidence.

Those who call for governments to pass laws banning offshore ownership of corporate assets ought to consult Transparency International’s corruption index. Most of the world lives in a place where the rule of law is a rare bird. Only 28 governments, out of 167, qualify as “full democracies” in the Economist Intelligence Unit’s index, and that includes governments like Greece and Costa Rica that simultaneously rank poorly on corruption indexes.

In much of the world, the distinction between criminal and politician is nonexistent, and there would be no economic activity at all if wealth holders couldn’t make assets hard to trace and at least somewhat protected by a semi-decent legal system. Panama is a piker compared to Fifth Avenue. Walk down any night and notice all the apartments where lights never come on—vacant and held as offshore assets by Russian, Chinese, Ukrainian and other oligarchs. The crying need is for reform of the home countries, not the legal systems of their hidey-holes. All governments devote primary attention to extracting resources from their subjects, not always in a manner consistent with the spirit of law and due process. The Obama administration has engaged in statistical sleight-of-hand to create a false impression of racial discrimination by auto lenders for the purpose of extracting cash settlements. The DuPage County sheriff’s office created an illegal cigarette trading sting but never filed criminal charges and ended up pocketing $400,000 in illicit profits. Numerous U.S. police agencies have exploited “asset forfeiture” laws to take money from citizens against whom no crime has been proved or even alleged. The IRS code is incomprehensible and impossible legally to comply with, which means audits can be largely arbitrary extraction events. The Boston lawyer Harvey Silverglate, in his book “Three Felonies a Day,” shows that every American is a criminal waiting for the federal government to determine if he or she should be prosecuted or shaken down.

And yet America’s is rightly considered one of the more transparent and law-abiding governments.

Nobody needed the revelation of documents from Panamanian law firm Mossack Fonseca to suspect that corruption is the work-a-day modus of Vladimir Putin’s government in Russia. Iceland, in contrast, ranks 13th in Transparency International’s corruption index, three places ahead of the U.S. So far Iceland’s prime minister, whose wife inherited a six-figure sum in Icelandic bank bonds that were held in the name of a Panamanian shell corporation, is the only politician to lose his job in the scandal.

In 2009, when the husband entered parliament, he sold his share to his wife for $1, on the understanding, the couple has said, that the money had always been hers, not his. In Iceland’s subsequent banking crisis, he acted to protect local taxpayers from having to compensate foreign depositors in Iceland’s failed banks, much less the poor schmucks who owned their bonds, which remain severely underwater.

Would it have been good to declare his wife’s holdings while he was in charge of resolving the bank crisis? Yes. Is the assumption that he was up to something illegal or failed to pay taxes premature? Yes.

On Monday, a crowd in front of the parliament demanded his resignation and prosecution. Would you trust U.S. politicians, three places below Iceland on the corruption index, to protect you from a mob? Remember, Sheldon Whitehouse, a U.S. senator, believes you should be jailed for disagreeing with him on climate change.

With no clear idea what they are looking at, journalists raking over the Panama papers think “tax evasion”— which is a bit like thinking the problem with Al Capone was his failure to collect Medicare withholding on his murder-for-hire and bootlegging operations.

Transparency International says the world’s No. 1 priority now should be banning secret corporate ownership—perhaps in the idealistic hope that more disclosure would galvanize the world’s people to demand more lawful government and better economic policy.

It would be nice to think so. Unfortunately TI likely has it exactly backward. If the world wants to close the offshore loophole, it needs governments that are less predatory and more law-abiding.

It’s significant that only minimally corrupt Iceland has lost a political leader in the offshore scandal.

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