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Panama Papers – Concealment

Per the NYT of June 5, 2016:

““Simply by constructing all this in such a complex way, they make it extremely hard for enforcement officials to ever have resources to reconstruct what taxes should have been paid,” he said. “What this is all about is obscuring the trail.””

The I.R.S. has many tools to reconstruct taxable income. The difficulty is less intellectual than political: It needs expert forensic investigators under supportive public policy. The underappreciated advantage provided to tax administrations worldwide, if they were so inclined to pursue these cases, is the intentionally complicated structure prepared by legal and financial services consultants. (N.B. Keeping a straight-face does not make a hand a full house.) In brief, this is redolent of consciousness of guilt. It is the antithesis of cold economics and brutal efficiency whereby inputs and processes are pared down, eliminating any unnecessary labor and others’ profitability for the sake of the prized output: Alpha return on investment. It is the apparent throwing to the wind highly versatile currencies (e.g., U.S. dollars) and feigning to hold those of lesser utility in schemes of paper losses and transactions reversible through secret side-agreements involving straw men and islands where little is actually produced (cf. Manhattan). It is the shifting of assets, revenues, liabilities, expenses, etc. around balance sheets and income statements controlled by Mr./Mrs. Big, but all you see are Muppet, Inc. and Puppet, LLC. It is the stuff of which both accounting and English literature majors dream; the stuff of lawyers and management consultants convinced of the primacy of the word in the document over the thing in the community – a universe of make believe for grown-ups with too much money and time who can outrun inexperienced, understaffed, short-termed revenue agents not motivated to participate in the marathon.

“With this legal structure in place… any money placed in these accounts would essentially go into a black hole.”   

Wishful thinking – again, confusing the preparation of misleading and inadequate documentation and their ten-dollar words and too many-columned spreadsheets with the hard reality of buildings, parcels of land, private jets, luxury cars, etc. Money – not even that placed under mattresses – does not go into black holes, though you can burn it up by setting it afire. That these acts suggestive of massive tax evasions / avoidances (depending on whether you sit near or away from the jury) are alleged to create black holes is mere intimidation. The beauty of these schemes is that they can be discovered and articulated with reasonable precision. I’ve done it. Since the overarching goal is to keep the money and all it represents, it is never really set free and liberated. It remains attached to the beneficial owner, who usually lacking the grit of Russian mobsters (one of whom once confided – ‘we don’t need contracts because we don’t enforce these deals in courts of law’), can’t help but hold onto the string, however gossamer.

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