Seven months after the leak of 11.5 million documents from a law firm in an incident that has come to be known as the “Panama Papers”, the world is right to ask what has been done since to fight global tax evasion and promote financial transparency.
As president of Panama, and in particular through my interactions with the international community, it is clear that the affair shined a light into the dark corners of global finance and sparked a worldwide reform agenda. Despite the unfortunate name, The Panama Papers has been good for Panama as well as for the world.
Panama was well on the path of reform long before the scandal broke. I was only 21 months in office at the time and had already removed Panama from the international Financial Action Task Force’s “Gray List” in record time. But the crisis accelerated the pace of reform and it engaged the world in a collective effort.
Panama’s legal system was being abused by tax cheats from all over the world. The cost of tax evasion for those governments is approximately $200 billion a year. That means less infrastructure, fewer health benefits and poorer education for millions of citizens. This is even more dramatic in the developing world, where millions are deprived of water, sanitation and other basic necessities. The Panama Papers changed everything. From Canada, to the United Kingdom, Denmark, the European Union and Uganda, countries worldwide have intensified their investigations and prosecutions of tax evasion.
Switzerland announced in November that the government it is proposing a tax reform that could potentially abolish corporate tax arrangements that are not up to international standards. The European Council adopted resolutions to strengthen financial transparency and to achieve more effective cooperation between tax authorities. The Canadian Standing Committee on Finance met to give recommendations to Canada’s Revenue Agency to contribute to global efforts to fight tax evasion. The United Nations’ top expert on the promotion of a democratic and equitable international order has also called for action, urging the new Secretary General to convene a world conference on tax evasion.
Panama, too, has made huge progress in this fight. The world may have forgotten that over the course of only 25 years, Panama went from being ruled by military dictators and criminals to a functional, albeit young, democracy, with some blemishes in between, some of which we are still dealing with. From the beginning of my political career, ending corruption and promoting transparency have been among my top goals. In fact, as Panama’s foreign minister I signed numerous transparency treaties, including treaties of exchange of tax information with European and North American countries, and reactivated Panama’s participation in the Global Forum of the Organization for Economic Cooperation and Development (OECD). I was elected president on an anti-corruption platform.
I have continued to take steps to clean up our past, domestically and internationally, including negotiating further expansion of our financial and tax exchange agreements with countries such as the United States, Japan and Germany. We have also maintained dialogue with the OECD, and officially requested an invitation to join their Convention on Mutual Administrative Assistance on Tax Matters in November. Joining this mechanism will allow us to cooperate with more than 90 countries exchanging financial information upon request. At home, we are fighting corruption and holding those responsible accountable. By cleaning up corruption, my government has been able to invest in our infrastructure and our people, giving opportunity to millions and ensuring continued economic prosperity at home. Our economy is today among the fastest growing in Latin America, and confidence in our financial future is increasing. I recently concluded a $2.6 billion loan package with Japanese Prime Minister Shinzo Abe to expand our transportation system with a state-of-the-art monorail system
To be sure, more changes are needed. That is why I recently presented measures to our National Assembly that would strengthen legal and business registration systems and start adjusting our technological platform for when, in 2018, we start implementing bilateral automatic exchange of information by request. I have also just received the long-awaited findings of an independent blue-ribbon panel I commissioned to examine Panama’s legal and banking systems. I am proud to say that we are already well on our way to implementing many of their recommendations. The report is available to the public.
Our call for new multilateral approaches to fighting tax evasion has translated into real legislative projects that are passing through congresses around the world. And best of all, citizens have become heavily involved in holding their governments accountable on the decisions they make regarding tax law. International organizations and world leaders, including German Chancellor Angela Merkel, have praised Panama’s efforts at home and our role as a global catalyst for reform.
It is my hope that, one day, Panamanians will come to regard “The Panama Papers” as a badge of honor; a moment where we took the lead globally to address the exploitation of our country by unscrupulous tax cheats, returned transparency and accountability to our nation and to others, as well, and improved the prospects for social development worldwide by redirecting needed tax incomes to the critical investments our people deserve.
Juan Carlos Varela is the President of the Republic of Panama.