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HOW A US PRESIDENT AND JP MORGAN MADE PANAMA AND TURNED IT INTO A TAX
HAVEN  
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Ed Vulliamy
April 9, 2016
Guardian
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_ 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 _

Construction of the Panama Canal,

 

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
[[link removed]] 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
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“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.

In his seminal book on offshore jurisdictions, _Treasure Islands_
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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 reluctance 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
[[link removed]]. And that was just the beginning, the
small change.

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
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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.”

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.

_[Moderator note: the concession to a Hong Kong company to build a
canal across Nicaragua was cancelled in May 2024. This article was
originally published in 2016.]_

_Ed Vulliamy [[link removed]] is a
former Guardian and Observer writer._

_The Guardian [[link removed]] is globally renowned
for its coverage of politics, the environment, science, social
justice, sport and culture. Scroll less and understand more about the
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* Panama
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* Panama Canal
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* imperialism
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* Monroe Doctrine
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