Without a doubt, the Panama Papers is one of the biggest stories of our times. It highlights in stark relief what was widely known but never fully proven - the rich and famous hide their money in secret offshore tax shelters.
At the core of a global financial system, tax havens exist to facilitate large corporations and wealthy individuals avoid paying their fair share, depriving governments and therefore societies – rich and poor – of the resources needed to provide basic public services and to tackle rising inequality.
And, it is a worldwide story; virtually no country remains untouched by it; across the globe the ‘great and the good’ - from business people to celebrities, sports people and politicians - engage in what has been described by non-governmental organisation Global Financial Integrity (GFI) as the “most devastating economic issue impacting on the global south”.
As so frequently happens internationally today, it is the world’s poorest and weakest who suffer the most as a result. Relative to national income, it is the people of sub-Saharan Africa who pay the world’s highest price for the accountability and transparency failures (to say nothing of the illegal activity) associated with offshore finance and tax havens.
The very existence of this global offshore industry and the tax-free status it magically bestows on the massive sums invested by wealthy clients is, for obvious reasons, built and sustained on secrecy. That is precisely what this economic activity is about – concealing, managing and manipulating what appears as ‘private capital’ (but is, all too often, public goods) from all regions and from any source - no questions asked.
The channels in which this murky world operates (often in legally grey contexts) include over-invoicing or under-pricing trade deals, transfer pricing and using offshore financial and banking centres and tax havens.
The issue is not simply the result of the behaviour, actions and greed of individuals acting independently but, at a more insidious and fundamental level it is systemic because tax evasion and the illicit transfers of wealth by companies and individuals are facilitated and encouraged by international trading and financial systems.
The scale is now so vast that it has almost become a business model which many of those involved would have us believe is almost ‘normal’ – nothing amiss, nothing to be especially concerned about.
The growing scale of such activity is astronomical; according to a 2015 report by GFI the Developing World alone haemorrhaged a breathtaking $7.8 trillion between 2004 and 2013 in illicit outflows and which reached an all-time high of $1,090.1 billion in 2013.
The scale is now so vast that it has almost become a business model which many of those involved would have us believe is almost ‘normal’
By contrast, the total official aid received by the Developing World for the same period amounted to $1,245.5 billion and in 2013 stood at $134.8 billion (OECD figures). In other words, for every $1 given in aid, $8 was extracted illicitly, the bulk of it via tax havens. This in effect makes poor countries net creditors not debtors as is popularly believed.
According to the European Network on Debt and Development (2014), the bulk of illicit money today is channeled through international tax havens where millions of disguised corporations and shell companies and (in direct mockery of the world’s poor and it’s ‘good causes’) fake ‘charitable foundations’ engage in, what is in essence money laundering.
Two thirds of this offshore wealth is hidden in EU-related tax havens; for example, research by the Panama Papers network of journalists (published in 2015) highlighted how over 106,000 clients from Sri Lanka to Venezuela hid more than $100 billion in Swiss HSBC bank accounts alone.
Research from the Tax Justice Network revealed that at least $21 to $32 trillion of global private financial wealth (a conservative estimate) has been invested almost tax free across the world. This represents just financial wealth and does not include assets.
Tax dodging by multinational corporations alone costs the developing world between $100 and $160 billion per year.
One example illustrates the point. Heritage Oil and Gas Company Ltd. (registered originally in the Bahamas but later in Mauritius where no capital gains tax exists), was presented with $404 million related to the sale of an oilfield in Uganda, a country where some 37% of people live below the world’s absolute poverty line of $1.25 per day; it is also a ‘top 10’ country for maternal death rates according to the World health Organisation.
The company enlisted the help of Mossack Fonseca (well-known to Maltese people) to avoid this tax bill; an amount larger than the entire Ugandan health budget.
Tax dodging amounts to nothing less than the private sequestration of public monies (taxes due) and often public goods (routinely natural resources, land and state assets) or, as I was taught in primary school, stealing. And, it is not simply monies ‘lost’; it is lives lost or unfulfilled for hundreds of millions of poor and excluded as a result.
According to the US Brookings Institute, the taxes dodged by multinational companies alone could lift every person above the derisory absolute poverty level of $1.25 a day three times over.
While illicit financial transfers and the functioning of tax havens worldwide continue to dwarf official aid and foreign direct investment; they also fuel corruption, undermine democracy and human rights and divert resources that, in justice should be used in the campaign against poverty and hunger.
Routinely, discussion of the Panama Papers tends to focus on the unethical, criminal and corrupt dimensions of the issue but there is a growing and urgent need to focus on the structural and systematic dimensions equally.
Putting the ‘lost’ monies in context; the cost of achieving the goal of ending poverty worldwide is estimated by the UN (2015) at $218 billion; of achieving education targets $184 billion; health targets $84 billion or food security alone $67 billion.
So, ultimately those availing of tax havens and ‘favourable tax arrangements’ are directly stealing from the world’s poorest, weakest and most excluded and they are doing so systematically and knowingly.
What is happening is unconscionable; when assessed in this context and on the current scale and with such systematic application, the scandal is nothing short of the modern face of evil.
Colm Regan is an educator who has been involved with human rights issues.