Streetwise Professor

April 10, 2016

What Happens in Panama Doesn’t Stay in Panama, Apparently

Filed under: Politics,Russia — The Professor @ 9:01 am

The media has been aflutter during the last week over the Panama Papers. Much of the excitement has focused on Putin’s presence-or lack thereof, actually-in the Biggest Leak Ever.

My reaction: BFD.

Insofar as what about Russia is actually in the leak: can you honestly say that it provided you with any new information? Hardly. Offshoring of dirty Russian money has been a thing since the USSR collapsed. Before, actually. Putin has actually made an issue of it. To the extent that the leak reveals anything, it shows the hypocrisy and political nature of Putin’s anti-offshoring drive. The politically favored can still do this, although with the knowledge that the Sword of Damocles hangs over their heads. If favor turns into disfavor, the offshoring can be used to destroy them.

At most, the leaks regarding Russia provide some interesting information as to how the offshoring works in practice. But this mere detail which provides no new insight on the nature of the Russian system.

The hypocrisy is also evident in China, where family members of anti-corruption crusader CCP General Secretary Xi Jinxing have been disclosed to have offshore shell corporations. But again, the hypocrisy should not be a surprise. As has been the case with autocrats since time immemorial, Xi’s anti-corruption drive has been more of a means of extending his power and control, than an idealistic effort to clean up China’s government and economy.

Insofar as Putin is concerned personally, why would anyone expect his name to be on any document detailing ownership of anything? Do you think he’s that stupid?

For all the hyperventilating by Bill Browder and others of Putin’s alleged massive fortune (which Browder puts at $200 billion), a little common sense is sufficient to discount these stories. Actually formally/legally owning things provides little benefit to Putin, but poses risks. It is all downside, with no upside.

If evidence of such a massive fortune was uncovered, it would be an embarrassment, or worse, for Putin: his very pretense of being a servant of the people who earns a very modest salary demonstrates that he believes that being revealed definitively as a plutocrat (rather than merely an autocrat) would be dangerous for him politically.

And what does he gain by having his name on some legal papers documenting ownership of vast amounts of wealth? Absolutely nothing. In this current role, he has practical ownership of pretty much everything in Russia. That is, if you view ownership as a bundle of rights to use assets, Putin has ownership, regardless of whether his name is on pieces of paper or not. If he wants use of this asset or that, who is going to deny his request? Further, there are myriad ways that he can use the power of the Russian state to direct wealth to those he favors (e.g., through massively corrupt contracting practices for projects like Sochi, or through Gazprom), who in turn direct some of that to people or purposes that Putin requests. And all of this can be done with Putin not having formal legal ownership of anything.

Furthermore, Putin realizes that formal ownership would not secure him a quiet retirement of opulent luxury. His informal ownership rights exist only so long as he is in power, and as soon as he is out of power any formal ownership rights over vast assets would be too tempting a target for his successor to resist. He could never enjoy the benefits of such wealth when out of power, and doesn’t need it when in it. So what’s the point?

So I would put a different spin on it: the very absence of Putin’s name in the Panama Papers is exactly what is informative. It reveals that he is not leaving power in a vertical posture, of his own volition, because when he does, his practical ownership rights evaporate with his power. This also makes it plain why he is doing things to secure domestic control in advance of the 2017 Duma election and the 2018 presidential “contest”. The creation of a National Guard under his personal control, for instance.

As to speculation regarding who leaked and why: meh. These parlor games bore me, and are essentially forms of ad hominem argument that have no bearing on the truth or falsity of the information.

The claims by Russian authorities (including Putin personally) and Julian Assange (who first praised the leak then turned on it) that it is a CIA/State Department/Soros plot to undermine Putin and Russia are implausible. If anything, the leak was very helpful to Putin. By far the biggest casualty of the leak has been Ukrainian president Poroshenko, who was revealed to have been negotiating moving his assets overseas at the same time his army was being slaughtered in the Donbas. The already divided and shaky Ukrainian polity has become even more so as a result of the revelations, and this redounds to Putin’s benefit. Most of the other casualties have been western democratic politicians, notably David Cameron. In other words, if this was a CIA/State Department plot, it was an epic miscalculation.

Following this cui bono logic, others have swung to the opposite extreme. Most notably, Brooking’s Clifford Gaddy mooted that since Putin has benefited, this may be a Russian operation. I agree that despite the initial frenzy Putin has been a beneficiary, but believe that it is far more likely that it is just another episode in his recent streak of good luck.

As for the ethics of the leak, and how the material has been handled, the entire episode points out the ambiguities and dilemmas of this means of holding public officials and private individuals accountable. Unlike Wikileaks, the entire set of material is under control of a set of journalists and publications, and is not open for search by the public. This creates the potential for manipulative select disclosure. This is problematic, and this very possibility also creates a narrative that can be used to discredit the entire project. But since innocent private individuals’ information is also in the database, open access would impose huge collateral damage. The choice is binary (selective disclosure controlled by a group of self-selected gatekeepers who may have an agenda, or open access), and the severe downsides to either alternative call into question the utility of leaking as a means of revealing (and perhaps punishing) misconduct by government officials, or private individuals.

It also shows the costs of privacy and transparency, which highlights a fault line in the current debate. In that debate, Privacy and Transparency are both praised as ideals even though they are obviously in substantial tension. What information should be private and what should be transparent, and whose information should be private, whose information should be transparent, and who should make these choices are extremely difficult questions. Even if one can identify the ideal boundaries in the abstract, respecting them in practice is devilish hard. The Panama Papers case reveals that in spades.




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  1. What about the cellist? Was he a front man for someone else? Is there a plausible non-criminal explanation for these $2B worth of transactions?

    Comment by aaa — April 10, 2016 @ 1:34 pm

  2. @aaa-The cellist is obviously a bagman. I don’t think there is an innocent explanation. But that’s exactly what I meant when I said that this is not a revelation. I’ve long known that Russians are major users of offshore shell companies and engage in elaborate money laundering schemes. To me, what’s in the leaks is about as shocking as a leak from the Vatican that the Pope is Catholic.

    The ProfessorComment by The Professor — April 10, 2016 @ 1:43 pm

  3. SWP:

    This also may be a shot across the bow. Only the ‘gatekeepers’ know what has NOT been revealed & who it will implicate. This makes those targets very pliable.

    VP VVP

    Comment by Vlad — April 11, 2016 @ 2:05 pm

  4. SWP, I think you are underestimating the effect of the Panama Papers release.

    It is no secret that “offshory” have been used for a very long time by the former commie boss insiders who became sovok mafia oligarchs in the former sovok union states. This even stems from sovok union treaties with Cyprus, for example.

    The thing is, even after the fall of the sovok union, and even in Russia, the thieving thugs took great pains to conceal their wealth. Case in point – former mayor of Maskva and his wife, the Luzhkov’s, who repeatedly squished journalists in regard to their crooked city construction contracts, and ended up buying a hugely expensive mansion in London, right down the street from Victor Pinchuk, a Ukrainian/Jewish oligarch, who is also the single largest individual donor to the Clinton Foundation.

    In Ukraine, the use of “offshory” has been well known and documented, and it signifies theft and money laundering and tax evasion.

    In Russia – meh, Kremlinoids respond in their usual fashion – “it’s a CIA plot.” Yes, after a while, the oligarchs stopped trying to hide their wealth, and engaged in lavish, garish, obscene conspicuous consumption, inside and outside of Russia. Putler, meanwhile, has to maintain the illusion that he is just a poor KGB working galley slave, a “good KGB tsar working for the people.” And this whole mess confirms it yet again.

    In Ukraine, the reaction has been outrage, yet again, especially when President Poroshenko is revealed to be involved in “offshory.”

    The “offshory” have also been used for moving capital out of the country, tons of it, in addition to tax evasion.

    Dmytro Firtash, the Ukrainian/Jewish oligarch involved in RosUkrEnergo with Gazprom, used Robert Shetler Jones and a tiny address in England, for his various shenanigans.

    The former PM of Ukraine, Lazarenko, came to California claiming political asylum, and was promptly convicted of money laundering of tens of millions of dollars – the dollars that the DOJ could trace, through Latvia and elsewhere. The DOJ used his case as a textbook example of terrorist financing methods. Lazarenko had purchased Eddie Murphy’s mansion, with the 3 swimming pools, which, of course, he ended up losing. It’s all in the court records. His case provides only a small glimpse of what the sovok mafiosi in various post-sovok states were up to.

    Guess what? His name shows up in the Panama Papers. I don’t think the DOJ was able to trace in the criminal case what the Panama Papers show.

    The PM of Iceland had the decency to resign, in the wake of revelations in the Panama Papers.

    David Cameron has the decency to address his father’s use of offshore arrangements.

    And this certainly highlights a massive, massive industry which operates to the detriment of many countries.

    So at least in some countries, it is a big deal.

    And the fact that Putler and his Kremlinoids responded with their usual “it’s a CIA plot” shows that they think it is a big deal, too, which must be kept in check.

    Comment by elmer — April 12, 2016 @ 8:50 am

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