This massive data leak from the International Consortium of Investigative Journalists lays bare a plethora of documentation regarding corruption, tax evasion, and other criminality made possible by the global network of tax havens.
The documents confirm the suspicions most of us held already. So why all the excitement? Well, in the first instance, it’s the sheer scale of the information. The stash includes 11.5m documents relating to financial transactions, the sole purpose of which seems to be keeping illicit gains hidden from the view of tax authorities and criminals investigators.
However, the Panama Papers relate to just one law firm, in one small tax haven; and the information contained points to far bigger tax dodging industries in jurisdictions like the British Virgin Islands.
The mind boggles trying to grasp just how big a racket this is.
At its heart, this story is about the corruption of power. The journalists and campaigners involved in this leak have lifted up a rock, a small one, and what we see beneath ain’t pretty.
However, the vista is all the more appalling against a global backdrop of massive inequalities in wealth and power. Those with the means to do so are able to break the rules on a massive scale (or create their own favourable rules), benefiting at the expense of ordinary citizens.
Timing is another factor in the public interest surrounding the story.
In the West, in response to the economic crisis, we’ve been told to take our medicine and live within our means. All the while, the political elite administering the austerity potion has been at best complicit by failing to police this global racket, and at worst has benefitted personally by exploiting a variety of tax wheezes to amass huge personal wealth.
In developing countries the impact is even more devastating. Illicit flows of money out of poor countries, in the form of corruption and multinational tax dodging, dwarf the paltry sums we deliver in aid.
The poorest people are hit hardest: The IMF estimates that developing countries lose out on €175bn a year in avoided corporate tax, with companies using many of the same loopholes exposed by the Panama Papers. Women and girls living in poverty pay the price as key public services like schools and hospitals are starved of funding.
Take for example the Democratic Republic of Congo. By one estimate, the country lost out on €1.14bn, or twice the country’s health and education budgets when key mining assets were sold off extremely cheaply to anonymously-owned British Virgin Island companies.
Or Zambia, where I’ve travelled and met people eking out a living while paying a higher rate of tax than huge multinationals. Action Aid has shown that Associated British Foods used a complex network of operations in jurisdictions, including Ireland, to avoid tax on over €70m. The tax paid on this could have put 48,000 children in school.
Ireland crops up again a number of times in the Panama Papers with a variety of individuals and companies based here, ostensibly or in reality, listed among the documentation.
The financial secrecy at issue here props up abusive regimes, keeps developing economies dependent on overseas aid, and fuels instability and extremism. It is also bad for the global economy. Research has shown that improving financial transparency has a direct positive impact on credit ratings, growth and equality.
Criminal investigators will now likely get involved to determine what of the activities revealed constitutes criminality. However, don’t hold your breath for the outcome of that.
I campaigned at the Lough Erne G8 and celebrated when the British prime minister promised “the walls of financial secrecy” were about to come tumbling down. A few months the premier of a renowned tax haven told me not much would change. The Panama Papers firmly give lie to the idea that tax havens exist for any legitimate purpose. A top to bottom shake-up of global financial transparency is now required, not just a tweaking of the rules but a reimagining of the terms of the game.
Two quick wins can happen in the coming months. In May, the UK will host a summit on corruption. Whomever the new Irish finance minister is might wish to attend and give his/her support to proposals to make public the ultimate beneficial owners of the assets held in shell companies.
Later in the year, the EU will bring forward proposals requiring companies to publish information in each country where it operates, thereby making it easier to ascertain where profits are made and where they are booked. These rules must not be watered down in the face or corporate and special interest lobbying.
Without concrete action on these proposals before them, politicians, and those benefitting from a broken global system, will continue to take the rest of us for fools.