For decades, Panama was one of the few places where people around the world could hide money owed to their country’s tax collector. Earlier this year, however, the Central American nation had a change of heart about condoning this dishonest practice. In March, after the media release of the “Panama Papers” exposed its role as a secretive tax haven, it began a deep introspection about holding company with the wealthy corrupt, drug cartels, and terrorist groups.
On Oct. 27, in an act of national repentance, Panama finally signed a multilateral convention that requires it to shine a bright light on any black money parked in its financial institutions.
Panama has not received much praise for its prodigal-son moment. German Chancellor Angela Merkel commended it for “very swiftly” adopting newly established standards for reporting foreign assets. But its contrition and reforms deserve more notice – if only to encourage the remaining few tax havens to join a global effort aimed at helping countries collect the tax revenue due them from undisclosed income hidden overseas.
This world-wide campaign, driven by the club of wealthy countries known as the Group of 20, cannot rely merely on media exposures of tax evasion or law enforcement against the cross-border tax scofflaws. It also needs a moral awakening, even at a national level. “It is not a matter of persecution but a question of honesty, transparency and accountability whether it is incidentally in Panama or Bahamas or whatsoever,” says Christine Lagarde, managing director of the International Monetary Fund.
The body setting the standards for countries to share details about foreign assets is the Paris-based Organization of Economic Co-operation and Development (OECD). So far, 105 nations have signed onto its data-sharing pact, known as the Common Reporting Standard, which is scheduled to take effect in September 2017. The United States has yet to join this convention because of conflicting political views in Washington. Yet with the 2014 passage of its Foreign Account Tax Compliance Act, the US has been a leader in chasing down tax evaders and forcing foreign institutions – such as Swiss banks – to change their habits of protecting undeclared money.
Officials in Panama now speak of the need for a transparent economy, one that is open to honest business and free of corrupt transfers of money. This is a “radical change” for Panama, says Pascal Saint-Amans, head of tax policy for the OECD. Yet just as radical would be for the world to praise Panama for its repentance and its embrace of tax transparency. It was lost but has found its way.