“When people ask me to define a tax haven, I boil it down to two words: ‘escape’ and ‘elsewhere’. You take your money elsewhere, to another country, in order to escape the rules and laws of society where you live and operate.”
Nicholas Shaxson, a journalist who has spent years probing tax havens, and author of Treasure Islands, wrote this in a highly revealing article in the London Sunday Times last Sunday.
I have had the opportunity to explain in several media and in Parliament about the potential damage Panamagate and, subsequently, Panama Papers, might inflict on our own financial centre, and with the latest revelations also on our remote gaming sector.
The very fact that one Maltese name was there, the only EU minister, along with an array of others who surely cannot be described as edifying, is already full of fraught. This, in itself, very unjustly starts to raise questions, doubts and suspicions about our own jurisdiction and this is definitely the most harmful aspect of the fallout from this world-shattering scandal. The plot thickens when the same Maltese minister is now being closely associated with Panama.
I will neither speculate nor add my personal misgivings about the whole issue but I consider it will be of particular interest to all readers to quote substantial parts form Shaxson’s article and leave the resultant comments and deductions to their undoubted sincerity and genuineness.
I would also like to propose, as a relevant background to these quotations, some important facts about reforms put in place and by which the international community intervened to make it harder to use offshore vehicles thanks to reforms imposed in the wake of the financial crisis which started late in 2008.
The world of tax havens is a multi-headed hydra and no single approach can come close to addressing it
The first reform came in 2009 when the G20 and the Organisation for Economic Cooperation and Development (OECD), the adviser to rich nations, drafted a directive that requires countries to reveal the identity of any beneficiaries of companies domiciled in their territories if requested by another government.
The second big change came in 2014 when nearly 100 countries agreed to a new automatic exchange of information system that will send company ownership details of foreign nationals to their governments through an encrypted platform.
More than 50 states and protectorates have agreed to take part when the exchange goes live next year and a further 41 are set to join in 2018.
But Pascal Saint-Amans, the OECD’s director of tax policy, said that four countries, namely Bahrain, Nauru, Vanuatu and Panama have yet to commit themselves. Saint-Amans said: “Panama is one of the worst. It is trying to negotiate bilateral deals with countries, but has refused to give access to India, Argentina and Colombia – countries extremely interested in getting this information.”
Shaxson describes tax havens as being like one of the sleazier Star Wars bars, full of gun nuts, smugglers, aristocrats, lobbyists and spies.
He says that the profound truth is that tax havens are the creation of some of the world’s wealthiest and most powerful people, which is why they are hard to get rid of.
“These figures”, he insists, “are under-mining governments, while also sitting at the heart of political establishments.”
When describing the offshore world, Shaxson says this is “a bubble people by an eclectic mix of characters reminiscent of one of the shadier bars of Star Wars: mafiosi, wealth managers, castle-owning aristocrats, accountants, drug smugglers, American guns, British public schoolboys, bankers, spies, lobbyists, Lords and Ladies galore”.
He continues: “What is interesting is how these players justify their activities to their families and to themselves.”
About the hypocrisy surrounding the whole concept, Shaxson writes that the main ethical shield is a set of altitudes – which, he says, are almost an ideology – that flourishes offshore.
The players who help their clients escape from laws they do not like,adopt a particularly pure anti-tax, anti-government, anti-regulation and even anti-law world view to support their line of business.
Shaxson says that the finance consensus that pervades all tax havens corrupts politics and society.
“It is a strange double-game being played. On the one hand, tax havens want to be seen as clean, trustworthy, well-regulated places: a safe haven for the world’s money. On the other hand, they want to attract as much money as possible, which means turning a blind eye to the nasty stuff.”
He says that the way tax havens square these opposing forces is simple. It is an offering that implicitly says: ‘You can trust us not to steal your money but you can also trust us to turn a blind eye if you want to steal someone else’s.’
Shaxson also dealt directly with the Panama Papers debacle and started by saying that there is nothing illegal in itself about merely setting up an offshore company. If you have declared your interest, then it is probably or, perhaps, OK, depending on what you have done.
But he hastily adds that this does not mean that all the clients of Mossack Fonseca, the Panamanian law firm whose files were leaked, are in the clean. Panama is one of the most suspect tax havens in the offshore world.
It chases the world’s dirtiest money, stuff that most havens, like Cayman, will not touch any more.
Investigators would always want to know: why would you use a Panamanian law firm when so many other less controversial options are available?
At the same time, Shaxson advises his readers not to get too fixated on this. He discloses that actually Mossack Fonseca’s favourite jurisdiction for setting up secret shell companies was not Panama but the British Virgin Islands (BVI), while commenting that this “brings the Panama scandal into broader focus”.
Shaxson’s conclusion is extremely relevant to the whole point of our present debate regarding this worldwide scandal which is also plaguing Prime Minister Joseph Muscat’s socialist government.
The world of tax havens is a multi-headed hydra, he argues, and no single approach can come close to addressing it. “But the Panama Papers focus on one of the offshore’s most important structural pillars: secrecy. The antidote here is transparency.”
Yes, transparency. A main plank in Muscat’s pre-electoral promises and which has now been burnt and buried under a ton of scandals, sleaze, unethical behaviour and absolutely disgraceful tactics aired solely to hide the truth in the evanescent hope they will never be caught and revealed. Transparency has been the most damaged and impaired victim during the last three years.
The Maltese, so much renowned for their resilience, will however once more weather this storm but those who are causing all this damage to our country should not get away with it. It very largely depends on you and me. We, the people.
Kristy Debono is an economist and Opposition spokesperson for financial services.