Panama Papers: How Panama Evolved To Become A Darling For Illicit Offshore Financing.

After the revelations from the millions of papers leaked from the Mossack Fonseca law firm in Panama which uncovered several money- laundering and tax evasion activities . The report has it that 11 million documents

were discovered and passed to the International Consortium of Investigative Journalists (107 media organisations in 76 countries ) who studied it for a year before again passing it to a German newspaper (Suddeutsche Zeiltung) for publication. It is important to identify  how Panama evolved to what it is known today.

The story of the "Panama Papers" cannot be complete without a thorough historical research  on how the island became a darling to tax evaders and the corrupt. 

It all started in 1919, when Panama became a tax haven for foreign ships registered under the American Standard Oil, who plied the Panama route to evade taxes in America. With that perfected, the Island soon started offshore financing which became more attractive to foreigners compared to the American Wall Street, as it offered tax-free accounts and did not require much verification to ascertain the clients source of wealth as obtainable in America and Europe. This went unnoticed until oil price increased tremendously in the 1970's. 

Though Panama as a country might not be as developed as other tax havens like Macao, Monaco and Bahamas , however it offers a secrecy which the others do not as it has so many "Shell Companies" that ensure that. Another factor is that Panamanian  finance professionals show little or no regard to ethical values in dealing with clients who are mostly foreigners, as they appear to be more interested in the funds in their possession and do not care to verify the source. 

In Panama , corporate shareholders of companies are not publicly registered as financial institutions do not disclose the names of their clients or any information about the clients , which has  made illicit business strive in the island. Information about clients are only disclosed when transactions or clients are associated with terrorism or drug-trafficking which must be permitted by a Panama court. However, in all these it is clear that tax evasion and money laundering are not on the list , hence the system seems to encourage such illicit activities. 

Foreigners hereby enjoy the comfort of having no existing exchange controls which species no limit on fund transfers as done in developed countries . Also the absence of tax treaties that Panama offers is also a contributing factor. As shell companies and  offshore finance facilities grew, so did international banking as Panama already had more than 100 international bank offices in 1982. 

As if that wasn't enough , the country was accused and criticised of aligning with the Medellin drug cartel of Columbia and encouraging drug and money- laundering business during the reign of Manuel Noriga in 1983, before the advent of President Guilermo Endara ousted him with the help of the U.S in 1989 . 

As the dust raised by these revelations is yet to die down, it is apparent that Panama did not evolve overnight to become the centre of illicit offshore financing, as it was gradual process that was continuously strengthened to perfection.