The fallout from the unprecedented Panama papers leak has thrown up countless questions. Some are worth asking, such as whether HM Revenue & Customs possesses the resources to pursue those individuals stripped of their secrecy by the disclosure of 11.5 million documents from the Panamanian law firm, Mossack Fonseca. In light of its response to the HSBC Suisse leak, which resulted in a single prosecution, such doubts surrounding HMRC’s response are well placed.
Other questions, however, miss the target by quite a distance. Too much of the debate is focused on reform of the Byzantine network of offshore tax havens when we should be asking what good it would serve by allowing them to continue, even in a diminished form?
Save for the explosive revelations about the Icelandic prime minister, Sigmundur David Gunnlaugsson, the leaks have not led to mass demonstrations. Partly this is because the legal structures and corporate mechanisms that underpin the global offshore system are so abstruse as to defy understanding, let alone incite large-scale protests.
But forget about the means of the apparatus that allows for widespread tax evasion and money laundering and focus instead on its consequences. The dizzying scale of the funds being squirrelled away in Panama have a ruinous effect on our public life, denying states the taxation to finance schools, healthcare systems and policing.
Estimates as to the direct tax cost of these havens to the UK vary, but one analysis puts the total at around £18.5 billion a year. This is anything but abstract. It is a brazen attack on democracy waged by the privileged few who put private wealth above the public interest. The consequences of this system are legion. It entrenches poverty in the poorest countries around the world and, in their developed counterparts, guarantees an ever-widening economic inequality.
The discourse surrounding the Panama papers has dwelled on what constitutes illegality, given many of the clever accounting and legal practices themselves do not fall foul of the law. This, too, ignores the central point.
In the wake of the Washington Post’s revelations that National Security Agency analysts were involved in illegal spying, Jameel Jaffer, deputy legal director of the American Civil Liberties Union, made a telling observation, one applicable to the Panama scandal. “The non-compliance angle is important, but don’t get carried away,” he cautioned. “The deeper scandal is what’s legal, not what’s not.”
It is an instructive point. Although the defiantly opaque dealings of Mossack Fonesca’s clients are out in the open, the framework of the offshore system has long been hidden in plain sight. Take the latest annual filings of RBS, for example, where in an appendix, the banking group details its myriad global activities, a list that reveals no fewer than 17 entities in the Cayman Islands; 15 in Luxembourg; eight in Gibraltar; five in the British Virgin Islands; four in Switzerland; and six others peppered across the Bahamas, Bermuda and, of course, Panama.
It is unrealistic to expect action to be taken against all these “business-friendly” locales overnight, especially Panama, which the Organisation for Economic Cooperation and Development has warned is failing to live up to international commitments on the automatic exchange of financial account information.
Yet the activities of a few shady places can be addressed directly by the UK government should it find the inclination. The likes of the British Virgin Islands and the Cayman Islands represent the last gilded remnants of the old empire, overseas territories that come under the jurisdiction and sovereignty of the UK.
Given some 113,648 of the secret companies set up by Mossack Fonseca are registered in the British Virgin Islands, the UK can lead the way in tackling the scourge of offshore havens.
All it would take is a law passed at Westminster and a show of political will that has too often extended to little more than rhetoric. Despite the widely recycled speech Prime Minister David Cameron gave in 2013 promising to “shine a spotlight on who owns what and where money is really flowing,” the talk ever since has been timorous, with promises to persuade and cajole Britain’s far-flung outposts into meaningful change.
Its nadir came in February when James Duddridge, a junior foreign office minister, told the Commons that proposals for overseas territories with financial centres to adopt registers of beneficial ownership were a matter of “direction, rather than an ultimate destination”.
The Panama papers should change everything; it would be morally indefensible not to. In reality, however, it will be business as usual. One of the most important statistics to emerge from the leaks shows the UK is home to 1,924 intermediaries who have worked with Mossack Fonseca, second only to Hong Kong.
Here, laid bare, is the importance of the offshore industry to the UK and, in particular, the City of London. To destroy this spider’s web would be to upset the UK government’s powerful friends and place its own economic model under threat.
The meek talk will likely ratchet up a notch over the coming days. An anti-corruption summit in London next month might even herald some tough promises. But the murky offshore dealings will continue.
The value of clamping down on tax havens is immense. Those in positions of power and privilege know the price would be even greater.