Panama established official diplomatic ties with China last Tuesday, thereby renouncing its ties to Taiwan. This decision comes as a major political victory for China as it seeks to further isolate Taiwan and strengthen vital economic partnerships in Latin America.

A joint statement issued by representatives of both countries said that Panama recognizes “only one China” and that the “government of the People’s Republic of China is the only legitimate government representing all China and Taiwan is an inalienable part of the Chinese territory.”

And then there were 20: Taiwan’s isolation solidifies

Panama’s decision leaves Taiwan with just 20 international allies. Many are just small countries or islands in Latin America and the Pacific (its only European ally is Vatican City), yet every loss to China further secludes the island nation.

Both Beijing and Taipei require foreign countries to decide whether to forge diplomatic relationships with either the People’s Republic of China (China) or the Republic of China (Taiwan)–never both.

In recent decades, as China’s global economic influence has grown, many countries have found it more advantageous to build ties with China. The latest country to switch its allegiance in favor of China was São Tomé and Príncipe, which announced the move in December.

Taiwan severed its ties to Panama on Wednesday, one day after Panama’s announcement. Taiwan’s foreign ministry said it felt “anger and regret” over the “very unfriendly” diplomatic turn by Panama, which it deemed “yielded to economic interests by the Beijing authorities.”

Beijing has increased its pressure on Taiwan after Tsai Ing-wen was elected president last year. Her liberal democratic party views have regularly heightened tensions with China. She did not endorse the “One China” policy, after she took office, a common practice between the two countries, which agree to endorse the policy but hold different interpretations of what it means.

Then in January, after Donald Trump’s inauguration, Tsai called him to offer her congratulations. China took offense to the fact that the U.S. took the call and because it saw the potential for the two countries to get closer.

Tsai has tried to foster that possibility. She stopped in the U.S. in January, en route to Central America for diplomatic visits, and made a point to visit politicians such as Senators Ted Cruz (R-TX) and Marco Rubio (R-FL.).

Tsai, who visited Panama just last June, emphasized the years of friendship between the two countries in a speech she gave on Tuesday. She maintained that Taiwan would not engage in “a diplomatic bidding war” with China, despite the fact that China continues to “pressure Taiwan’s international space.”

“We are a sovereign country,” Tsai said. “This sovereignty cannot be challenged nor traded.”

An important play for Panama

China is currently the Panama canal’s second biggest user and it’s clear this new relationship will give China an economic advantage over the historically U.S.-controlled Panama canal.

China was funding a $50 billion alternative to the Panama Canal in Nicaragua. However, financial struggles and environmental critiques have halted construction before it even started. Though that project has largely fallen through, China can now comfortably rely on Panama’s canal to circulate its goods.

The Panama Canal Authority also just announced it will be looking for contractors and customers to modify infrastructure surrounding the canal later this year, further providing China with strong potential business opportunities.

Asia-based political risk analyst Ross Feingold said that “enhanced communication channel between the Panamanian and Chinese governments following diplomatic recognition can only be a positive for Chinese logistics and infrastructure companies that operate in the canal zone.”

However, China may not be the only party to benefit from this alliance. In the last few years, two of Panama’s main economic drivers, the canal and its status as a fiscal sanctuary, have taken a hit.

In late 2013, President Xi Jinping announced the Maritime Silk Road plan, a development strategy aimed at integrating and coordinating trade between Eurasian countries. This plan completely excluded North and South America. In 2015, the Suez canal, perhaps the Panamanian canal’s main competitor, underwent a renovation, which allows it to accommodate larger ships and ease congestion.

China’s renewed interest in Panama through this diplomatic relationship can be seen as an indicator that Panama and its canal will not be cast away in favor of newer, more convenient options.

New Chinese direct investments are also an opportunity for Panama to revive its financial and fiscal image, which had taken a toll after last year’s “Panama Papers” revelations.

At the time, many officials had complained that the shorthand used by international media outlets for the Mossack Fonseca case hurt the country’s reputation.

“It’s not about Panama, it’s about one company. Nobody called it the Texas fraud when Enron [went] bankrupt,” vice-minister of the economy Ivan Zarak said at the time. “It’s unjust. You are holding accountable the whole country for the actions of one company,”

A renewed relationship with China could indeed help the nation re-boot. In a televised speech given last week, Panamanian President Juan Carlos Varela, who actually met with President Donald Trump earlier today, said he was “convinced that this is the correct path for [the] country.”

Celia Heudebourg

Celia Heudebourg is an editorial intern for Law Street Media. She is from Paris, France and is entering her senior year at Macalester College in Minnesota where she studies international relations and political science. When she’s not reading or watching the news, she can be found planning a trip abroad or binge-watching a good Netflix show. Contact Celia at Staff@LawStreetMedia.com.

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Iceland’s election was on Saturday, and while certain mainstay parties were represented on the ballot, an unexpected challenger also had a place there: the Pirate Party, an anti-establishment party that garnered roughly 15 percent of Iceland’s support.

The Pirate Party is just one of the many populist parties that have emerged in Europe since the global financial crisis, but it does not identify as right or left wing, choosing instead to label itself an anti-establishment movement that will attempt to combine the best of both parties. The party operates on a platform of direct democracy, net neutrality, and civil rights, and is an offshoot of the Pirate movement founded in Sweden a decade ago. However, while the Swedish party was primarily preoccupied with copyright law, the Icelandic version embraces a much broader swath of issues and has gained more traction, thanks in part to the release of the Panama Papers.

After the Panama Papers revealed that Iceland’s former Prime Minister, Sigmundur David Gunnlaugsson, and his wife held funds in offshore accounts in the British Virgin Islands, the Pirate Party swooped as the voice of protest, organizing massive protests across the country. Freedom of information and the exposure of corrupt practices is a central theme of the Pirate Party’s agenda: Birgitta Jonsdottir, the leader of the party, is a poet who formerly provided legal assistance to WikiLeaks. Before the Panama Papers, the Pirate Party would never have been in the position it holds now, attracting international attention. Jonsdottir herself has expressed surprise during multiple interviews at how successful the party has become.

The Pirate Party did not win a seat at the table this weekend, largely because of concerns about the profound economic effects for international investors had the party won. However,  there could also be a shift in the political status quo now that the Party has stepped toward legitimacy by at points polling over 20 percent. The Pirate Party has ruled out forming a coalition with the current parties in power if it ever is elected, arguing that it doesn’t want its vote to be influenced or absorbed by the corruption of “the Octopus“–the wealthy families that Jonsdottir argues control the country. The party may not ever succeed in creating a more transparent and equitable democracy (and frankly, the party’s plan of action is more optimistic than realistic) but they will have perhaps opened the door for other outsider parties, not only in Iceland, but across all small European nations.

In the United States, where we have massive voting blocs aligned to our traditional two parties, third party candidates have rarely won elections, yet in Iceland, with a total population of only approximately 332,500, a smaller number of voters can have a greater impact on the election–which means the Pirate Party could set a new precedent for dozens of small-scale movements that want to transition into the formal government. The Pirate Party’s steps toward legitimacy may not impact U.S. elections but it can have an impact on countries with small, young populations–voters who are online, connecting with political movements through social media, and who are frustrated with the traditional party dichotomy.

Jillian Sequeira

Jillian Sequeira was a member of the College of William and Mary Class of 2016, with a double major in Government and Italian. When she’s not blogging, she’s photographing graffiti around the world and worshiping at the altar of Elon Musk and all things Tesla. Contact Jillian at Staff@LawStreetMedia.com

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On Sunday, the International Consortium of Investigative Journalists (ICIJ) published a massive leak of legal documents dubbed the “Panama Papers,” easily surpassing the Pentagon Papers, Snowden’s global surveillance documents, and WikiLeaks’ Cablegate to become the biggest data leak in whistleblower history.

The extensive leak dispensed decades of confidential offshore banking records for the rich and famous, resulting in the financial scrutiny of many high profile world leaders.

Here are some of the key facts you need to know.

What are the Panama Papers?

The “Panama Papers” are a collection of more than 11 million confidential internal documents that were leaked from the prominent Panamanian law firm Mossack Fonseca. The leak, which included 4.8 million emails, 3 million folders, and 2.1 million PDFs, according to the Daily Beast, exposed 40 years worth of shady offshore business dealings from some of the world’s most influential celebrities, public figures, and political power players.

Notable names like Russian President Vladimir Putin, Icelandic Prime Minister Sigmundur Gunnlaugsson, Ukrainian President Petro Poroshenko, FIFA’s Ethics Committee member Juan Pedro Damiani, action movie star Jackie Chan, and Spanish soccer player Lionel Messi all used Mossack Fonesca to hide their money using shell corporations in offshore “tax havens”–and they’re just the tip of the iceberg.

Investigators suspect that Putin was the primary target of the data leak. The large number of the records seemingly confirmed the existence of the hidden money network of the Russian leader’s inner circle, revealing that “as much as $2 billion has been secretly shuffled through banks and shadow companies linked to Putin’s associates.”

How did they get leaked?

The documents were first leaked to Süddeutsche Zeitung reporter Bastian Obermayer by an anonymous whistleblower who contacted him via an encrypted chat in late 2014. Obermayer then enlisted the help of ICIJ to coordinate an intensive investigation into the documents, the findings of which were later shared with over 100 media outlets.

What is a shell corporation?

A shell corporation is a company used to hide assets for an individual with very minimal government oversight. Often times these companies are established in countries or regions known as “tax havens,” where personal and business taxes are very low or even non-existent. That allows individuals to pay significantly less money in taxes than they would in their home countries.

Still don’t get it?  Watch these two Fusion explainers narrated by a pro-wrestler and a porn star to learn more.

Is it illegal?

Moving your money into an offshore bank account as a means to avoid international law enforcement or tax collectors sounds super shady, but technically speaking it isn’t illegal. That being said, often times individuals with shell corporations use these companies to hide away illegally sourced assets. According to CNN, the ICIJ has stated that “the files include people and companies that the U.S. has blacklisted due to drug trafficking and terrorism links.”

What will happen next?

For the most part, the accused have begun responding to the allegations with a mix of denial and silence since news of the data leak broke. Gunnlaugsson has resigned amid protests, and the Kremlin called the leak “a series of fibs” and a smear campaign ahead of legislative elections in September and presidential elections in 2018. Mossack Fonseca also responded by releasing a 4-page statement denying any and all claims of legal wrongdoing. 

Several countries including Britain, France, Australia and Mexico have also vowed to launch investigations into possible tax evasion for their accused citizens. However, the world’s response is still very much in the early stages. As more information inevitably continues to roll out, we may begin to see more world powers’ political dynamics change.

Alexis Evans

Alexis Evans is an Assistant Editor at Law Street and a Buckeye State native. She has a Bachelor’s Degree in Journalism and a minor in Business from Ohio University. Contact Alexis at aevans@LawStreetMedia.com.

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