What are Panama papers & why they matter ? - Economist

BENJAMIN FRANKLIN had not heard of Mossack Fonseca when he observed “nothing can be said to be certain, except death and taxes,” and the Panama-based law firm might have changed his mind. Mossack is at the centre of a huge tax and money-laundering scandal, now coming to light thanks to the so-called “Panama papers”. What exactly are these papers and why do they matter?

Companies such as Mossack specialise in helping foreigners hide wealth. Clients may want to keep money away from soon-to-be ex-wives, dodge sanctions, launder money or evade taxes. The main tools for doing so are anonymous shell companies (which exist only on paper) and offshore accounts in tax havens (which often come with perks such as banking secrecy and low to no taxes). These structures obscure the identity of the true owner of money parked in or routed through jurisdictions such as Panama.

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But authorities (and disgruntled ex-wives) just caught a break. Over 11m documents have been leaked from Mossack’s secretive offices. The International Consortium of Investigative Journalists (ICIJ) this weekend went public with its findings that the firm had, wittingly or unwittingly, helped clients evade or avoid tax, launder money or mask its origins. More astonishing than their methods, which are well known, was the scale of activity and the people involved. The 2.6 terabytes of data are thought to contain information about 214,500 companies in 21 offshore jurisdictions and name over 14,000 middlemen (such as banks and law firms) with whom the law firm has allegedly worked. Although by no means all of these are criminal or even shady, the first public examples make for telling reading. On the naughty list are people such as Ukraine’s president, Petro Poroshenko, who promised to sell his business interests on taking office. He seems to have merely transferred assets to an offshore shell. Other heads of government, such as Russia’s Vladimir Putin and Iceland’s Sigmundur David Gunnlaugsson are suspected of hiding ownership of offshore assets by putting them in the names of friends or relatives. Mossack denies any wrongdoing, as does Mr Gunnlaugsson. A spokesman for Mr Putin has denounced the allegations as a case of “Putinophobia”.

“The Panama Papers” in graphics

After the initial naming and shaming, it will become clearer in the coming weeks who was using these structures for dodgy reasons. While examples of the offshore industry enabling dictators, terrorists and drug cartels will (rightly) capture much of the attention, it would be a shame if other miscreants escape. The global industry of service providers, which sell financial secrecy to those who can afford it, have in some cases done more than just feast on poorly designed tax policies. The Panama documents suggest that some actively looked the other way when faced with a less-than-clean client. An estimated 8% of the world’s wealth ($7.6 trillion according to Gabriel Zucman, an economist) is stuffed away in offshore accounts, most of it done perfectly legally, as a raft of public relations people hasten to say as their clients’ names are flung around in the press. But legal or not, the newspapers taking aim at Mossack and the like will strike a chord. They are in tune with contemporary sentiment: the fundamental disconnect between global elites and the rest, for whom taxes are as certain as death.

Dig deeper: The furore from the Panama papers will only grow bigger

European Central Bank minutes - Financial Times

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APRIL 7, 2016
ECB minutes expose divisions
Accounts of the European Central Bank’s latest policy vote have laid bare divisions between the eurozone’s monetary policymakers over their new stimulus package.
Last month the ECB cut interest rates to fresh record lows, expanded its quantitative easing package by €20bn to €80bn-worth of purchases a month, and unveiled series of auctions to lower banks’ funding costs, writes Claire Jones.
The minutes also reveal that the 25-member governing council discussed the introduction of a Bank of Japan-style tiered deposit rate system, protecting lenders from the levy imposed on them by negative rates. A shift to this system was rejected by most officials on the grounds that it was too complex operationally and that there was, as yet, “little evidence” of the negative side effects of negative rates on banks’ profitability.

The ECB confirmed that its deposit rate, cut by 10 basis points to minus 0.4 per cent in March, could fall further should inflation and growth in the single currency area weaken again. The lower bound on interest rates had not been reached.
Two of the 21 voting members of the governing council were against the package that did pass, while another two non-voting members objected, according to a person familiar with the matter. Those four include the council’s two German members, Bundesbank president Jens Weidmann and board member Sabine Lautenschlaeger, and head of the Dutch central bank Klaas Knot.
“These views are a minority, but they indicate that Mr. Draghi is taking the central bank down an uncomfortable path from the point of view of the Bundesbank,” said Claus Vistesen at Pantheon Macroeconomics.
Jonathan Loynes at Capital Economics said the minutes “may reinforce concerns that the Governing Council is starting to run out of ammunition.”
The minutes highlight disagreement over several elements of the package — including four new auctions of ECB cash which will in effect subsidise lending by eurozone’s banks, the rate cuts and the expansion of QE to include corporate bonds.
The auctions, known in central bank parlance as Targeted Longer-Term Refinancing Operations or TLTROs, will run each quarter from June until next March.
The account said there was “very broad support” for the view that the central bank should provide “strong price incentives” through the new auctions in order to spur lending to the eurozone’s businesses and households.
However, “a few members” of the governing council were concerned about the size of the incentives offered. The auctions will pay banks up to 0.4 per cent to bloat their loan book to businesses and households. The rate tallies with the deposit rate, which now stands at minus 0.4 per cent.
“The price reduction of up to the level of the deposit facility rate seemed to be rather generous, could lead to market distortions and could contribute to the preservation of weak business models by some banks,” the minutes said.
Other members thought the decision to purchase high-grade corporate bonds under the QE programme could lead to market distortions.
The minutes said:
In the euro area, the market for these bonds was generally not very liquid or large. The direct impact on corporate financing conditions and investment behaviour appeared doubtful, as the eurosystem (of central banks) would mainly purchase bonds from highly-rated, cash-rich corporations, whose financing costs were already very low.
The inclusion of corporate bonds in QE was seen by others as “strengthening the credibility” of the ECB keeping to its target of €80bn-worth of bond buying from now until at least March 2017.
It could also benefit credit conditions for smaller companies, with no access to bond markets, by forcing banks to lend to them rather than large corporates which can issue debt themselves.