Was it wrong to hack and leak the Panama Papers?

by on April 9, 2016 at 12:41 am in Current Affairs, Economics, Law, Philosophy, Uncategorized | Permalink

Let’s say a group of criminal defense lawyers kept a database of their confidential conversations with their clients.  That would include clients charged with murder, robbery, DUI, drug abuse, and so on.  In turn, a hacker would break into that database and post the information from those conversations on Wikileaks.  Of course a lot of those conversations would appear to be incriminating because — let’s face it — most of the people who require defense attorneys on criminal charges are in fact guilty.  When asked why the hack was committed, the hacker would say “Most of those people are guilty.  I want to make sure they do not escape punishment.”

How many of us would approve of that behavior?  Keep in mind the hacker is spreading the information not only to prosecutors but to the entire world, and outside of any process sanctioned by the rule of law.  The hacker is not backed by the serving of any criminal charges or judge-served warrants.

Yet somehow many of us approve when the victims are wealthy and higher status, as is the case with the Panama Papers.  Furthermore most of those individuals probably did nothing illegal, but rather they were trying to minimize their tax burden through (mostly) legal shell corporations.  Admittedly, very often the underlying tax laws should be changed, just as we should repeal the deduction for mortgage interest too.  But in the meantime we are not justified in stealing information about those people, even if some of them are evil and powerful, as is indeed the case for homeowners too.

Once again, politics isn’t about policy, it is about which groups should rise and fall in relative status.  And many people believe the wealthy should fall in status, and so they will entertain the morality of all crimes and threats against them.  These revelations will of course lead to some subsequent cases of blackmail, against Chinese officials for one group.

I had tweeted “Are your views on privacy and consistent? Just asking…” and my goodness what a response, positive and negative.  Most interesting of all, many people had never pondered the question before.  Somehow “good things” such as “privacy” and “transparency” cannot stand in such conflict because all good things, like all bad things, must come together.

Here is a good Kaddim Shubber discussion on FT Alphaville.

Here is Veronique de Rugy on the Panama Papers.

Here is Ray Lopez on the same:

1.  There’s a tension between US and foreign law firms and FATCA (United States Foreign Account Tax Compliance Act (FATCA) has the objective of reducing tax evasion by American taxpayers with foreign accounts).  This is because law firms are exempt from reporting on clients past crimes, not future crimes, however, money laundering is considered a future crime.  When a known criminal is setting up an offshore account with the help of a law firm, is the law firm an accessory to money laundering or not?  The better view is they are not:  it’s up to the client to report any offshore account to the government, and not the law firm’s responsibility.  That’s the better view, but see point #2, which rebuts this.

2.  There’s a tension between client confidentiality and tax treaties.  Check this out: https://www.lawsociety.org.nz/practice-resources/practice-briefings/FATCA-and-New-Zealand-Law-Firms.pdf   In New Zealand, which is probably representative of others, a passive non-financial foreign entity–which almost always will be a law firm trust account holding money from a client–has a duty under FATCA to report on the client to the US government (“know your customer” is the buzz phrase banks use, which as you know already are required to ‘spy’ on their customers).

Both points 1, 2 are relevant for the conduct of the law firm of Mossack Fonseca.  Except for the alleged destruction of evidence by them, I don’t see them doing anything that bad (by law firm standards; remember, any law firm of decent size has former crooks as clients, and for a firm in Panama I would say that’s not the exception but the rule!)
Did you know the Guardian media firm is closely connected to shell companies?  According to the FT: “…even the World Bank and other development finance institutions used offshore investment hubs, in a sign they have come to play “a systemic role in international investment flows”.”  Speaking of the FT, Tim Harford suggests some useful tax reforms.

From the comments
, here is Kai:

I practice law in cross-border banking and finance in China. I am puzzled by how non-professionals in this field view offshore jurisdictions as categorically related to criminal activity, embezzlement and corruption, etc.

Almost all cross-border transactions involve offshore jurisdictions at some level. For instance most companies listed on the HK stock exchange are incorporated in the Cayman Islands. Anything to do with Bermuda, Cayman, BVI, etc. in cross border transactions is very, very mundane.

According to the papers, Xi Jinping has relatives who are owners of offshore companies. How is that any sort of evidence of wrongdoing by them (much less of Xi Jinping)? I doubt anyone can provide an intelligent answer.

Maybe yes, maybe no, but I don’t see that the people rendering judgment know more about it than he does.

1 Ray Lopez April 9, 2016 at 12:57 am

Longer story short: Ray wins. Again.

2 AIG April 9, 2016 at 4:20 am
3 Yancey Ward April 9, 2016 at 10:17 am

Congratulations, Ray. You have been my favorite commentator here for some time now.

4 Ray Lopez April 9, 2016 at 12:20 pm

Yes, I admire you too Yancey, especially when I learned you play chess…rook endings are hard indeed (blew another one the other day…I need to practice my rook endings more).

5 Josh April 10, 2016 at 8:24 am

Just to be clear, nobody actually thinks this was leaked by a concerned citizen worried about fairness and transparency, right?

6 prior_test2 April 9, 2016 at 1:36 am

‘Once again, politics isn’t about policy, it is about which groups should rise and fall in relative status.’

Oddly, Dutch politics when it comes to the nation’s entire infrastructure concerning keeping the ocean at bay is about nothing but policy – one devoted to ensuring the Netherlands does not suffer from something like this again. ‘The 1953 North Sea flood (Dutch: Watersnoodramp, literally “flood disaster”) was a major flood caused by a heavy storm that occurred on the night of Saturday, 31 January 1953 and morning of Sunday, 1 February 1953. The floods struck the Netherlands, Belgium, England and Scotland.

A combination of a high spring tide and a severe European windstorm over the North Sea caused a storm tide; the combination of wind, high tide, and low pressure led to a water level of more than 5.6 metres (18.4 ft) above mean sea level in some locations. The flood and waves overwhelmed sea defences and caused extensive flooding. The Netherlands, a country with 20% of its territory below mean sea level and 50% less than 1 metre (3.3 ft) above sea level and which relies heavily on sea defences, was worst affected, recording 1,836 deaths and widespread property damage. Most of the casualties occurred in the southern province of Zeeland.’

What was the reaction? ‘Politically, the disaster prompted discussions in the Netherlands concerning the protection and strengthening of the dykes. As a result, the Delta Works were authorized, an elaborate project to enable emergency closing of the mouths of most estuaries, to prevent flood surges upriver.’ https://en.wikipedia.org/wiki/North_Sea_flood_of_1953

7 Pik B April 9, 2016 at 4:05 am

I have always considered this event one of the reasons of why in The Netherlands people have so many civil / labor rights are so united against any kind of oppression and oppressor. As foreigner that lived there I really admire this attitude, in my (EU) country people is, as in most primitive society, one against the other trying to please the boss of the moment, while in Holland people stand unite and inquire and ask justifications to the boss, that, knowing this, has to answer and justify himself, while in other countries can just say “I am the boss”. In my country an attempt of staying toghether is seen as too dangerous by most of the people that justify themselves also thinking of it as a sign of being on the side of the “loosers”.

8 anon April 9, 2016 at 2:39 pm

Pik, I have heard similar. It has been talked about with examples of different cultures among soccer (football) players. The Dutch are known to be much different from the English in that regard. Dutch players historically are far more likely to debate with their manager than most other European nationalities at the pro level.

9 Pik B April 10, 2016 at 6:04 am

anon, thanks for your reply, interesting point. I saw this attitude with my eyes in IT industry. Someone calls this way of taking decisions as “horizontal”.

10 David Zetland April 10, 2016 at 9:14 am

The 1953 floods were only the most recent reason for the Dutch to hang together. As a 5-year resident here, I think the bigger reason they hang together (are less corrupt) is because people share so many spaces that they consider corruption a direct betrayal (not a thing of DC or Moscow).

11 Mark Thorson April 9, 2016 at 1:36 am

At the visceral level, I’m all in favor of leaking other people’s stuff. And the visceral level is the only level that counts!

12 Lord April 9, 2016 at 9:21 am

What right do any of us have to news, yet we enshrine news as an important social institution. Even when we note information has been surreptitiously or even criminally obtained, that information is often very important in informing us of what is occurring behind the curtains and the truth. The truth is there are more important things than privacy.

13 A Definite Beta Guy April 9, 2016 at 10:17 am

A dangerous road to walk. Most people are less interested in the Panama Papers than they are in the relationships of the rich&famous. Which is why the Panama Papers aren’t at the checkout aisle of the grocery store.

This goes back to the whole “Charles Murray” bubble theory yesterday. What do most people care about, and therefore are willing to violate privacy norms/laws for?

14 Art Deco April 9, 2016 at 4:59 pm

Most people are less interested in the Panama Papers than they are in the relationships of the rich&famous.

Most people know nothing of the former and haven’t the tools to make sense of it. You don’t need a whole lot of background to make sense of the personal or career problems of Justin Bieber, so the sources of indifference differ. The smart money says a comfortable majority of women don’t give a rip about the rich and famous and that nearly all men are indifferent to the rich and famous except as a source of jokes (rich and famous athletes excepted). Back in the day, about 6% of the public would tell the pollster that magazines were his primary source of news (30% said newspapers and 63% television). Magazine literature of all sorts was and is a minority taste.

15 Jeff L April 9, 2016 at 1:48 am

In the US, we’ve generally decided that evidence illegally obtained can generally not be used to condemn criminals caught only by illegal methods.

Is that the right approach? Maybe the person who invaded privacy should face a punishment for that invasion irregardless of whether or not they invaded the privacy of a guilty person.

Under that assumption, then the people who have been caught committing wrongdoing in the Panama Papers are still guilty. And the people who committed a crime still committed a crime. It doesn’t have to be a contradiction unless you live in a world where “Oops, illegal search – I guess these skeletons aren’t admissible…” applies more broadly.

To address the criminal defense lawyer analogy directly, any guilty defendant who is found to have obviously gotten away with their crime in the hypothetical example should become a pariah. And the hacker should be thrown in jail.

If we assume that catching people behind these hacks is near impossible then institutions that depend on both privacy and information technology systems are in long term trouble. But that’s an entirely separate issue.

16 Nathan W April 9, 2016 at 2:22 am

Perhaps if we started to punish police who collect information via unapproved means. For practical purposes, it means that the evidence cannot be used in court. But the IRS can use it, as can investigators to seek information via other means (which I think is dodgy, but courts are usually able to evaluate whether the non-approved origins of certain information leading to other information are, in balance, too big of a problem for privacy … at least, they used to be able to balance security and privacy, not so clear these days).

17 tjamesjones April 9, 2016 at 5:38 am

good idea, let’s punish the police, that’s where the real problem is.

18 Nathan W April 9, 2016 at 6:47 am

I’m not sure if you’re being sarcastic or not, but clearly security state officials and agents are getting away with a lot of things that are illegal and unconstitutional (some of which sufficiently hidden in the dark confines of the security state that it is essentially impossible to bring such cases to court).

If it a hacker should face justice for such things, so should police who do the same things illegally (without a warrant).

19 Froest April 9, 2016 at 11:49 am

“state officials and agents are getting away with a lot”

Yes, the malfeasance, corruption, and routine law-breaking at all levels of American government is massive, especially in the criminal justice system. But most Americans blindly assume it’s pure and angelic overall.

TC’s statement that: “— let’s face it — most of the people who require defense attorneys on criminal charges are in fact guilty.” ….. is stunningly naive, but accurately reflects the daily working premise of our current, formal American justice system.
Innocent-until-proven-guilty is considered a fairy tale now.
The police/prosecutor/court system routinely railroads innocent people.
Accused but innocent people need defense attorneys just as urgently as the guilty.

The “system” is structured for convictions not justice & fairness. Hand wringing over this Panama-Papers issue is pathetic, given the larger context of rampant, illegal government hacking and corruption.

20 Art Deco April 9, 2016 at 1:15 pm

Yes, the malfeasance, corruption, and routine law-breaking at all levels of American government is massive, especially in the criminal justice system. But most Americans blindly assume it’s pure and angelic overall.

I’ll wager that 90% of the people who work in law enforcement and 80% of the prosecutors and judges compare favorably to the sort of self-aggrandizing twit who utters remarks like the one above.

21 Nathan W April 9, 2016 at 2:42 pm

When’s the last time you heard of a police officer who broke the law in a really bad way, and the police policed themselves instead of us having to rely on citizen activism to hold them to account?

If/when the police demonstrate the ability to police their own, I will consider changing the tune.

Unlike the police, I apply the same standards to myself that I hope for in others.

22 anon April 9, 2016 at 2:42 pm

“I’ll wager”

very familiar with the criminal justice system, Deco?

tjamesjones, you seem to be using sarcasm to argue that police should be above the law. I dunno where to begin on how wrong that is.

23 Art Deco April 9, 2016 at 4:38 pm

When’s the last time you heard of a police officer who broke the law in a really bad way, and the police policed themselves instead of us having to rely on citizen activism to hold them to account?

Police departments have internal affairs divisions. They also have the option of recusing themselves from cases involving their own department. It’s not a sociological unicorn for police officers to be prosecuted. As for the last time I heard of such a thing, it was last night, and it was a re-run of a program on a police officer in Farmington, New Mexico accused of murdering his wife. He spent 8 months in solitary confinement awaiting trial.

What is it with you that induces you to blather on about topics you seem to know only from television plots? The people with impunity in the American system are judges and prosecutors. The legal profession manages these carve-outs for themselves.

24 Art Deco April 9, 2016 at 4:47 pm

very familiar with the criminal justice system, Deco?

Used to work at the courthouse. The DA had character defects (which were known publicly and somehow did not prevent his re-election every four years). No scuttlebut about any cops.

John Grisham wrote a non-fiction book some years ago on a travesty which occurred in Oklahoma. The author of the travesty was the local prosecutor in cahoots with a crooked forensic technician at the state crime lab; both the prosecutor and the technician belonged in prison. There were a couple of plainclothes cops from the state police implicated, but I don’t think they were guilty of much other than gross incompetence. The local police were only peripherally implicated in the whole mess. Grisham said he’d practiced law in Mississippi for ten years and had never seen anything like it and that the police and the prosecutors he’d dealt with had been straight-up guys.

25 Nathan W April 10, 2016 at 2:37 am

Art – you’re in denial. Police do a very poor job of policing themselves. They resist at every turn any effort to hold them more accountable.

I absolutely believe that we should be very understanding of the fact that police have to make fast decisions in difficult conditions. In such cases, mistakes can be forgiven. But, often, this is not at all the case. Like, what happens to cops who taser 6-year old girls? A paid holiday (“suspension”). A cop who tasers a 6-year old girl clearly does not belong in the force. And things get even worse than that.

There is no trusting a police department that is unable to remove such officers from the ranks. And that is most of them.

26 Ray Lopez April 9, 2016 at 3:39 am

I’m not a lawyer, but play one on the internet, however Jeff L raises some interesting points. Apparently in the UK (barristers / solicitors reading this please chime in) I understood that unlike in the USA, if there is a unlawful arrest or unlawful search, the evidence is not automatically thrown out but used against the person. However, if the person is innocent, they have a right to sue the police for unlawful arrest or unlawful search, much more so than in the USA. So the “good guys” will get compensated for any ‘bad cops’. That was the impression I got from decades ago. So if this was adopted in the USA you’d not have the scenario as shown in “Dirty Hairy” where the bad guy gets off on a technicality.

27 PD Shaw April 9, 2016 at 10:05 am

In the USA, damages are available and awarded for violations of Constitutional rights, but the SCOTUS decided about 100 years ago that monetary awards were insufficient. Some violations do not have a lot of monetary value; many victims are either guilty or unattractive plaintiffs, and law enforcement may simply be willing to pay with taxpayer dollars for investigatory shortcuts.

Also, Vivian Darkbloom is correct, the exclusionary rule is not absolute and only applies when it serves the policy of deterring law enforcement. It doesn’t apply to evidence obtained by private citizens. It doesn’t protect non U.S. nationals outside of U.S. borders.

28 Vivian Darkbloom April 9, 2016 at 9:30 am

Yes, but the exclusionary rule does not apply to purely private searches, even if clearly illegal. See, Burdeau v. McDowell, 256 U.S. 465 (1921). There is no evidence any US government officials were involved in the initial hack and publication (although we don’t yet know who was behind it).

A clever defense lawyer might argue that searching through 2.6 terabytes of information for incriminating information is itself a search (and illegal without a warrant); but, given the extent to which this information has been disseminated through the media, I doubt that argument would prevail.

29 David N April 9, 2016 at 1:51 am

It feels good every year when I declare mortgage interest paid and take my deduction to be on the same moral plane with murderers, robbers and people evading taxation by hiding income offshore. Nice rhetoric Tyler.

30 BC April 9, 2016 at 6:17 am

Actually, Tyler said that you are on the same moral plane as people using offshore entities to pay the minimum allowable tax under law, which you are.

31 Frank burns April 13, 2016 at 9:45 am

It is mainly a lot of hype — demagoguery on the part of politicians and sensationalism on the part of media — fueled by the minions who are the meager spirited envious and those who are ignorant of the vast global world that lies outside their own national borders. But like Tyler aptly pointed out, people do take the mortgage interest deduction, and would use other legal means as well were they cognizant of them and feasible for their income level.

32 Nigel Lawson April 9, 2016 at 1:56 am

Firstly, I would really like to see some actual evidence for this theory that people are powerfully motivated by the status of *groups*.

There’s certainly evidence that people are envious of *individuals*. But the way this seems to work this primarily through “Reference Group Theory”. In experiments when people are allowed to punish others of different status, they primarily target people with status *close to their own*. They punish within their own reference group, not those in higher groups.

http://business.monash.edu/economics/research/publications/2013/0213withinacrissgrossmankomai.pdf

People don’t envy the billionaire’s private jet so much as they envy the neighbour with a BMW 320 when they’ve only got a 318.

The evidence seems to weigh against the idea that people a powerfully motivated to lower the status of the rich as a group.

Secondly, the people most named in this case seem to be Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson, British Prime Minister David Cameron, and Vladimir Putin. These are all people who have significant influence over the law. It’s a bit strange to say, in effect: “We shouldn’t be concerned about the affairs of the people who write the laws, because it seems they haven’t broken these laws”.

33 Steve Sailer April 9, 2016 at 2:05 am

Putin’s people have released various bugged phone calls by Victoria Nuland, Anne Applebaum’s husband the Polish ex-foreign minister, and the like. I enjoyed those and I’ve enjoyed Putin getting his come-uppance in turn.

Similarly, I’ve enjoyed Imam Gulen’s cult using their control of the Turkish police to bug PM Erdogan’s phone calls about all the cash stuffed into his house, and I’ve enjoyed the Wikileaks about Gulen’s cult.

On the other hand, I thought the international moral panic over jealous old fool Donald Sterling’s private conversation and the subsequent stripping him of his NBA team was kind of grotesque.

34 The Original D April 9, 2016 at 9:35 am

The guy made a living off black people. People would feel the same way if he were the owner of a landscaping business and got caught badmouthing the Mexicans who worked for him,

And the NBA, being an industry that lives and dies on how its fans view them, certainly has an interest in maintaining public goodwill, not to mention holding owners to the rules they agree to in their franchise agreements.

35 anon April 9, 2016 at 1:17 pm

His slutty mistress was getting screwed by team BBC, he got jealous, told her (in private) not to hang around blacks any more because he was pissed that she preferred them over his wrinkly penis. Media makes this into the Racism Story of Our Time and turns an amusing incident into an annoying month-long event that I was forced to watch each time I turned on ESPN. I justed wanted to watch baseball coverage but noooo…. they replaced it with some self-righteous, stick-in-the-ass commentator bloviating about a ridiculous situation.

/endrant

36 anon April 9, 2016 at 2:44 pm

“His slutty mistress was getting screwed by team BBC”

Ohh, the MR comment section. Come for the intellectual discussion, stay for the bigotry. It never disappoints.

37 anon April 9, 2016 at 4:30 pm

There’s nothing bigoted about what I said. I take no stand on race and penis size. I guarantee most of the NBA players’ penises (any color/race) are larger than Sterling’s penis…she just preferred the black ones i.e. BBC. I don’t blame her for wanting to fu** an NBA player, I don’t blame the players for screwing an attractive woman, and I don’t blame Donnie boy for getting jealous that his mistress was sleeping with his players. No blame, no story, no issue.

38 ChrisA April 9, 2016 at 2:25 am

Personally I think the revelations are extremely thin. For instance David Cameron’s dad was a director of an offshore firm, and then left some small amount of money to Cameron when he died. That’s hardly embezzlement of the crown jewels.

Of course there are a number of factors at work here; first is the simple political one, politically minded people want to throw mud at their opponents in the hope that some of it sticks.

But I think the main reason for the outrage is the 1% having a very different zeitgeist to the 99% – I am personally quite familiar with finance matters and in my business often deal with offshore entities and such like, and law firms that structure deals in a tax efficient way. But for someone who has never had any experience of this area, and perhaps only has a bank account at the local credit union, they will have a very different intuitive response to these revelations. Its sort of like finding out your kids school teachers are all having affairs – perhaps nothing illegal but if you were part of a set that never had affairs you probably wouldn’t like it. On the other hand if you and your spouse often had affairs then perhaps you would be not so concerned.

And of course the moral response is not coherent, per Tyler’s email. But there is no such thing as a coherent moral philosophy anyway. Every moral philosophy ends up quickly clashing with our intuitive moral sense. This is because of intuitive moral sense is a programmed genetic response which is a set of kludges developed by evolution to allow us to work together in small hunter gather societies and not the modern society we live in today.

39 Nathan W April 9, 2016 at 2:31 am

Yeah, I was pretty stunned when I heard Cameron was involved. Then I watched his video response. I’m not sure that I support all the mechanisms at play, but it’s pretty clear that if anyone tries to drag his name into the mud (unless something worse comes out) then the motivations of the writer/thinker can only be considered as suspect.

If you don’t like the rules, attack the rules, not the people who work within them.

40 Nigel Lawson April 9, 2016 at 3:06 am

Regarding David Cameron, in previous scandals he’s called comedian Jimmy Carr immoral for avoiding tax. He didn’t say it was a private matter, or OK if it was legal.

If you’re a politician and you say eating ice cream is immoral, you can’t expect it to be a non-issue when the paparazzi snap you guzzling Haagen-Dasz in your hotel room.

41 ChrisA April 9, 2016 at 4:25 am

Well I am not a particular fan of Cameron, but it was his dad who was a director of the offshore company not him – he can hardly be held responsible for what his parents did.

Imagine your father was racist – you can still condemn racism without being a hypocrite.

42 tjamesjones April 9, 2016 at 5:44 am

No that’s not right. David Cameron criticised Jimmy Carr for participating in “aggressive tax avoidance”, which is on the “evasion” end of the spectrum, and in fact the scheme Jimmy Carr had used was struck down by a court and so was in effect tax evasion. There is absolutely no suggestion that what David Cameron did (hold and then sell shares in an investment vehicle), was aggressive tax avoidance. Most investment vehicles are set up to minimise the tax they pay themselves, leaving tax up to the beneficial owner of the shares. If you live in the UK then you are taxed on the dividends and capital gains of your holdings, and if you pay that tax then it is ridiculous to suggest you have done anything wrong.

There were some great stories in the Panama papers, but this David Cameron thing is just a cynical attempt to blacken his name.

43 albatross April 9, 2016 at 7:45 am

What is the difference between aggressive tax avoidance and ordinary tax avoidance?

44 FXKLM April 9, 2016 at 8:29 am

albatross: There is a big difference between aggressive tax avoidance and ordinary tax avoidance. There is a spectrum of tax strategies from things that everyone agrees is legally permissible (and which usually involve paying some level of taxes) to things that are arguably permissible (and which often involve paying no taxes at all). There is no suggestion that there was anything particularly aggressive in the Cameron family tax planning, and they did pay taxes on those investments. The actions of the Cameron family were not illegal, immoral, scandalous or even inappropriate.

45 Jan April 9, 2016 at 9:05 am

The thing is Cameron took a while to come clean about it. Ok, maybe not a big deal. But maybe more concerning, he was lobbying to prevent EU steps that would have regulated those types of trusts to prevent tax avoidance; the same type of trust he was directly benefiting from, without disclosing those benefits.

46 Nathan W April 9, 2016 at 2:29 am

Remember jocks and rappers in high school?

People are very concerned about the status of groups, especially the ones they belong to (want to increase the status of the group) or which are different (want to decrease the status of these groups).

For an example of the relevance of groups, consider how for quite a few months there was a team of commenters dedicated to twisting my words to paint me into some irrational left wing corner, for the very fact that you can attack someone on the very basis of their purported group affiliation (I hate partisan stuff period, and consider myself moderate, which is basically Marxist is you’re sufficiently off the deep end of the right wing).

The “value” of concern about such group status considerations is that, in the example, if they can succeed in painting my into an irrational left wing corner, all they need to say in response to anything they disagree with is “hey guys, don’t forget you can safely ignore Nathan because he’s a leftist”.

On the matter of billionnaires and their taxes. The issue of group status is very relevant. They must be considered as the genius movers and shakers that create all value in the economy. If we piss them off, they will take their money and smarts elsewhere. The entire finance and banking industry is basically dedicated to upholding the rather more mythical aspects of such argumentation.

47 Alain April 9, 2016 at 5:13 am

What a tour weenforce post! Bravo!

It starts with “I am not left leaning! I am a moderate!” And ends with “the market is wrong in assigning so much value to finance, my priors are better!”

Dear God.

48 So what you're saying is April 9, 2016 at 6:22 am

If you don’t support the strictest version of the efficient markets hypothesis, you are a leftist who ought to be ignored and pitied, unworthy of consideration.

Yowza. No wonder you ended with “Dear God;” that is some old time religion ya got there.

49 Nathan W April 9, 2016 at 6:53 am

A failure to be completely subservient to ideology is ideological.

This can only be understood by Truth Talkers. The rest of us are too brainwashed.

50 Nathan W April 9, 2016 at 6:52 am

Yeah, because only leftists can question whether the value provided by finance is equivalent to the profits in the sector.

What you implicitly demand is that no one should question the right of finance to do any old thing it wants.

And, your comment is precisely the sort of thing I’m talking about. People who will defend finance and banking to the nth degree. I do not implicitly argue “finance and banking are evil”, I implicitly argue “finance and banking are probably getting a higher share of economic and financial allocations than their value to the economy warrants.”

Like, if there were an opportunity to slander Clinton for her Wall Street connections, I have perhaps 1% doubt that you’d be there in a second to decry how finance has too much influence.

Direct question 1: In asserting that I have “priors”, what do you suppose my priors are?

Direct question 2: Why are you so concerned about defending the group status of finance (which, in fact, was my point, not the question of whether finance and banking deserves this status)?

51 Jan April 9, 2016 at 9:07 am

Priors!

52 Nathan W April 9, 2016 at 2:47 pm

Gee, all you have to do is insult me and I defend myself. What a robot!

What’s robotic is the people who come out of the woodworks to engage in ad hominem personalized attacks every time I say something they disagree with.

If you disagree with what I say, attack my words, not my person.

53 MC April 9, 2016 at 4:37 pm

How do we know you are a person instead of a Turing test?

54 Nathan W April 10, 2016 at 9:53 am

MC – Well I might try to argue something about my originality, but the anti-SJ Warriors will be drawn out of the woodworks to claim that I merely parrot dogmatic Marxist views.

55 Pik B April 9, 2016 at 4:31 am

About point one, someone says that the ads for luxury cars in common newspapers and magazines are done not for the buyers but for the people that cannot afford it so that they can envy the buyers.

About point two, I totally agree that these people write the laws and this is an issue, I would add Jean-Claude Juncker to the list with fiscal haven Luxembourg. Every time I hear him speaking of what europe should do I get mad.

https://en.wikipedia.org/wiki/Jean-Claude_Juncker#Controversies

56 Saturos April 9, 2016 at 2:02 am

Too much rules, not enough consequences. (in your analysis)

57 RM April 9, 2016 at 2:07 am

We need more treatment groups to answer this question: Panama Papers for a group of non-rich, criminal papers for the rich, and criminal papers for the non-rich. Until then, we are just speculating.

58 jim jones April 9, 2016 at 2:11 am
59 Jan April 9, 2016 at 9:10 am

Large corporations = public officials? Mitt Romney was right!

60 Steve Sailer April 9, 2016 at 2:23 am

I’d like to see the depositions made public in the libel lawsuits filed by victims of Rolling Stone’s UVA Gang Rape on Broken Glass hoax:

http://www.unz.com/isteve/can-somebody-sue-to-get-jackie-coakleys-deposition-made-public/

But we’ll probably never see them and the whole scandal will be (barely) remembered as a boring story about proper procedures not being followed rather than as a hilarious exemplification of the madness and hatred of the age.

One of the lessons of the Oscar-winning movie “Spotlight” is that journalists have a hard time making an interesting story out of a scandal if they don’t have official documents to quote.

61 octopi April 9, 2016 at 2:33 am

See here’s the thing. Heroin and cocaine started out as being legal once upon a time. They were criminalized eventually because some people thought it was wrong, and they spoke up against it. Possibly privacy violations were part of this as well.

Or let’s go back to the French Revolution. It was considered the order of things that a monarch would have absolute powers. And yes, the French Revolution was extremely messy, it took forever for things to settle down, but is France today (maybe even Europe) better or not for it having taken place? The absolute rule of Louis XIV was legal until it wasn’t legal.

Or let’s look at terrorism. In a way this Panama Papers leak is invading the privacy of people who haven’t committed any crimes. But terrorism suspects haven’t committed any crimes and they have their privacy invaded anyway, and a lot of people are pretty OK about all that. There’s going to be a great big conversation, and then afterwards, we’re going to decide again if what all these guys did, stashing all their money away from taxation, is legal.

62 Pik B April 9, 2016 at 4:14 am

totally agree

63 Nathan W April 9, 2016 at 7:08 am

I think the principle that warrants should be needed to invade privacy should be upheld, regardless of specific views about specific laws. If there is literally a ticking nuclear time bomb and the privacy violation saves the day, everyone will love the president who correctly pardons the offender who the courts would correctly hold responsible for their illegal privacy invasions.

But that’s not the world we live in right now. Instead, we trend ever onward in the direction of the Minority Report, with little regard for how partisan or ideological plants in the security system may abuse their clearance and access to private data in the absence of a papertrail.

I don’t mind that they CAN access that data, but there should be a papertrail for each and every action/decision which has the prospect to violate established laws. That is also not the world we live in at present. Instead, there is virtually no way to know the extent to which laws are broken by officials and agents of the security state because there is no papertrail.

64 Jeff R. April 9, 2016 at 8:50 am

Leftist twit.

65 Nathan W April 9, 2016 at 2:58 pm

Since when is it “leftist” to say “get a God damned warrant if you want to read my mail”?

Since when is it “rightist” to support the ever-expanding arbitrary, unchecked and unaccountable powers of the police state?

Accountability is not possible if there is no papertrail. Would you support a welfare system where there was no record of the welfare payment, and where people could come back 100 times a month and say “uhhh… there’s no record, so it never happened, pay me again”?

Direct question 1: On what grounds do you support untraceable and therefore unaccountable powers of police state activities?

Direct question 2: Does it concern you that such a system could one day be repurposed by a bunch of leftists to hoover up information in political opponents in order to find dirt and blackmail any right wingers who deign to share their right wing opinions?

Direct question 3: How do you suppose we can uphold free speech in a context where partisan, ideological and/or nationalist plants in the security apparatus could abuse such unaccountable police state powers to aggressively target anyone who says “wrong” stuff?

Direct question 4: Do you believe that citizens have the right to do anything anonymously, such as speak or shop anonymously?

Direct question 5: Do you think we should be implanted with brain chips and location trackers so the police state can do its job better?

66 octopi April 9, 2016 at 3:31 pm

You brought up the issue of getting warrants for hacking into terrorist suspects. This is where governments and hactivism diverges: there’s no way that the leak of the Panama Papers, if perpetrated by private hactivists, will ever have warrants. Then it breaks the analogy between the two and I don’t know that it is relevant to discuss it here.

I’ll say this: if you think there should be a paper trail, for counter terrorism, is it a good or a bad thing that these hacks are made public? Because you can still have a paper trail, and keep that paper trail under wraps. And for that matter, how do you know that there isn’t a paper trail? And it’s also not merely about ticking time bombs, terrorism is not so simple as that. Every successful terrorist attack is a propaganda coup that will get more people to join the terrorists, and every revelation of spying on potential terrorist groups is also a propaganda coup that will get more people to join the terrorists. So whatever you do, stopping the terrorists attacks is the secondary issue. The primary issue is the propaganda.

67 carlolspln April 9, 2016 at 2:40 am

“The secret of a great fortune made without apparent cause is soon forgotten, if the crime is committed in a respectable way”, Honore de Balzac

Q: if they’re rich anyway, why don’t they just pay their freaking tax?

68 yo April 9, 2016 at 7:06 am

Out of spite towards a tax system that is “unjust” towards them since they pay more? Often the rich don’t see themselves as rich – a one-percenter’s holdings are often divided between their 2-3 pieces of real estate and their 1-3 companies, plus a few cars, and tied up in these. Especially for the companies, asset valuation is contentious. A millionaire can’t obviously see he (most are male) is one, since there is no cash account to simply look at.

69 AIG April 9, 2016 at 2:42 am

But wikileaks and Snowden are fine, even through they stole what didn’t belong to them in order to profit from third world tin pot dictators giving them asylum.

– Typical libertarian

70 carlolspln April 9, 2016 at 6:33 am

‘Typical’ libertarians aren’t that dumb.

71 Nathan W April 9, 2016 at 7:18 am

People who consider Snowden as a traitor are generally congregated on the right, and those who consider him as a hero are rather more so congregated to the left.

Due to the specific nature of his violation, I DO think he should face legal sanction, but nevertheless consider him a hero. However, I highly doubt the NSA et al. would like to hang out the extent of dirty laundry that would be required to prosecute him. Snowden did, after all, offer to return to the USA to stand for trial. He should do some time (as should the people responsible for the illegal practices which were uncovered), and then at an appropriate time in the future a president can pardon him and we can build him a statue or something. Of course, that will not happen so long as we remain largely unable to constrain the excesses and lack of reasonable transparency considerations with regard to the security state and its operations against its own citizens.

I don’t like that he had to go to the Russians to make sure the release happened, but considering that it would otherwise have been kept under wraps via a whole slew of laws constraining the media about such things, it was probably the only way.

72 Ricardo April 9, 2016 at 8:18 am

“Snowden did, after all, offer to return to the USA to stand for trial.”

I think the opposite is true. According to this article, Snowden seems to be holding out for a lenient plea deal in exchange for returning to the U.S. The U.S. government position has always been that they want Snowden to return to the U.S. without preconditions — which means he would certainly have the right to demand a jury trial. If the government wanted to avoid a trial, it seems they would have done what they always do when they want to avoid a trial and offer a lenient deal.

http://www.theatlantic.com/politics/archive/2015/10/edward-snowdens-prison-offer/409075/

73 Nathan W April 9, 2016 at 8:35 am

Huh. A bit different than what I’d previously read, given that now it appears that he’s not actually offering to do any time.

I want stronger protections for whistleblowers, in addition to mechanisms which can ensure protection and eventual release of data without having to go to the Russians or anything. But given the sheer magnitude of the releases (necessary in this case to demonstrate what was going on), I’m uncomfortable with the idea that he should face zero sanctions for it.

I hugely respect what he did and absolutely hope it makes him fantastically rich and successful in the end, but do not think there should be zero deterrence against such a ginormous leak. It would be better to punish him for doing the right thing, and explain that this is precisely what is happening.

74 Keith April 9, 2016 at 3:18 am

I have followed this story closely and my conclusion is politics stinks. I watched the full interview of the Icelandic PM where he was essentially tricked and I felt sorry for him. Watch it yourself. I don’t have much respect for politicians but if someone asked me to remember what I claimed on my tax return 10 years ago I wouldn’t be able to answer. Even legitimate tax and finance activities can be arcane.

Is someone that uses a tax shelter corrupt or criminal? Maybe. In the court of public opinion, beyond a reasonable doubt isn’t the bar.

75 Moreno Klaus April 9, 2016 at 5:47 am

For a politician is not enough to be “good” they have to look “good”. And for very good reasons….

76 tjamesjones April 9, 2016 at 5:53 am

aye, I’m with you. There are some real stories in the Panama papers, political elites in poor countries who have stolen (literally) huge amounts of their countries revenues and hidden it offshore. And yet here in the UK we have the cynical labour party pretending that Cameron has done something similar.

77 Aaron April 9, 2016 at 3:33 am

The difference between these and the hypothetical legal correspondence is that legal correspondence is part of the established legal system so releasing it violates the societal rules we’ve agreed to play at (you can confide to your lawyer about your crimes).

A better example might be the Ashley Madison hack, again is was a different group, philanderers, but they weren’t of a distinctly different class. The relative reactions makes me think the issue here isn’t so much about status but fairness.

I think the question of the legality of the arrangements partially misses this point. There’s a perception that the rules of the game are heavily biased in favour of the rich, ie if you are wealthy it is far easier for you to increase your wealth than for a non-wealthy person. The information contained in those papers demonstrates one of those mechanisms in tax avoidance.

I think the question here is a clash of privacy vs a very legitimate societal question, I don’t really know what the answer is.

78 Ray Lopez April 9, 2016 at 3:46 am

My aged Greek uncle laundered Greek bank euros we strongly suspect, up to three million euro. The problem is, he’s lost his memory and can’t remember where he put the money. I’ll have to help him search his apartment (I’m a next of kin, and due to inherit it) and see if I find clues. Knowing him however he’s buried in somewhere. The other scenario is he’s lost it to thieves (they’ve already burglarized his apartment several times). It’s one reason –no, the only reason–I’m going back to Greece next week.

79 AIG April 9, 2016 at 4:17 am

It’s all a trick. Let Mr. Panos explain it to you: https://www.youtube.com/watch?v=Zvl9N9GdraQ

80 Pik B April 9, 2016 at 4:20 am

he probably used them as seeds

81 AIG April 9, 2016 at 4:23 am

He bought Windex stock with it.

82 uair01 April 9, 2016 at 6:04 am

Tom Waits sings in Cemetery Polka:

Uncle Phil can’t live without his pills / He has emphysema and he’s almost blind /

And we must find out where the money is / Get it now before he loses his mind

83 Ivy April 9, 2016 at 11:22 am

Your uncle might not be the first person to bury cash in a coffee can in the garden, only to find that nature conspired to decompose it. Perhaps he converted to metals?

84 Ray Lopez April 10, 2016 at 5:07 am

Thanks Ivy. I fear for the worse. Gold is hard to find in Greece (big markup, not sold online, unlike in the USA where I’ve bought gold online for a small premium). I think he expected to withdraw the euros after the crisis passed. The good news is that if an area is dry, you can preserve paper for over 100 years. I think maybe I know where my uncle buried the money: in an old wall in a certain village. Why? Because I recall he found documents there from 150 years ago, still intact, and he was amazed they survived. That’s the most logical place. Still, I hope he’s just playing dumb and the money is safe and sound in Switzerland somewhere. I will post later here on the status…I’ll have to use an anonymous VPN network since for obvious reasons not even my internet service provider can know I might have cash lying somewhere….”the walls have ears” (Persian saying).

85 Jake April 9, 2016 at 3:50 am

The GMU gang is getting tiresome. Robin Hanson & Tyler Cowen especially seem unable to explain any political development except via status games.

We get it, politics is more about status and in-groups / out-groups than people admit, but that’s not the ONLY thing they’re about.

The analogy offered, with criminal defense lawyers, is a joke. The whole point in that scenario is that the criminals are ALREADY IN THE PROCESS OF BEING PROSECUTED. The whole point of the Panama papers leak is that NONE OF THOSE PEOPLE WOULD EVER HAVE BEEN PROSECUTED.

Here’s a better analogy: there is a group of powerful murderers who keep records of the murders they commit. Hackers get a hold of these records. They know that if they simply bring this to the authorities, probably nothing will happen; the murderers are too powerful, they can easily influence judges and due process. Hence, the hackers decide to make these records public. I say that’s the right thing to do if you grant the assumptions.

It is also a joke to suggest that the claim to privacy of a private individual is on the same footing as that of a public official.

86 tjamesjones April 9, 2016 at 5:56 am

this made me laugh. in your “better analogy”, one of your assumptions is that your baddies are murderers. Not politicians, or rich people, or lawyers, just murderers. Born that way, murdering their way with impunity. And now they’re exposed, wonderful! What a great analogy.

87 Nathan W April 9, 2016 at 7:25 am

The analogy would also work for parking tickets, but that would definitely be trivializing the issue, and moreover, parking tickets are an essentially irrelevant expenditure for wealthy people. Do you have so little respect for your fellow citizens that you do not believe that they can look at an analogy and correctly assess that a tax fraudster is not a murderer?

88 FXKLM April 9, 2016 at 8:36 am

You do understand that few of the people in the Panama Papers are tax fraudsters, right?

89 The Original D April 9, 2016 at 9:28 am

And we don’t hear about most of them. Or when we do it’s more along the lines of Hollywood gossip than Very Serious Policy Issues.

The politicians, however, has some ‘splainin’ to do.

90 Nathan W April 9, 2016 at 3:03 pm

Probably. The picture isn’t very complete yet.

Perhaps the appropriate analogy instead of parking tickets would be the number of recorded police interactions, which includes innocent people getting carded.

The relevance of the original analogy was that the public release of data is what ensures that the investigations take place in the cases of wrongdoing.

91 Jake April 9, 2016 at 11:25 am

Trivial modification of analogy: the big murder records contain the names of non-murderers. The hackers don’t have the ability and resources to separate out just the murderers from the dataset. So, working with journalists, they only publish the names of people who have political power. (This is what is actually happening.)

92 Too Late April 9, 2016 at 2:41 pm

Better analogy: a group of married men in a homophobic society keep records of their homosexual fantasies (e.g. diaries). The diaries are found by hackers, etc…

Tyler and Robin are right, this is all about morally motivated reasoning and signaling. You missed the point entirely because your own instincts have overwhelmed your rational self.

93 David Zetland April 10, 2016 at 9:18 am

Yes. I came here to say this: public figures are held to a different (higher) standard of disclosure. Even more interesting, they have control over what’s legal and not, so they’re not exactly “innocent” to these tax games…

94 Pik B April 9, 2016 at 4:13 am

Hi,

the right to have secret conversations with a lawyer is granted in most countries and judges should ignore those conversations if they leak out (already happened many times and not for hackers) as the guy could have lied to the lawyer, additionally some states do not admit as proof evidences obtained breaking the internal law, that however usually applies only to the territory of the country.

The right to have secret wealth abroad is not a right of the same level, and in some countries is not legal at all. Viewing it as a “right to privacy” does not help since that right is rarely guaranteed when you commit a not legal action, because, if exists, is a weaker right.

You write about generic laws but which laws ? A thing is the law of each single country, an other is the “mondial law”, that doesn’t exist, is just some treaties, there is no mondial court, mondial judge. I think you mix the two and this is not right in my opinion. Sadly international law is mostly the old law of the strongest and the world should change that.

Probably stealing infomations is not legal in Panama, I imagine they will start some legal procedure there for that.

Then the countries where is not legal to hide money abroad and that admit as proof informations obtained committing a crime abroad will start their own legal procedures.

95 Ray Lopez April 9, 2016 at 11:23 am

What is “mondial law”? No such term in English says Google. The key points in the rest of your message is the legal policy of “comity”. If Switzerland’s law of privacy (or Panama) is violated, in theory the USA, unless it has an equal right in opposition, should give way to Switzerland or Panama. Further, there’s the ‘doctrine of unclean hands’ in Anglo-Saxon law that says if a party gets even good information in a dirty manner (such as torturing somebody) a judge will refuse to hear that information. Arguably paying a hacker or an insider to steal information is ‘unclean hands’.

96 Too Late April 9, 2016 at 2:46 pm

Mondial = international. Pik B isn’t a native speaker of English.

By the way, why are your private messages to Tyler so much better than your public messages on his blog? You would be so much more interesting if you made a modicum of effort.

97 Pik B April 10, 2016 at 6:47 am

Yes, international, thanks Too Late 😉

Which is the other party, who payed who to get the informations ?

Consider also that Germany in 2008 paid (4.2M) to get fiscal haven informations that have been stolen probably breaking some law in Liechtenstein, but they didn’t care.

https://en.wikipedia.org/wiki/2008_Liechtenstein_tax_affair

Not sure if will be possible to use the Panama papers documents directly but they will start new investigations.

About international law I am pointing out that, in a country, a crime abroad is not the same thing as a crime in the state territory. Different laws of different countries are usually not mixed if not for some political treaty, that however can also be ignored for “state reasons”.

So for me international law is something political, not something certain like the law of each single state.

BTW I can imagine that an US citizen can imagine international law as something that really exists and is very similar to the US laws, this because the US has so big political power that can bypass the laws of the other countries and impose its own, sometimes through treaties that no one would sign if there were alternatives, sometimes just ignoring foreign laws. This has happened many times, just a couple of examples in Italy:

https://en.wikipedia.org/wiki/Abu_Omar_case
https://en.wikipedia.org/wiki/Cavalese_cable_car_disaster_%281998%29

98 Joan April 9, 2016 at 4:42 am

When I transfer a large amount of money it. Is reported to the government, so I have difficulty agreeing that when rich people transfer funds it should be protected like when I talk to my lawyer.

99 Nathan W April 9, 2016 at 7:36 am

Every transfer over $10k is supposed to be flagged and authorities alerted if there is any reason for suspicion. Since most relevant people know this, some try to send large numbers of small transactions, so large numbers of small transactions are also supposed to be flagged so they can be analyzed for suspicious signs (there should be a reasonable explanation for sending many small transfers instead of fewer large ones).

A financial institution with poor procedures for this can face high fines or even lose their right to compete in the market. A client of that institution who provides incorrect information relating to anti-laundering or anti-fraud risk screening can (?) be held criminally liable (I’m having troubles finding the exact laws here, but this is the case), although there are certain expectations for the bank to engage in additional due diligence once certain risk factors (e.g., suspicious transaction trails or evidence of complex arrangements) are flagged.

100 anomdebus April 9, 2016 at 12:11 pm

From hell’s crab pot, I claw at thee!

101 Moreno Klaus April 9, 2016 at 5:52 am

This post is just the establishment guy, trying to justify the evil actions of the establishment which he belongs to. Frankly, i think this is on the limit of intelectual dishonesty. If he is any bit inteligent he knows very well what this offshore stuff is about…

102 carlolspln April 9, 2016 at 6:38 am
103 uair01 April 9, 2016 at 1:58 pm

Linked from your Amazon link – nice title: https://www.goodreads.com/book/show/23120225-the-establishment

The Establishment: And How They Get Away with It by Owen Jones

104 Ray Lopez April 9, 2016 at 11:26 am

LOL, try spell check.

105 Nathan W April 9, 2016 at 3:09 pm

Most browsers have an option for auto spellcheck, but presumably Mr Klaus has it set to something other than English if he’s using it …

106 M April 9, 2016 at 6:50 am

Whether it was right or wrong is much less important than trying to use the information to limit and curtail tax avoidance in future, which is clearly against the spirit of public good, whatever the letter.

Because you know that the tax avoiders will use this information to work out how to avoid tax more effectively.

That’s actually politics about policy.

Politics which is about status is well, along the lines of “their privacy, and thus their status and dignity, was violated”.

107 rayward April 9, 2016 at 7:32 am

Hypocrisy is neither a criminal offense nor a political offense. Reagan’s greatest accomplishment was to turn ordinary, middle income Americans into tax protesters. How did he do it? By supporting and signing into law the largest middle income tax increase in history while enjoying the reputation of a tax cutter. How is this relevant to offshore accounts and tax havens? When the very rich avoid taxes with schemes only available to them, the consequence is higher taxes paid by everybody else. Cowen would prefer the Reagan magic, using tax avoidance schemes by the very rich to turn ordinary, middle income Americans into tax protesters. It worked for Reagan, but Cowen lacks the same magic.

108 TMC April 9, 2016 at 2:40 pm

Reagan closed a bunch of tax loopholes that overall favored the rich. You won’t be Mulp’s brother, would you?

109 Ricardo April 9, 2016 at 8:01 am

The criminal defense lawyer analogy doesn’t work because a defense attorney is a third party who is called upon after a crime has allegedly taken place to defend the suspect. In the Panama Papers case, the law firm is providing services that have likely been used to facilitate crimes. I lean toward supporting privacy rights but the key issue here is that this firm is unlikely to be willing to respond to foreign subpoenas or warrants which means that an information leak is the only way some of their clients will ever be held accountable for their actions. There is a tension between the right to privacy and the right to be a whistleblower.

110 Agree April 9, 2016 at 8:18 am

The right analogy is not the criminal defense lawyer, but that old abandoned warehouse where the corpses are hidden. Some of the deceased died of natural causes, others were murdered. After the place is revealed, should we conduct autopsies and have access to the names of people who brought them in?

111 Nathan W April 9, 2016 at 8:41 am

In the analogy, generally we would agree that the identities of all these people should be protected as a matter of practice. However, in the case that we don’t believe things would be fully investigated in the absence of a full release, it might be preferable to release all the data even though this would be necessarily painful for the (families of the) innocents involved.

112 FXKLM April 9, 2016 at 8:40 am

The law firm has an office in the United States. I would be extremely surprised if they dodged subpoenas. Do you have any evidence to suggest that they do? Or any evidence to suggest that they were involved in facilitating crimes? Because there hasn’t been any information demonstrating either of those things in the public disclosures.

113 Nathan W April 9, 2016 at 8:49 am

I’m pretty sure all the due diligence stuff falls on the banks. Perhaps law firms should have to undergo a little as well. Lawyer-client privileges are very important with respect to alleged former crimes, but do not think there is any good reason to suppose that this is relevant to preventing current or future crimes.

For example, a lawyer might be required to disclose basic information about the client which is used to support risk assessment by financial institutions, such as being an executive of a listed firm, the existence of complex corporate holdings (doesn’t count against you if you can provide legitimate explanations), working in an industry commonly associated with laundering and fraud, working in a political position, and a number of other risk factors.

This is not at all like requiring disclosure of a “did you really do it?” sort of conversation between a lawyer and the client or disclosure of evidence (other than those required by regulatory reporting or an explicit subpoena) which may paint the client in a negative light in the course of a court proceeding.

114 PD Shaw April 9, 2016 at 10:50 am

Though I think most criminal defense lawyers will say they are rarely told if they committed the crime and almost never ask. There are ethical issues involved, such as whether a lawyer can present evidence or arguments at trial that he knows to be false.

The privilege protects communications in which legal advise is being sought, which is more frequently about things the client plans to do in the future. A lot of communications btw/ lawyer and client though are not about seeking legal advise, and there are a number of cases in which those communications are not protected. Businesses often copy lawyers thinking that they provide a veil of privilege, which may not hold up when a judge reviews them. Or clients have their lawyers do things for them, like the defense lawyer to the accused terrorist that communicated with his associates on his behalf (courier, not counsel). I doubt that any financial transactions which utilize a law firm are privileged, not just the ones subject to regulatory disclosure requirements.

115 Nathan W April 9, 2016 at 3:16 pm

That sounds correct to me, although I’m not very knowledgeable about the practice of law (mostly TV-level knowledge, correcting for what seems would make sense to me in the real world).

In practice, I’m pretty sure that you have to know that a document exists before you can compel someone to produce it. Or, at least, that the client is flagged and for documents relating to a client in relation to, say, financial stuff, to be shared with investigators.

The TV series “Suits” has lots of stuff relating to client document disclosures as elements of intrigue and plot development. They skirt the law in lots of ways, but I’m pretty sure that the underlying laws and practices implied in the scenarios are roughly accurate for most US contexts.

116 Ricardo April 10, 2016 at 3:51 am

“Dodge” is a strong term. Here is a recent NYTimes op-ed: “The leaders of 132 nations have agreed to adopt an information-sharing standard developed by the Organization for Economic Cooperation and Development. Of those, 96 are expected to start sharing banking information over the next couple of years through an automated system designed to allow the tax authorities of participating governments to see the overseas holdings of their citizens. But one major international financial hub has refused to sign on — Panama.”

As for facilitating crimes, I said it was “likely” and base that assessment on some common sense coupled with the fact that some of this firm’s clients were cronies of people like Hun Sen and Putin whose corrupt and law breaking activities are incredibly well-documented at this point. It’s reasonable suspicion. Also note that many countries have laws requiring civil servants to make a disclosure of all of their assets — corrupt officials almost invariably break this law and the likelihood that someone has violated this law is very high when it turns out they are a low-paid public servant from a poor country but have sought to store assets overseas in the names of shell companies.

117 Sean Kelleher April 9, 2016 at 9:11 am

2 points: 1. Do the tax laws which enable offshore financial activity have the same fiscal magnitude as the homeowners interest deduction? If so, then the comparison makes sense; but if the numbers are not in the same ball park, then it suggests an insistence on false parallelism. 2. One can support Pansma Paper type privacy breaches, while still favoring stronger encryption; all that is needed is the recognition that encryption involves tradeoffs, which we already know.

118 McMike April 9, 2016 at 9:39 am

The difference between offshoring and the MID is that people who utilize the interest deduction must do so clearly, must identify themselves, must specify the amount, and must be able to provide documentation.

The amounts involved are quantifiable, are recorded, tracked and studied, and if necessary can be specifically identified and audited. In exchange for our transparency with the IRS, we are provided an expectation of privacy of the amounts from everyone else, unless criminal investigators are able to prove reasonable suspicion that there is evidence of a crime behind that privacy. (Not coincidentally, even IRS investigators can be stymied by the veil of US state LLC privacy).

If the interest deduction is an unfair tax break, let’s talk about that. But it’s not laundering.

119 FXKLM April 9, 2016 at 9:53 am

I think you seriously misunderstand how these entities are being used. It sounds like you think people are simply putting their assets offshore and then, since the money is out of their home jurisdiction, they never need to pay any sort of home jurisdiction taxes on it. That’s not even close to accurate. More often, these entities are a part of a broader and more complicated structure and it’s impossible to quantify the tax benefits of using those entities because it’s unclear what the next best alternative tax structure would be if those entities were unavailable.

Imagine someone with a wide range of investment assets held in their own name in their own country. They would prefer to put those assets into a single entity to administer those assets together and simplify the process of giving out chunks of those assets to family members. If they create that entity in their home jurisdiction, the individual beneficiaries and the entity would each be subject to tax on the investment returns. Obviously, no one would create that structure. However, they could form the entity in a jurisdiction without local tax so only the individual beneficiaries are taxed. In that case, what is the loss of tax revenue from using the offshore entity?

Admittedly, that’s the most extreme case where the use of an offshore entity is clearly reasonable and uncontroversial. There are certainly some offshore structures that are more aggressive. Most offshore structures, however, look a lot more like my example than the sort of things you have in mind.

120 McMike April 9, 2016 at 10:58 am

No. I am in fact willing to believe that the majority of offshore transactions are innocent and merely expedient.

However, I also believe that they also serve as a refuge for a non-insignificant amount of illegal, unethical, and ought-to-be-illegal transactions and that they are by intent and design deliberately built to provide not just privacy, but anonymity. The illegal activity hides behind layers of shell companies, and offshore banking aids and abets that. And that beyond the criminal activity, they are also built to afford exceptions for the rich from the systems everyone else must comply with.

It is the anonymity and discriminatory part that irks.

If we need a system for corporations and international wealth to move its money around, fine. It should be transparent and open to inspection, within the guidelines of specified due process.

121 Ricardo April 10, 2016 at 4:15 am

This still raises the question: why Panama? Singapore, for instance, has a sophisticated financial sector that has a history of being open to doing business with foreign entities and no capital gains tax. The one thing they don’t offer, though, is protection from your home country’s tax authorities as they recently started sharing information with other countries after they started being criticized for being a tax haven. It’s not clear why someone who isn’t up to anything illegal wouldn’t choose to put their money in a place like Singapore or Switzerland. Panama, as it turns out, is much less willing to share information with foreign tax authorities.

122 McMike April 9, 2016 at 9:14 am

Not a fair analogy. The system of protections for criminal defendants is (theoretically) available and applied equally to all and designed to protect all from the state. The system of offshoring income to launder it from taxes and criminal prosecutions is a loophole that the wealthy carved out for themselves to create a separate system for themselves, to allow them to hide from the state. (Yes, offshoring is “theoretically” available to anyone with enough money, but there is a baked-in discrimination here).

The privacy afforded to defendants is a different sort of privacy than hiding assets. Defendants are not guaranteed anonymity, the state has the right to identify them and call them to account. The privacy offered by offshore accounts, meanwhile, is one that aids criminals in never being identified, even if a crime has occurred, it is a loophole that (effectively) prohibits the state from ever obtaining a wiretap, so to speak. (Yes, I know that offshoring is only a part of this, and domestic LLC laws are as bad or worse). And indeed, as a commenter stated above, planning a tax haven is a prospective act.

I agree with the concept that principles are principles, and the true test of one’s claimed values is will they stand by it even if they abhor the result. (or: “Character is what you do when no one is watching”). But on the other hand, I am a fierce proponent of free speech who thinks one ought not be allowed to shout “fire” in a crowded theater. So, yes, there ought to be limits on attorney privileged. Sol, let’s argue where that is.

The political reality (and therefore the policy reality) is that the only way to get injustices addressed is to first expose them publicly, particularly when those injustices entail the elite carving themselves shelters and exemptions. Assuming we accept that offshoring is an injustice – the pathway to laundering – then violating the privacy of its users serves the greater good of reforming a crooked system. On the other hand, violating the privacy of criminal defendants only serves to undermine the operations of a bedrock principle of the nation’s founding.

Offshoring is like robbing a train and them getting off scot free if you are able to evade the posse and cross a state line. We made laws and created broader jurisdictional forces to address that problem. A model we should consider is extradition of a citizen back to his home country after committing a crime at home and then fleeing across the border. Offshoring is a preemptive anti-extradition law that allows the wealthy to park their money on the other side of a fence and then thumb their noses at the cops. If the wealthy want to argue that their money won’t get a fair trial if forced to come back home, then make it. But they should not be allowed to hide the money and avoid the conversation.

And offshoring is indeed an injustice, even if “legal” – it is a way for the wealthy to opt out of a system that is mandatory for everyone else. Exposing offshoring is akin to exposing who took advantage of indulgences in the Catholic Church, or who bought Civil war draft commutations.

When we protect mental health consultations, or church confessions, or criminal attorney conversations, we have decided that the greater good benefits, even if some criminals go free. And while there may be a certain level of schadenfreude involved in unmasking the users of offshore havens, this does not change the fact that the loophole they created for themselves was unfair and unequal and does not clearly serve the greater good.

[I know that I am rambling a bit; my coffee seems to refuse to kick in]

123 Ray Lopez April 9, 2016 at 11:37 am

” But on the other hand, I am a fierce proponent of free speech who thinks one ought not be allowed to shout “fire” in a crowded theater. ” – bad analogy. If one shouts ‘fire’ in a crowded theatre likely everybody will check to see if there’s smoke, if there’s any sort of fire, and, as airline disasters show, most people do not panic when in an emergency. They may pass out, they may be hysterical, but they usually don’t panic. In fact, in The Station 2003 nightclub fire, which consumed the entire place in a mere 5.5 minutes, there was clear panic due to an actual fire, and people jammed at the doorway, yet 78% of the 462 people actually nevertheless escaped without dying, which rebuts your thesis that a non-fire, and the mere mention of “fire!”, will cause a fatal stampede. Like the fable of the bees, and the false idea that bees are a positive externality that justifies government involvement (Google this), this ‘crowded theatre shouting fire’ analogy of yours is false.

Full disclosure: I’m in the 1% and I do have offshore accounts. In fact, just yesterday I filed electronically–the only way they allow reporting now–FinCEN Report 114. But TC is right as rain on this issue, and not just because he quotes me.

124 McMike April 9, 2016 at 1:26 pm

“If one shouts ‘fire’ in a crowded theatre likely everybody will check to see…”

Are you trying to be cute? You know exactly what the metaphor means in this context. Had you followed your own advice and Googled it, you’d see that:

[Excerpt] “Shouting fire in a crowded theater” is a popular metaphor for speech or actions made for the principal purpose of creating unnecessary panic. The phrase is a paraphrasing of Oliver Wendell Holmes, Jr.’s opinion in the United States Supreme Court case Schenck v. United States in 1919, which held that the defendant’s speech in opposition to the draft during World War I was not protected free speech under the First Amendment of the United States Constitution.

The paraphrasing does not generally include (but does usually imply) the word “falsely”, i.e., “falsely shouting fire in a crowded theater”, which was the original wording used in Holmes’s opinion and highlights that speech which is dangerous and false is not protected, as opposed to speech which is dangerous but also true. [end]

Your second paragraph is equally sophistic, running at an admirable rate of at least one fallacy per sentence.

125 Nathan W April 9, 2016 at 3:21 pm

But if we don’t let them hide their money offshore then they will otherwise take their money offshore. So we HAVE to let them do it. Makes sense, right?

126 McMike April 9, 2016 at 6:35 pm

“But if we don’t let them hide their money offshore”

If by this you mean: people with enough wealth to bother with this will cheat no matter what the rules are, then yes, that’s the point.

My main objection – besides the fact that these offshore banks and shell companies are a leading mechanism of money laundering and secrecy for global criminals, major nation-level sociopaths, corrupt kleptocrats, and sundry goons and thugs, not to mention backers of terrorism – is the anonymity.

Privacy does not equal anonymity.

These people with so-called legitimate needs for offshore banks and secret shell companies are making their beds with drug runners, child-killers, and nation-rapers. So they ought to expect the occasional raid on their secret lairs. And they need to stop conflating the claimed need for anonymity with the reasonable right to privacy.

127 Nathan W April 10, 2016 at 2:44 am

Private citizens need to be able to communicate anonymously to uphold democracy. There is no legitimate reason to engage in anonymous financial transactions, however (except, perhaps, to hold financial resources to help revolt against an illegitimate government, but those aren’t generally the types using these accounts).

128 Bryan Atkins April 9, 2016 at 9:15 am

Many responses, think once again, Dr. Cowen omits much context, rendering this a myopic, petty? side show.
Context, going bigger pic is vital, like this: “We need scarcely add that the contemplation in natural science of a wider domain than the actual leads to a far better understanding of the actual.” Sir Arthur Eddington, “The Nature of the Physical World”
One thing to look at is morality itself. This from Peter DeScioli’s MORALITY: THE AMAZING SIDE-TAKING MACHINE. “Morality is on par with complex adaptations such as the vertebrate eye, hive-making in honeybees, and the neural control systems that stabilize bird flight. Second, morality is among the most selfish, coercive, backstabbing, and destructive adaptations that evolution has ever produced in its four billion year history. This shocker comes with a crucial corollary: morality is different from its kinder, gentler, and more ancient doppelganger, altruism. Humans show many forms of altruism and compassion that do not require or depend on the capacity for moral judgment.” http://www.humansandnature.org/mind-morality-peter-descioli
Cowen invokes morality in the tired left / right play that is about to closed by natural selection.

Next: Cowen doesn’t appear to know what time it is, nor grok code in a physics / evolution context, or what complexity does to code.
It’s triage time for the survival of civilization and maybe our and many other species; code is relationship infrastructure in bio, cultural & tech networks: genetic, language, math, moral, legal, monetary, software. Code is physics generated and physics efficacious scaffolding for building and processing relationship information. Complexity increases, the flood of additional inputs into the network can crush the information-processing efficacy of code.
Crushed Efficacy Exhibit A: If your culture’s relationship with the sky and ocean are deadly, your cultural genome sucks. The coding structures used by your culture for relationship / reality interface can’t generate functional relationships, can’t generate homeostasis with the SKY!
That relationship? Rather fundamental. Cowen is playing around with some minor question about a particular section of interface between legal code, relative wealth and morality when all three of those coding structures — legal, monetary and moral — can’t handle complexity, have to be updated, integrated into a larger whole: considered for their functionality, their viability for passing natural selection tests. Right now, those coding structures ain’t gonna pass near future tests.
Then, there’s Cowen’s apparent lack of understanding that we’re a eusocial species, moving along that form of social organization’s spectrum toward ever-greater integration, connectedness.
Oh, and by the way, our gov’t be hacking every call and text? Or did, and probably still does, or large quantities. And that process is actually creating a physical, information processing structure that adds to our integration, to our movement towards greater eusociality. Yes, power abuse monitoring of that data collection is a constant question / struggle, as is keeping people (cells in the cultural organism) from going rogue, cancerous. That data collection could be extended to culture’s relationship interface with geo eco bio networks. Because those networks? They be going Rogue, mass-death rogue, right now.
Re Culture, Complexity & Code: http://ow.ly/Zny2a

129 Ray Lopez April 9, 2016 at 11:41 am

Wrong. Your central thesis that over time a system becomes more complex, and this is justified by ‘evolution’, is false. Exhibit A would be the cockroach, which hasn’t changed much in a couple of hundred millions years yet does just fine. Exhibit B would be the Tower of Babel, which failed despite ever greater complexity.

130 McMike April 9, 2016 at 1:19 pm

“Exhibit A…”

Citing a single exception defeats and entire theory? Wowza.

Shouldn’t your example be at least accurate? http://io9.gizmodo.com/how-pesticides-pushed-cockroaches-into-rapid-evolution-509398746

131 Nathan W April 9, 2016 at 3:41 pm

I think the “cockroaches are evolutionarily fit” line of thinking can be overplayed. Yes, they probably stand a higher likelihood of surviving a nuclear holocaust or a diversity of other Armageddon scenarios. But instead of considering that the species which shared the earth with cockroaches hundreds of millions of years ago “went extinct”, instead consider that these evolutionary processes resulted in more advanced forms of life and a more expanded tree of life which mostly occupies niches which are not exploitable by cockroaches.

Consider that basically no one says “algae is the most superior form of life – look, it’s been around for billions of years and will survive basically any Armageddon scenario except for the eventually explosion of the sun”. This is taking the cockroach argument to the extreme, and I think it suffices to demonstrate that the “cockroaches are evolutionarily superior” argument is vastly overplayed.

Evolution does not at all promise any development towards increasing complexity, and in this sense I think you’re onto something. It promises development towards whatever is most likely to survive according to an ever-changing target under a very slow where essentially random evolutionary changes are progressively culled or favoured in a very marginalist sense by whatever happens to increase “fitness” in the given context. Large and clunky genomes are not advantageous in and of themselves (in fact they are costly because this implies a high level of unproductive, unnecessary or even counterproductive “construction costs”), and complexity itself is no guarantee of success – in many sense, simplicity+specialization may be strongly advantageous.

132 Nathan W April 9, 2016 at 3:27 pm

Interesting. It would take too long to explain the (interesting?) ways in which I agree and disagree, but mainly I want to point out that the evolutionary view should be considered more as a function of mutation potential, fitness and how this relates to biochemistry and the ways in which genes are expressed in an organism. Yes, there are determined as a function of physics stuff which constitute the rules by which molecules take their shapes and interact. But “physics” is far too micro a level of consideration for the relevant considerations of how these systems evolve and exist.

133 JR April 9, 2016 at 9:18 am

Everyone likes it when things are leaked (whether bad or good) because they love gossip. Until it’s their information. This is wrong (just like the fappening, Sterling audio, etc.,) and privacy is something people have very strong bias problems with. Anyone’s worst day or audio would get them fired from their jobs or cause issue with family, church, relationships.

Just because it’s POSSIBLE some of these items are illegal doesn’t make it right.

134 The Original D April 9, 2016 at 9:26 am

I don’t think it’s about lowering the status of wealthy people per se — no one is going after Warren Buffet or even rich assholes like Larry Ellison.

It’s about lowering the status of people, particularly politicians, who say one thing and do another. It just so happens that only wealthy people engage in these activities.

And there is no criminal trial going on, though a criminal trial may ultimately be the result of the leaks. This is more like leaking the evidence that Apple and Google were price-fixing engineering salaries.

135 Turkey Vulture April 9, 2016 at 9:42 am

I think you are pretty far off, unless by “status” you mean something so general that it includes “power.”

You note that much of their behavior might not even be illegal. That is precisely why many approve of revealing the information in this manner, where they’d oppose it with criminal defendants. Criminal defendants have very little power over society. Most of what they have is granted to them out of a combination of mercy and ideological commitment to due process. The wealthy people who would be making use of the services of this firm, on the other hand, have a substantial amount of power over society. Too much, to many people. And that is why a lot of what they are doing isn’t illegal – they have the power to keep it from being illegal.

So again, if your conception of “status” includes power, then yes, this is about reducing the “status” of the wealthy. But it’d be a lot simpler to just say that support for this kind of leak (and a theoretical lack of support for doing the same with criminal defendants) comes from a populist desire to reduce the relative power that the wealthy have over society, and increase the relative power of the everyone else.

136 Jake April 9, 2016 at 11:31 am

Tyler Cowen and Robin Hanson found a hammer, “competition for status”, and god damn everything look like a nail to them now.

I wonder if GMU faculty gain status by producing “competition for status” explanations of things.

137 Ray Lopez April 9, 2016 at 11:43 am

Thanks, so you agree with TC, since clearly status includes power. We’re in violent agreement then.

138 Turkey Vulture April 9, 2016 at 3:15 pm

Not sure I understand what the claim of “status” is being offered in opposition to then. Is Tyler just saying that politics is people fighting over power in trying to pursue their self-interest, not trying to implement Ideal Policy? That doesn’t sound especially novel. Only calling it “status” instead of “power” makes it sound novel.

“POLITICS, n. A strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage.”
– Ambrose Bierce

139 Nathan W April 9, 2016 at 3:43 pm

For some people, status is yoga pants.

140 Joe April 9, 2016 at 9:49 am

Why isn’t someone in the business of pooling less affluent people’s money into some “mutual shell company” so that normal people can take advantage of these same tax loopholes?

141 Ray Lopez April 9, 2016 at 11:45 am

I can answer that: (DEC 2015) “Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account, according to a new survey of more than 5,000 adults conducted this month by Google Consumer Survey”

142 GoneWithTheWind April 9, 2016 at 10:09 am

It is legally indefensible to hack into someones computer. However it is legally indefensible to launder money to hide dishonest or criminal activity. I submit it is a fine line and it is the intent that is a critical factor. If the intent of the hacker is to expose a crime and make no personal profit or political gain then I say no crime. I look forward to more exposures of criminals by hackers.

143 Ray Lopez April 9, 2016 at 11:48 am

You’re assuming most people with offshore accounts are illegal. That’s probably not true anymore. The reason I have an offshore account(s) (and report it) is convenience, and the fact if the USA ever becomes a Nazi police state (which it seems to be becoming), I can have money already outside the USA. I also am a dual national (Greece, US, and working on becoming a Philippine citizen).

144 GoneWithTheWind April 9, 2016 at 11:29 pm

Not assuming anything. I have a couple of legal accounts in banks and credit unions within the U.S. and my information is readily available to the government if they have a legitimate reason to see it. Like it or don’t like it that’s they way it is. Just as I have to show interest earned on my taxes I have to show from where and they can legally force me to prove my tax information is correct. So what would be the reason for a secret account?? You say just in case the country becomes a Nazi police state. Really, that’s the reason? Somehow I don’t believe that. Your going to a lot of effort to hide your money and finances for some reason why?

I do not believe any citizen should be allowed to have dual citizenship. If you want to be Greek or a citizen of the PI then do it and abandon your U.S. citizenship. Don’t stand with one foot in each country ready to abandon your country if things get tough. Were is your pride? We don’t need fair weather citizens what we need is people who love and believe in their country. I’m in it for the long haul, I’m not scurrying off to someplace safe when the going gets tough.

145 Ray Lopez April 10, 2016 at 5:12 am

Better you than me then. You take the bullet and I’ll be right behind you bro. And as Socrates said “I am a citizen of the world” (but he didn’t follow his own advice, and got axed for it by the state).

146 Benjamin Cole April 9, 2016 at 10:24 am

Suppose it is the norm for wealthy individuals to use offshore entities (globally) to not report income, but citizens have no evidence of it, and the laws are structured to prevent evidence from being released?

As I say, my guess is that any future studies on taxes should have an asterisk, to the effect, “of reported income.”

BTW, given the way cash in circulation is exploding in Japan, Europe and the US, this problem of not reporting income may be very democratic.

147 Thiago Ribeiro April 9, 2016 at 10:29 am

“Both points 1, 2 are relevant for the conduct of the law firm of Mossack Fonseca. Except for the alleged destruction of evidence by them, I don’t see them doing anything that bad (by law firm standards; remember, any law firm of decent size has former crooks as clients, and for a firm in Panama I would say that’s not the exception but the rule!”
They have current crooks, too, and a good chunck of Brazil’s GDP. My money, my rules. I say, raze the place, salt the earth, kill the men and sell their women and children as slaves until proper restitution is made! “Cry ‘Havoc!’, and let slip the dogs of war.”

148 collin April 9, 2016 at 11:00 am

Another MR post that rich people are better than you. Of course all this spying is wrong, but it is reality of the modern world. And I am with Megan Mcardle here most of the big names here are not really looking for tax dodges (US ones are more competitive) here but setting up funds for “Get outta Dodge money.”

149 Ray Lopez April 9, 2016 at 12:01 pm

So, are the rich better than “you”, since you seem to agree with Ms. Mcardle? That is, is Dodge going to hell and you need to be able to get out quickly? That’s the key assumption in your narrative. If Trump decides to seal all money flowing out of the USA by Presidential Decree, and also suspends elections until further notice, what will you do? I have multiple bank accounts that cost me nothing, and multiple passports. Already the having two passports once saved me in Turkey from a potentially violent situation with an overzealous government (or quasi-government) military man / militant (we were taking pictures in a prohibited zone, long story, I showed him the US passport and faked him out but in fact I was traveling under the Greek passport, later he and others tried to stop me but they had bad information and I escaped…it was a good Midnight Express story and it’s more complicated than this–there’s a car chase for example– but it’s enough to make my point).

150 Nathan W April 9, 2016 at 4:02 pm

Spying is for targeting proles. Rich people’s affairs are so big and important that they only do them by private couriers which are never inspected.

As a bicycle courier in 1999, it was a common discussion among couriers whether email, etc., would destroy the industry. One of the more experienced riders assured me that this was not at all likely, because all the wealthiest clients would never in a million years trust the government with their information. It’s not at all obvious until someone mentions it, but then you cannot unremember that.

A natural reaction might be “if they can spy on the proles, then they should spy on the rich people too”. But I would rather things work in the other direction so we can all enjoy a little less surveillance. This need not exclude the notion that various regulatory approaches can require the sorts of reporting that would rein in tax fraud by the wealthy?

151 byomtov April 9, 2016 at 1:27 pm

This is a thought-provoking post.

But DeRugy’s piece doesn’t make much sense.

First, she complains that France is enforcing its tax laws. Apparently they shouldn’t, because she finds them “onerous.”

Then comes this nonsense:

President Barack Obama, on the other hand, recognizes that most of the activities reported in the stolen pages are legal. As such, he wants to do something that might be even more radical than what France has done. He proposes making it illegal to legally reduce one’s tax burden. Falling back on some generic and zero-sum concept of tax fairness, he told reporters that we “shouldn’t make it legal to engage in transactions just to avoid taxes” and that he wants to enforce “the basic principle of making sure everyone pays their fair share.”

So changing the tax laws is “making it illegal to legally reduce one’s tax burden?” WTF?

Say the mortgage interest deduction were eliminated. That would make it illegal to deduct mortgage interest, which is now legal, of course. Would she call that “making it illegal to legally reduce one’s tax burden?”

By the way, as a general matter, US tax laws often disallow certain transactions which are designed purely for tax avoidance, even if the form of the transaction seems OK.

152 McMike April 9, 2016 at 1:30 pm

“By the way, as a general matter, US tax laws often disallow certain transactions which are designed purely for tax avoidance, even if the form of the transaction seems OK.”

And, relevant to this discussion, it is also illegal to act as an expert and devise and sell schemes designed solely to evade taxes.

153 Nathan W April 9, 2016 at 4:09 pm

Clearly it was somewhat of a brainfart or poor phrasing. What she meant was “removing the legal status of some of the tools which at present allow one to legally reduce one’s tax burden.” This is basically what people mean when they talk about “closing loopholes in tax avoidance” which most people agree with except for the ones whose loopholes will be closed.

Of course, the billionaires will make much noise that they will just take their money offshore instead of taking their money offshore. At least in one of those cases, there is the potential to tax them.

154 byomtov April 10, 2016 at 12:01 pm

What she meant was “removing the legal status of some of the tools which at present allow one to legally reduce one’s tax burden.”

In other words, it’s what I said.

155 Nathan W April 11, 2016 at 1:31 am

Ah, I thought you were calling her dumb for saying “illegal to legally…”

156 Chuck April 9, 2016 at 1:28 pm

Everyone just assumes these leaks are true. Has anyone done the legwork to verify any of this?

157 Dan Lavatan April 9, 2016 at 1:53 pm

FACTA is unconstitutional. If we were to deny legal privacy in this case, the government could pass all sorts of unconstitutional legislation, say requiring quartering of soldiers in homes built after 1899. Anyone opposing this would effectively be denied council, which would then go into the default bag of tricks for unconstitutional action.

All taxes should be repealed, and taxing citizens on worldwide income should be among the highest repeal priorities. That said, using attorneys very much set them up to fail, nobody should ever rely on anyone else because nobody can be trusted. Countries should develop information systems so they do not require domestic incorporators. Until then, the rest of us can just open an account with the National Bank of Anguilla like a normal person.

158 Nathan W April 9, 2016 at 4:21 pm

I hear taxes are rather low in Somalia.

159 Slappy McFee April 9, 2016 at 6:18 pm

Being as if you own anything you risk losing your head, I would say taxes are quite high in Somalia.

160 Nathan W April 10, 2016 at 2:50 am

Maybe they need to collect more taxes to help stop that kind of stuff.

161 Thomas April 10, 2016 at 8:15 pm

That is totally relevant to the discussion of the miniscule portion of federal tax revenue, in addition to the current 21% GDP, which could be captured on income earned in foreign countries. Income earned without use of any US infrastructure, to which the federal government has no legitimate ‘social contract’ claim to, did nothing at all to facilitate, and would certainly require draconian privacy invasion and capital controls to capture. Hayek was right about the Road to Serfdom. Cowen is right about the motivated reasoning. Look at this comment section and see how many people are clamoring to impose China-like capital controls, and 1984-like privacy destruction, in order to capture a very minor amount of taxes. All because you hate wealthy people and want their money.

162 McMike April 10, 2016 at 8:24 pm

re Thomas. “All because you hate wealthy people and want their money.”

No. All because we want them to play by the same rules as everyone else.

I will let it pass that you glibly skipped over the money laundering by drug runners, kleptocrats, and terrorists.

I will also let pass your overheated drama. There are very few calls for draconian capital controls and Leninist asset seizures. What there ARE calls for is transparency and disclosure and the rule of law.

However, I must insist on seeing your source for the claim that the amount involved is minuscule. I see estimates of lost tax revenue in the 100’s of billions per year. That’s still real money, even to the US budget.

163 Nathan W April 11, 2016 at 1:37 am

Thomas – I sort of resent that I pay a higher share of income as taxes on 20k or 50k than wealthy people pay on their millions. I think it’s reasonable to resent that. (For example, my business is too small to be worth incorporating.)

And on the matter of it being just some piddling percent of GDP, well, every bit counts. Imagine arguing to your employer “well, the work done in the next 30 minutes is pretty trifling compared to the big picture, so don’t mind be while I do nothing useful. Oh, and I plan to apply the same reasoning to each sequential 30 minutes for the rest of my career, but still expect a paycheque”.

Without taking a position on what exactly is their “fair share”, well, whatever their “fair share” is, they should bloody well have to pay it.

This is a system which enables them to get fantastically rich. We’re talking about freeloaders here, milking a system for its benefits, and then hiding away as much as they can.

164 Thomas April 11, 2016 at 4:39 am

I can’t think of any legitimate claim a society has to tax income earned outside of that society. As an example of what justice looks like, many states allow military income earned in another state to be tax-free. Why not? If a Missouri resident lives and earns in Virginia for 20 years, they aren’t participating in the social program of Missouri. Similarly, why should the federal government tax the profits completely earned in a foreign jurisdiction, from post-tax money earned in the US? What claim do they have to it? I say to Obama about Panama what he said to US citizens about their businesses: you didn’t build that. My use is much more accurate than his.

165 Thomas April 11, 2016 at 4:48 am

As for milking: profits earned outside of the US social and economic systems cannot be considered milking if those systems since, by definition, they do not interact with those systems. If the US has a legitimate claim to foreign profits, what else does it have a claim to? Tax from the lifetime income of the foreign born child, and all generations henceforth, of a GI who skips town on a pennant local? How about the foreign profits of a business based in a foreign country, but with a single US branch? If not, what is the principle which allows for one, or two, but not all three?

As for stopping the practice: how is it possible unless the government is able to track all property? How is cash possible in such a system? If you can’t stop cash from leaving and you don’t enforce that all foreign entities must report any information the US wants, how can you stop the practice of what is essentially people partially leaving the system? There are a few countries that provide instructive examples.

166 Thomas April 11, 2016 at 4:56 am

Here’s to hoping that demands for taxes on income earned completely outside of the social contract doesn’t lead to the wealthy simply leaving the US and the walls of totalitarianism that would be necessary to keep them here.

On a related note have you ever considered the tax avoidance made by people who choose to work less than 60 hours per week? Perhaps we can get some common sense reforms to enable society to get its roi by signing these people to labor camps. After all, if work that occurs on the moon, in addition to work that occurs in the US, is taxable by the US, why shouldn’t leisure that occurs instead of work in the US.

167 uair01 April 9, 2016 at 2:07 pm

And no one asks why a legal firm with confidential client information could have such sloppy systems security. (Didn’t research this, but Twitter rumor says it was a Wordpress plug-in, others say it was a mail server hack.) And not detecting the ex-filtration of terabytes of data is sloppiness too. I hope my tax-data are better protected, although I have nothing to hide.

168 Nathan W April 9, 2016 at 4:27 pm

I’d assumed it must have been an inside job to get that much data out undetected. One could dream up a hundred ways it might have been pulled off.

169 Pik B April 10, 2016 at 6:57 am
170 Sirr Duende April 9, 2016 at 2:36 pm

Trust & Company Service Providers (as they are referred to by the Financial Action Task Force (FATF)), often services undertaken by lawyers, are included as persons required to report red flags associated with Money Laundering and Terrorist Financing. Tax Evasion, rightly so, is generally regarded as a predicate offense for money laundering, but only some jurisdictions have put it on their list of predicate offenses. It is misleading to go down the road of privacy vs. nefarious hacking in the name of justice hurts high-profile successful people. The story here–of massive off-shore activity set up to avoid taxes and shelter assets (some of which are ill-gotten)–is that this activity is NOT illegal. Taxes are for little people.

171 Thomas April 10, 2016 at 8:20 pm

Your argument presupposes a moral right of the US federal government to tax income earned in other countries – that taxes aren’t merely socialized use-fees but expressions of an ownership stake in human beings.

172 George Dorn April 11, 2016 at 10:24 am

“Your argument presupposes a moral right of the US federal government to tax income earned in other countries”

Here are some benefits Bob gains or gained from having citizenship in the U.S. even while earning income abroad. The price of these benefits is following the same taxation laws as every other citizen of the U.S.:

1. Growing up in a first-world society, which resulted in a better education and in many cases living long enough to earn an income. Even if his family is rich, paid for health care for him and his mother out of pocket and sent him to private school, he still benefited from the society at large having these things; if he had grown up in a rich family in South America, for example, his family would have paid a much larger portion of their income on private security to avoid kidnappings and ransom when security failed. Likewise, the crime rate in the US is miniscule, freeing Bob to concentrate on more lofty pursuits like earning an MBA with which to gain this foreign income.

2. Having citizenship in the US means Bob protects him from many risks, allowing him to conduct far more risky (and therefore rewarding) foreign business. He can take these risks knowing there’s a safe haven if he fails, first in the form of Embassies he can call on during immediate threats and second in the form of retreating to the US if his business ventures fail completely. His foreign competitors may literally live or die on the success of their ventures, while Bob is relatively safe.

3. Having citizenship in the US means Bob can take advantage of trade and travel agreements arranged for by his government. For example, he benefits from far easier travel to much of the world (without visas or with easier-to-obtain visas).

4. Having citizenship in the US gives Bob cachet when dealing with many foreign businesses and governments.

And the biggest argument for why Bob should pay the taxes to pay for these benefits: Bob clearly values his citizenship or he would renounce it. He places higher value on that citizenship than it costs in the form of taxes.

Or he breaks the law by hiding the foreign income from taxation.

173 McMike April 11, 2016 at 10:44 am

re George. Indeed. The US government has shown itself willing to go to extraordinary lengths to protect and evacuate its citizens abroad. Hell, Reagan invaded an entire country, just to rescue a few college kids that didn’t even know they were threatened.

And whether or not the people who have their foreign earnings taxed are willing to admit it, they knew the deal going in and should adjust their return and compensation expectations accordingly. As in: price it in (which it usually is). So this is all just more tax-whining by the spoiled rich kids of Uncle Sam, who grew up privileged, and are now are off at boarding school, bitching that their trust payments aren’t big enough.

The tax regime is pretty up front, and yet you have been granted several options to choose from by the totalitarian US state:
– Suck it up and make foreign income, and pay your taxes, and price it in.
– Come back home and pursue the ample opportunities here in the land of plenty
– Renounce your citizenship and demonstrate that you are truly a self-made man of the world that doesn’t no no stinking rich uncle covering his back

That’s actually a lot of choices from the Soviet planning commission.

174 nonzenze April 9, 2016 at 2:59 pm

Tyler, I’ll call you on the factual claim that “… most of those individuals probably did nothing illegal, but rather they were trying to minimize their tax burden through (mostly) legal shell corporations.” To make it concrete — I will bet you $1000 that less than 40% of the American beneficial owners of the corporations listed in the Papers timely filed IRS form 54-71 declaring their interest in a Controlled Foreign Corporation.

Because ultimately that’s the rub. It’s legal to own foreign corporations. It’s even legal to be the beneficial owner without officially being a shareholder or officer of such a corporation. What’s illegal, as always, is the coverup — failure to declare that interest in an attempt to avoid scrutiny.

175 Beaver April 9, 2016 at 3:49 pm

There is no right and wrong. There is only power and those with the will to wield it.

176 Thiago Ribeiro April 9, 2016 at 3:57 pm

President Lula, is it you? In fact, “Death Eaters” would be a great name for a Brazilian political party.

177 Thomas April 10, 2016 at 8:22 pm

Very true. If I were to move to a foreign country, there is ample support among the political left to assert an ownership stake in my labor – despite having excited their society. The only thing left is to build the walls to keep us in and assign mandatory work duties.

178 Floccina April 9, 2016 at 3:52 pm

Bernie running around the country talking about putting wall street executives in jail makes me a little uneasy (HRC too but thankfully I assume she is just lying).

179 ohwilleke April 9, 2016 at 5:19 pm

I do and teach asset protection law for part of my practice and in my experience probably 80%-90% of ordinary people using tax haven jurisdictions are dirty (the big businesses are using gray area tax breaks).

The notion that the vast majority of users of tax haven accounts are perfectly legal and for no improper purpose is pure fantasy.

180 Tom Warner April 9, 2016 at 9:04 pm

There ought to be more reporting on how FATCA affected Mossack Fonseca. Haven’t seen anything except that one muddled article posted among the daily links here earlier. One thing I wonder is whether MossFon holds cash or investment accounts for clients and thus would have to register and regularly report under FATCA, if as they say they’ve been complying.

181 Seth April 9, 2016 at 11:41 pm

The criminal defense lawyer analogy is deeply flawed. There, the confidential information shared with lawyers is about past crimes that have already been committed. The money laundering and tax evasion revealed in the Panama Papers are ongoing crimes that the law firm is helping its clients commit, or at least very close to it. There is a well-known exception to the attorney-client privilege where a lawyer’s advice is sought for the purpose of committing a crime or a fraud. This does not necessarily mean the hack was justified; merely that it is not the same as hacking any old criminal defense lawyer’s server. It would be more akin to hacking the Saul Goodman character in breaking bad or the Maury Levy character in the Wire.

182 George Dorn April 10, 2016 at 12:43 am

“Let’s say a group of criminal defense lawyers kept a database of their confidential conversations with their clients. ”

Let me stop you right there.

1) These weren’t criminal defense lawyers, they were criminal bankers.

“the hacker is spreading the information not only to prosecutors but to the entire world, and outside of any process sanctioned by the rule of law. ”

2) The law has absolutely nothing to do with morality. Many things that are legal are wrong, and many things that are illegal are not wrong.

The moral failings of those taking advantage of the secrecy of these banks is highly varied. Some are hiding funds gained from what could easily be considered war crimes or human rights violations. But let’s focus on a closer-to-home moral failing: hiding funds to avoid paying taxes on profits gained by taking advantage of a country’s infrastructure. If you run a business within a society and you benefit from that society’s public benefits and infrastructure, it is your moral duty to pay the taxes that society has deemed fit.

183 Joseph Avitia April 10, 2016 at 12:50 am

The ethical cost of violating some people’s privacy is outweighed by the rather enormous public good done by exposing a system that we were nearly completely unaware even existed, and can now use this information to take effective action against it. Murder, Robbery, DUI, Drug Abuse, we were fully aware that these things existed.

184 Jeff J April 11, 2016 at 8:36 am

“…most of those individuals probably did nothing illegal…”

Illegal is distinct from moral, especially given the disproportionate influence the wealthy have over what’s legal.

“And many people believe the wealthy should fall in status, and so they will entertain the morality of all crimes and threats against them.”

Again, “crimes” are things that are illegal and the wealthy have disproportionate influence over what’s legal. Not too long ago, people would have been entertaining torches and pitchforks rather than document leaks.

185 Frank burns April 13, 2016 at 9:48 am

I no longer call them the Panama Papers, which is totally unfair to Panama. Panama is a great country, full of great, hardworking people, and with much less offshore activity than the US. I call them the Mossack Papers.

186 Leo Sam May 2, 2016 at 2:40 pm

Contact geniushack08@gmail.com to hijack emails, school grades, servers and database, social networks, phones and phone calls, text messages, credit cards, bank accounts, criminal records, and every hacking services of your thoughts!

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