The more than 2.6 terabytes of data from the servers of Panamanian law firm Mossack Fonseca provide an insight into the offshore world that is more detailed, immediate and up-to-date than anyone could
The more than 2.6 terabytes of data from the servers of Panamanian law firm Mossack Fonseca provide an insight into the offshore world that is more detailed, immediate and up-to-date than anyone could have previously imagined. Over the course of many months we have seen with our own eyes how Mossack Fonseca has a tailor-made solution for virtually anyone with something to hide. The right loophole can always be found in one or other of the tax havens: if the company in the Seychelles can’t do it, then the Panamanian trust or the foundation in Bermuda probably can — or alternatively a combination of two, three or four of these elements. In our globalised world it seems there is hardly a single law that cannot be circumvented or its impact lessened with the help of a few shell companies. British author Nicholas Shaxson sums this up rather neatly: “Offshore is not only a place, an idea, a way of doing things, and a weapon of the financial industry. It is also a process: a race to the bottom to where the rules, laws and outward signs of democracy are worn away little by little... It is very nearly impossible, we keep hearing in background discussions, for authorities to establish a chain of proof that holds up in court if the investigators come up against a network of shell companies strung out across five, 10 or 30 tax havens...
This game of hide-and-seek has serious consequences, not only in cases where criminal activities are obviously being concealed. The legal constructs of the offshore world also create problems on a huge scale.
Not surprisingly, it was those who had caused the (2008) financial crisis who were the least affected by it. While billions were spent bailing out banks, and nearly all those responsible got away without being investigated, let alone charged, the victims, the people conned into taking out enormous loans, were abandoned often without a job, a house or any prospect of ever being able to live debt-free again. Those who had squirrelled their money away in an offshore trust, on the other hand, had no need to worry.
It is plain to see that a shocking number of players from the financial world are avoiding the scrutiny of regulatory bodies in their countries with the help of shell companies. By doing this they are undermining democratic principles; when a society’s rules, agreed on and supported by all, do not apply to those whose power and wealth allow them to circumvent them, they lose their meaning. Why, then, should the others continue to accept these rules Why should the 99 per cent accept that their governments now have no more than a theoretical influence on the super-rich 1 per cent of society An employee looking at his payslip sees what the state has taken from him and is powerless to do anything about it. But someone who has his dividends paid to a shell company in the British Virgin Islands can decide for himself whether or not to declare these earnings in the country in which he lives, whose amenities and protection he enjoys. The feeling that, in the world of finance, “the people at the top” can do whatever they want is more than just a feeling. It’s the reality.
Danish sociologist Brooke Harrington, who trained for two years as an asset manager and immersed herself in this world as a form of field research, rightly warns of a “neo-feudal concentration of wealth”. A small group of rich people, she says, are not only hiding their money and avoiding taxes, they are also evading the law.
The members of the international financial elite are effectively constructing their own legal system. If something isn’t possible in one country, they simply do it in another jurisdiction. The international world of finance is just one of the countless beneficiaries of the offshore industry. The financial industry does at least try to make sure its activities are carried out within the letter of the law, and is partly successful in this. But we also came across countless criminals engaging in offshore activities. The Japanese mafia, the Italian mafia, the Russian mafia, drugs cartels, arms smugglers, people who finance terrorism. The suspected helpers of butchers like Assad and Gaddafi. Money laundering rings. As well as corruption cases by the dozen. In short: the world of organised crime in all its many forms makes use of the offshore industry just as much as fraudsters and criminals acting individually, using it to erase its tracks and conceal its crimes. That, too, is the reality.
The good news is that this reality is not irreversible. The irresponsibility witnessed in the offshore centres of this world is the result of laws that can be changed. The experts are largely in agreement in their assessment of the measures required. There are essentially two main requirements. The first big step would be to introduce an effective system for the automatic global exchange of information about bank accounts. The British authorities would then automatically know about any accounts held by British citizens in, say, the Bahamas. This kind of exchange of information is still useless, though, if an account is held by an anonymous paper company. For if a UK citizen hides behind a shell company and holds the account in the co-mpany’s name, then the UK authorities will never find out.
So what is needed, for numerous other reasons as well, is a globally transparent register of companies. It would have to list the real owners of companies and foundations — and providing false information would have to be made a criminal act punishable with tough sentences. That would be the second step. That’s how easy it would be to put an end to the tax havens.
It would mean that many of the services offered by Mossack Fonseca for the purpose of concealing the real owners of companies sold by the firm would be banned, including nominee shareholders, anonymous bearer shares and of course the hired “real owners” who are in actual fact only front men. Nominee directors would be superfluous because the owners of companies would be known anyway.
The ones who pay the price for the tax haven model are the citizens of all countries whose tax receipts are reduced due to the activity of shell companies, or whose public funds are funnelled out of the country and stashed away in the Caribbean. And the populations of all countries whose heads of state embezzle money and hide it away in private accounts. To end on a more optimistic note: the international community will take action. Whether reforms by the EU, UN or Organisation for Economic Co-operation and Development (OECD) will go far enough is highly doubtful — chances are they won’t in the first instance — but further steps will follow. Public pressure, which is bound to increase as a result of the Panama Papers, will see to that. But there is one more thing.
No one, anywhere, who conducts secret transactions and leaves a digital trace is safe any more. Whatever they do, wherever they do it. Anyone who acquires an anonymous shell company should know that, in this digital age, secrecy is an illusion. Somewhere there will always be employees who have had enough of watching these goings-on. Somewhere there will always be activists who find holes in databases. This leak is not the first leak. Nevertheless, perhaps it does mark the start of something. The start of the end of the tax havens.
Extracted with permission from Pan Macmillan India
