In 1903 the US bullied Colombia into giving up the province that became
Panama. The plan was to create a nation to serve the interests of Wall
Street
Steam shovel trains excavate the channel of the Panama Canal in 1913.
The US had effected Panama’s independence to ensure access to the Canal.
Photograph: Alamy
This
goes back a long way. The Panamanian state was originally created to
function on behalf of the rich and self-seeking of this world – or
rather their antecedents in America – when the 20th century was barely
born. Panama
was created by the United States for purely selfish commercial reasons,
right on that historical hinge between the imminent demise of Britain
as the great global empire, and the rise of the new American imperium.
The writer Ken Silverstein put it with estimable simplicity in an article for Vice magazine
two years ago: “In 1903, the administration of Theodore Roosevelt
created the country after bullying Colombia into handing over what was
then the province of Panama. Roosevelt acted at the behest of various
banking groups, among them JP Morgan & Co, which was appointed as
the country’s ‘fiscal agent’ in charge of managing $10m in aid that the
US had rushed down to the new nation.”
The reason, of course, was to gain access to, and control of, the
canal across the Panamanian isthmus that would open in 1914 to connect
the world’s two great oceans, and the commerce that sailed them.
The Panamanian elite had learned early that their future lay more
lucratively in accommodating the far-off rich than in being part of
South America. Annuities paid by the Panama Railroad Company sent more
into the Colombian exchequer than Panama ever got back from Bogotá, and
it is likely that the province would have seceded anyway – had not a
treaty been signed in September 1902 for the Americans to construct a
canal under terms that, as the country’s leading historian in English, David Bushnell, writes, “accurately reflected the weak bargaining position of the Colombian negotiator”.
Colombia was, at the time, riven by what it calls the “thousand-day
war” between its Liberal and Historical Conservative parties. Panama was
one of the battlefields for the war’s later stages.
The canal treaty was closely followed by the “Panamanian revolution”,
which was led by a French promoter of the canal and backed by what
Bushnell calls “the evident complicity of the United States” – and was
aided by the fact that the terms of the canal treaty forbade Colombian
troops from landing to suppress it, lest they disturb the free transit
of goods.
The Roosevelt/JP Morgan connection in the setting-up of the new state
was a direct one. The Americans’ paperwork was done by a Republican
party lawyer close to the administration, William Cromwell, who acted as
legal counsel for JP Morgan.
JP Morgan led the American banks in gradually turning Panama into a
financial centre – and a haven for tax evasion and money laundering – as
well as a passage for shipping, with which these practices were at
first entwined when Panama began to register foreign ships to carry fuel
for the Standard Oil company in order for the corporation to avoid US
tax liabilities.
On the slipstream of Standard Oil’s wheeze, Panama began to develop
its labyrinthine system of tax-free incorporation – especially with
regard to the shipping registry – with help and guidance from Wall
Street, just as the US and Europe plunged into the Great Depression. The
register, for example, welcomed US passenger ships happy to serve
alcohol during prohibition.
President Roosevelt sits in an American steam-shovel at Culebra Cut, on the Panama Canal in 1906. Photograph: Alamy
In his seminal book on offshore jurisdictions, Treasure Islands,
Nicholas Shaxson cites a letter from US treasury secretary Henry
Morgenthau protesting to Theodore Roosevelt’s very different namesake,
Franklin D Roosevelt, about “conditions so serious that immediate action
is called for”. He complains about tax evaders resorting to “all sorts
of devices” in places where “taxes are low and corporation laws lax”,
citing Panama and the Bahamas.
Shaxson’s book then traces America’s shedding of any reticence to
hide money: “While this offshore expansion accelerated, the erosion of
America from the inside gathered pace.”
So, by the 1970s, when the US government had tightened its tax
evasion loopholes, Panama went into the kind of full service we saw last
week. Banking deposits soared, from small beginnings in 1970 to $50bn
in 1980, according to the Tax Justice Network. And that was just the beginning, the small change.
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At
the same time, two treaties were signed in 1977: one that gave the US
military carte blanche to defend the canal, another agreeing to hand the
waterway to Panamanian sovereignty in 1999.
In 1983, however, the system backfired slightly: General Manuel
Noriega took power. For years, he had been a beneficiary of, and
functionary for, the CIA, but he came to realise that Panama’s wealth
was even better suited to an alliance with the Medellín
narco-trafficking cartel of Pablo Escobar. In 1989, therefore, the US
returned militarily, as it had eight decades previously, and – as
Silverstein puts it – “returned to power the old banking elites, heirs
of the JP Morgan legacy”.
Recollections from the period in a book called The Infiltrator by Robert Mazur,
who worked his way into Escobar’s cartel to successfully prosecute the
BCCI bank that handled much of his money, are remarkable. Discussing the
haven with BCCI official Amjad Awan, Awan tells Mazur: “Well, put it
this way. In Panama, we have no qualms about doing anything because the
laws of the land allow us to do it. Anyone can walk in and deposit $10m
in cash – fine. We take it. That’s the business we’re in.”
Awan names major American banks that still dominate Wall Street,
adding: “We do it in probably a smaller way, but every bank does it.”
Although “Panama is one of the world’s sleaziest tax havens, it is
just part of a bigger global system”, says Shaxson. “The United Kingdom
runs a global network of overseas territories and crown dependencies
that includes some of the world’s biggest tax havens.”
John Christensen, director of the Tax Justice Network, says: “It’s
important to recognise that offshore law firms like Mossack Fonseca do
not operate in isolation; they rely on intermediaries, often other law
firms or banks, to pass on clients and to provide support for the
sophisticated cross-border structures.”
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History
has its way of coming ironically around, and it certainly has in the
early 21st century on two counts, echoing Panama’s genesis.
One is that the man who became president of Standard Oil back in
those early days of tax dodging – William Stamps Farish II – had a
grandson, William Farish III, who became a crucial aide and lieutenant
to the Bush dynasty; he was “almost like family”, said Barbara Bush, and
became her son George W Bush’s ambassador to London. (JP Morgan has
meanwhile hired a string of illustrious ambassadors and consultants of
late, few more prestigious than Bush’s closest ally, Tony Blair.)
Then there’s this: among the factors that made it so easy for the
20th century’s new imperium to browbeat Colombia into ceding the Panama
canal was the fact that had Panama not got the canal, Nicaragua would
have stepped up. Now, a century later, Nicaragua is about to get one
too, paid for and controlled by the power that would fain step into
America’s imperial boots – China.
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