BUSINESS
06/13/2009 05:12 am ET | Updated May 25, 2011

Intern Sets Up Offshore Tax Haven In Panama (VIDEO)

It's so easy for U.S. corporations to set up an offshore tax haven in Panama, an intern could do it. Really! To make this point, Public Citizen's Global Trade Watch division had one of its interns call up some Panamanian law firms for advice on starting up a shell company.

"Panamanian corporations basically pay no taxes on foreign-derived income," one man explained to the intern, Jessica. Another said: "You're protected by the strictest banking secrecy laws in the world," thereby "totally removing you from the legal trail."

In a video on Public Citizen's website, Jessica is told that all she needs to do is provide a passport photocopy, a bank reference letter, some info on her professional activities, and her plans for the company -- all of which could be sent by email.

WATCH:

Public Citizen produced the video as a serious debate over the pending Panama free trade agreement begins to heat up in Congress. Rep. Bruce Braley (D-Iowa) is leading a coalition of House Democrats in an effort to slow the Obama administration in case it plans to move forward on the agreement.

"We have an expectation that trade agreements are going to have basic standards to protect labor rights, environmental standards, food safety regulations, financial regulations and taxation transparency," Braley told the National Journal's Peter Cohn on Wednesday. "And that's why this particular trade agreement creates such concern, is because of Panama's tax haven status."

The Senate Finance Committee is set to hold a hearing on May 21.

Public Citizen opposes the agreement, calling it "the wrong handout for the wrong interests."

"It would give investors registered in Panama new rights to challenge U.S. anti-tax haven regulations and other initiatives for taxpayer-funded compensation," said Todd Tucker, research director for Public Citizen's Global Trade Watch division, in an interview with the Huffington Post.

In April, Public Citizen released a study that found several companies that had lobbied for the Panama FTA -- including bailout beneficiaries Citigroup and AIG -- "have a combined dozens of subsidiaries in Panama that would be empowered with expansive new rights if the FTA is implemented. These firms have been among the top advocates for the Panama FTA."

Tucker said that the Panama FTA would compromise the Obama administration's recently-announced crackdown on tax havens, which the president said would save $210 billion over the next decade. (A 2008 Senate report estimated that the U.S. loses $100 billion to tax havens every year.)

The Panama FTA was negotiated and signed by the Bush administration but has not been sent to Congress. In April, U.S. Trade Representative Ron Kirk said he predicted the agreement would win congressional support. Democrats are expecting the administration to send it to Congress soon. But Tucker stressed that nobody in the administration other than Kirk has made noise about it.

"It's not clear that the entire administration is behind the initiative," Tucker said. If the agreement is being floated as a trial balloon, "they are certainly provoking a reaction."

Tucker said his intern didn't follow through with registering her Panamanian subsidiary. She could have, but it would have cost a couple hundred dollars in fees -- probably more than an intern at a nonprofit can afford.

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