The Panama Papers opened yet another window on the global system of financial corruption, showing how political leaders and businesses use shell companies in secrecy havens like the British Virgin Islands and many US states to evade taxes and hide corruption and other crimes. Yet the system of corruption depends on another factor beyond secrecy, one that is perhaps even more important: impunity. Impunity means that the rich and powerful escape from punishment even when their malfeasance is in full view.
Impunity is epidemic in America. The rich and powerful get away with their heists in broad daylight. When a politician like Bernie Sanders calls out the corruption, the New York Times and Wall Street Journal double down with their mockery over such a foolish “dreamer.” The Journal recently opposed the corruption sentence of former Virginia governor Bob McDonnell for taking large gifts and bestowing official favors — because everybody does it. And one of its columnists praised Panama for facilitating the ability of wealthy individuals to hide their income from “predatory governments” trying to collect taxes. No kidding.
Our major institutions, the ones that should know better, are often gross enablers of impunity. Consider my alma mater, Harvard University, and its recent nuptial with hedge-fund manager John Paulson. Paulson was the coconspirator with Goldman Sachs of one of the most notorious scams of the recent financial bubble.
Paulson and Goldman constructed and marketed a portfolio of toxic assets to sell to unwitting investors so that Paulson could bet against the portfolio. Goldman and Paulson thereby turned the sucker investors’ quick $1 billion loss into an equivalent $1 billion gain for Paulson, with Goldman collecting on fees. The SEC fined Goldman but left Paulson untouched. As one disillusioned SEC investigator put it: The SEC is “an agency that polices the broken windows on the street level and rarely goes to the penthouse floors.” Yet Harvard was delighted last year to take $400 million of Paulson’s ill-gotten gains, leave Paulson with the rest, name its engineering school after Paulson, and declare Paulson to be “the epitome of a visionary leader.”
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