OPINION: Who is Behind Panama?

I would rather make a fuss about Panama, rather than the Papers.

A member of the National Union of Workers of Construction and Similar Industries (SUNTRACS) picks up flyers in the design of mock banknotes at the front doors of Mossack Fonseca law firm office during a protest in Panama City, April 13, 2016. Reuters/CARLOS JASSOA member of the National Union of Workers of Construction and Similar Industries (SUNTRACS) picks up flyers in the design of mock banknotes at the front doors of Mossack Fonseca law firm office during a protest in Panama City, April 13, 2016.

This is the story of the domination and hegemony by the United States and the elite banking and finance institutions, especially the one owned by JP Morgan and his heirs. This perspective must be put forward so that we can see the distribution of the so-called Panama Papers in a wider context.

Panama used to be a province of Colombia. The late Theodore Roosevelt, the 26th US president (1901 to 1909) had an instrumental role in Panama's secession from Colombia. Roosevelt's interest was to give the US as strict a control as possible over the Panama Canal.

The canal connects the Atlantic and Pacific oceans and was highly strategic in terms of economics, politics and security and defense. Through the canal, trade and mobility of people and goods are made easier, faster and cheaper. Controlling the canal was an inevitability from a business point of view. Official negotiations with Colombia were at a dead end when the Colombian Congress refused to ratify the Hay-Herran Treaty, which would have given the US the right to control the land that surrounded the under-construction canal.

Long before the negotiations failed, Roosevelt quietly established a task force to separate Panama from Colombia. The secret task force fueled and consolidated the Panamanians to revolt and secede. It used the Panamanian sentiment that wished for a wider autonomy from Colombia. Other provinces, including Azuero, Chiriqui and Velez also wanted the same thing.

This exogenous factor, intervention by the US, would then meet with an endogenous factor, domestic political instability triggered by a centralized political system, and make Colombia vulnerable to break-up.

This vulnerability still persists. Currently various groups in Colombia -the government, paramilitary groups, narcotics syndicates/cartels, left-wing guerillas such as the Revolutionary Armed Forces of Colombia and the National Liberation Army- still fight with each other. The US military teamed up with Panamanian rebels to fight the Colombian army.

In only a matter of hours, the Colombian army surrendered. Bribery of members of that army was alleged to have had an important role in this brief war. For example, in Colon - currently the Panamanian capital- one Colombian soldier was bribed with US$50.

The moment the war was over, the Hay-Buna-Varilla Treaty was signed on November 18, 1903. The agreement gave the US permanent right to control the canal. Without the approval of the Panamanian government, Phillippe-Jean Buna Varilla offered to represent Panamanian interests. The appointment was strange as it had been a long time (17 years) since the man last resided in Panama. The canal was then officially opened in 1914. However, many Panamanians disputed the agreement's validity. In the same month, a new country was established: Panama.

The Torrijos-Carter Agreement

The illegitimacy of control over the canal triggered political tension between Washington and Colon. In 1964, a riot occurred between US citizens and Panamanians. The riot was triggered by the issue of Panama's right to put up its national flag in the area around the canal. The riot resulted in the severance of diplomatic relations between the two countries. The subsequent rapid improvement of political relations, only in a matter of months, reflected both countries' awareness of the importance of renegotiating the canal agreement. The United States' wish to resolve the issue properly was clear from then-secretary of state Henry Kissinger's advice to president Gerald Ford: "If these (canal) negotiations fail, we will be beaten to death in every international forum and there will be riots all over Latin America."

Political processes and negotiations continued until the momentous signing of the Torrijos-Carter Treaties on September 7, 1977. The agreement comprised two components. First was the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal or the Neutrality Treaty, which provided the US the permanent right to defend the canal from any possible threat to disrupt its neutrality in providing services for all countries.

Second was the Panama Canal Treaty, which provided Panama with sovereignty and full control over the canal. From December 31, 1999, at 12 midnight, Panama had full responsibility over the operations and security of the canal. The Torrijos-Carter Treaties were an important political achievement of president Jimmy Carter and National Guard commander General Omar Torrijos. Torrijos gained power in 1968 by staging a coup against Arnulfo Arias Madrid merely a week before he was supposed to be inaugurated as the president elected through a general election.

Orchestrating Panama as a secretive region

The book How Wall Street Created a Nation: J.P. Morgan, Teddy Roosevelt and the Panama Canal (2003), written by Ovido Diaz Esvino, revealed other actors in the creation of the state of Panama: namely JP Morgan & Co. and a French company named Compagnie Nouvelle du Canal de Panama. However, in 1902 Compagnie Nouvelle du Canal de Panama sold its assets and canal construction rights to the US for $40 million. JP Morgan & Co. is the king of the finance and banking industry, not just in the US, but in the world.

JP Morgan & Co. was established by John Pierpont "JP" Morgan (1837-1913), a successful banker and financier. The US secretary of the treasury would then install JP Morgan & Co. as the fiscal agent responsible for arranging the transfer of funds for the newly established country of Panama. To conduct this duty, Morgan organized a syndicate consisting of eight banks: five in Paris and three in New York. The network in Paris was managed by Morgan, Harjes & Co. while the one in New York was managed by JP Morgan & Co. In 1913, JP Morgan died at age 75. His business empire was then managed by his son JP "Jack" Morgan Jr. (1867-1943). The key to the empire was then passed on to his grandchildren and grand-grandchildren.

Parallel to the political tasks to secure full control over the canal, JP Morgan & Co. initiated and orchestrated the creation of Panama as a secretive region. The term "secretive region" only appeared later, actually. The term is used to explain the phenomenon of a region that deliberately makes a business out of a secrecy service in the banking and finance industry. Panama then accommodated global wealth that came from tax fraud, the narcotics trade, corruption and other financial crimes in Latin America, the United States and all over the world.

Panama is one of the oldest tax havens in the Americas. Presidents Ferdinand Marcos (of the Philippines), Francois Duvalier (Haiti) and Augusto Pinochet (Chile) once parked their financial crimes-related wealth there.

Just how much secrecy surrounds the banking and finance industry in Panama? A 2015 report from the Tax Justice Network (TJN) on the Financial Secrecy Index showed that Panama was ranked the 14th most secretive place out of more than 90 countries in the world. In sequence, the top 20 most secretive countries are: Switzerland, Hong Kong, the US, Singapore, the Cayman Islands, Luxembourg, Lebanon, Germany, Bahrain, the United Arab Emirates (Dubai), Macao, Japan, Panama, the Marshall Islands, the UK, Jersey, Guernsey, Malaysia, Turkey and China.

This is testimony and an impression from a US customs officer on Panama, as quoted by TJN in its report: "The country is filled with dishonest lawyers, dishonest bankers, dishonest company formation agents and dishonest companies registered there by those dishonest lawyers so that they can desposit dirty money into their dishonest banks." The Mossack Fonseca law firm -whose client database was hacked- could very well be a part of what the customs officer was describing. In Panama, there are currently 350,000 secretive international business entities, the third largest number after Hong Kong and the British Virgin Islands.

Panama is among the most hard-lining secretive regions that refuses cooperation with international agencies promoting transparency and exchange of information related to finances and taxation. For example, of the 40 IMF recommendations to tackled money laundering and terrorism issues, Panama agrees to only one. This is starkly different to, say, Switzerland, which is more friendly and cooperative with various countries and international agencies in tackling international financial crimes. Switzerland has signed the convention on automatic exchange of information or cooperated with Brazilian investigators in freezing and repatriating assets related to criminal activities in the Petrobras scandal.


Deputy Secretary General, Transparency International Indonesia

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