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Panama Papers leak highlights Panama as an exception to the rule, OECD tax director says

Whilethe piles of leaked documents that make up the Panama Papers show the extent ofPanama's safe haven status, given its "high concentration of secrecy,"the scandal could force the Central American country to speed up efforts towardgreater tax transparency, Pascal Saint-Amans, director of the Organisation for EconomicCo-operation and Development's Center for Tax Policy and Administration, said.

In morethan 11 million documents, the Panama Papers contain information on 210,000 companiesin 21 offshore jurisdictions. However, at the heart of the leak is Panama-basedlaw firm Mossack Fonseca, a fact to which Saint-Amans said he is "not at allsurprised."

The OECD'sGlobal Forum on Transparency and Exchange of Information for Tax Purposes now includes127 countries with some preparing to implement the automatic exchange of tax informationin 2017 and the rest in 2018.

Panamais not among them.

"Panamais one of the rare jurisdictions that have refused to commit to anything,"Paris-based Saint-Amans told S&P Global Market Intelligence.

By notjoining international agreements, the country sent a signal to taxpayers that "ifyou want to hide, Panama is the right place," he argued. "It's true thatif you look at the [leak], many other countries are involved, but the service provideris in Panama."

To itscredit, Panama has made some progress — in February, the inter-governmental FinancialAction Task Force (FATF) removedPanama from its "grey list" of countries falling short in the fight againstmoney laundering and terrorism financing. But Saint-Amans said that the Panamaniangovernment completely rejected efforts by the OECD to engage Panama in a discussionover tax transparency.

In astatementissued earlier in April, OECD Secretary-General Angel Gurría claimed that the PanamaPapers revelations had "shone the light on Panama's culture and practice ofsecrecy," calling the country "the last major holdout that continues toallow funds to be hidden offshore from tax and law enforcement authorities."Gurríaargued that the Panama Papers leak showed that "Panama must put its house inorder, by immediately implementing these standards."

The statementdrew sharp criticismfrom the Panamanian government, which called the statements "unjust and discriminatory."

And yet,Panama's refusal to increase tax transparency is the exception to the rule, Saint-Amanssaid. In general, there has been important progress on preventing people from hidingmoney in offshore accounts in other tax havens, particularly since the 2008 financialcrisis.

"Thereare now standards which are virtually universally accepted except in Panama anda few other jurisdictions," he said. "There is an international community,which says 'we shouldn't allow people to hide' — and that is relatively new."

Evenso, although tighter tax regulations have largely been accepted by governments,the next step is for these regulations to be implemented and enforced at the levelof service providers and financial institutions, Saint-Amans said.

"Thisis trickier because it's not only about changing regulations, it's about gettingthem properly implemented," he said, adding a key issue for implementationis training financial institutions to report financial information correctly.

But thePanama Papers case could have a positive impact by encouraging some countries thatwere "dragging their feet" to speed up implementation of tax transparencynorms. It could also force Panama itself to change by making it realize it is "singledout" and "alone" in terms of non-compliance, Saint-Amans said.

Shortlyafter the leak, Panamanian President Juan Carlos Varela announced that his government would form a commission toexamine the nation's financial practices and recommend measures to boost the transparencyof financial and legal systems.

Internationalcooperation is key to further progress, he noted. In this regard, the OECD's JointInternational Tax Shelter Information and Collaboration (JITSIC) Network will meetin Paris on April 13 to explore possibilities of co-operation and information-sharingin light of the Panama Papers, the OECD said on April 8.

In addition,Saint-Amans expects the G20 to discuss the issue at its meeting to be held in Washington,D.C. on April 12.