MoneyWeek 8October 2021 moneyweek.com
©iStockphotos16 Briefing
What’shappened?
ThePandorapapersareavasttroveof
leakedinformationaboutthehiddenassets
andcovertoffshorefinancialdealingsof
someoftheworld’srichestpeople–and
specificallythoseinpositionsofpolitical
power.Thepaperswerepublishedon
SundaybytheInternationalConsortiumof
InvestigativeJournalists(ICIJ),agroupof
morethan 600 journalistsin 117 countries.
Itisthebiggestleakyetofdocuments
relatingtotaxhavens.Thecacheof 11.
millionfilesincludes 6 .4milliondocuments,
threemillionimages,overamillionemails,
andalmosthalfamillionspreadsheets–
morethancontainedinthe 2016 Panama
papersleakorthe 2017 Paradisepapers.
What’sinthere?
Thepapersrelatetooffshorefinancial
schemesintaxhavenssuchastheBritish
VirginIslands,theCaymanIslands,
Switzerland,Dubai,PanamaandMonaco.
Inall,financialtransactionsrelatingto 35
headsofstateandgovernmentarecovered,
plusthoseof 300 otherpoliticiansand
officialsacross 90 countries.Highlights
includetherevelationsthatIlhamAliyev,
theAzerbaijanpresident,hastradednearly
£4 00 mofUKpropertyviaoffshorevehicles
(sellingonepropertytotheCrownEstate
for£67m);thatKingAbdullahIIofJordan
hastraded$ 10 0mofpropertyinLondon,
Washington,andMalibu;andthatthe
CzechPM,AndrejBabiš,usedasecret
offshorevehicletobuya$22mFrench
chateau.Here,disclosuresincludethenews
thatTonyandCherieBlairsaved£ 31 2, 000
instampdutyfora£6.5mtownhouse
officebuilding(ownedviaacompany),and
thatnumerousbigTorydonors(andthe
Conservativeco-chairmanBenElliott)
useshellcompaniesbasedintaxhavens.
Is this asurprise?
It’s hardly arevelation
that very rich and
powerful people own
lots of assets anduse
complexoffshore
structures to minimisetax liabilities.Nor
is it necessarilyillegal.Whether or notany
of thesepeoplehaveillegally evaded tax
–ratherthanlegallyavoided it –depends
on whetherthey complied with disclosure
andtax laws in theirhomecountries.But
thecontents areshockingnonetheless,
saysTheTimes.They“reveal theinner
workings of ashadoweconomyin which
wealthyautocrats,sometimes usingmoney
of unknownorigin, canbuy powerand
influence in theWest”.Thisprocess “strikes
at theheart of democracyand shouldshake
up theBritish establishment, whichhas
made itself complicit” in turningLondon
into agiant “laundromat” fordirty money,
much of itfrom Russia andcentral Asia.
The Pandora papers leakYetanother trove of leaked information has thrown aspotlight on the shady dealings of the rich and
powerful. The implications for the UKaren’t pretty.Simon Wilson reportsWhatdoesthisrevealabouttheUK?
That“themotherofdemocracyhasgiven
birthtoasystemthataidskleptocratsand
thieves”,saysIanBirrellonUnHerd.British
OverseasTerritoriesareatthe“epicentre”
ofthelatestdisclosuresandLondonhosts
thenetworkofbankers,advisersand
lawyerswho make itallpossible. Our
government is at best complacent andat
worstimplicatedinthe sleaze. Meanwhile,
theNationalCrimeAgency’s international
corruption unit hasanannualbudgetof
around £4m. That’s afractionofwhatsome
of thepeoplementionedinthe papers spend
in Harrodsonjewelleryand clothes.Butare taxhavensabad thing?
Oneperson’sshady taxhaven is another
person’s perfectlylegitimateoffshore
financialcentre, helpingoil thewheelsof
global capitalismandmakingusall richer
in thelongrun.Thereareplentyofgood
andrespectable
reasonsfor using
offshore companies
or bank accounts.
Forexample,two
businessessettingupacross-border
venturemight wantto incorporateit
on neutral ground.Alternatively,going
offshore mightprovide astablelegal
frameworkfor an investmentintoan
unstable country. Orpeoplewho live in
unstable countries, doing business and
contributing to theeconomy,might need
places wherethey cankeeptheirmoney
securely. Sadly, they also make life much
easierfor theworld’sterrorists, money-
launderers, tax-evadersand kleptocrats.Howmuchdotheycostgovernments?
Thenatureoftax havens –the wholepoint
is secrecy–meanswecanonlyguess. But
most estimatesput theamountoftax lostannuallyatabout half atrillion dollars,
or more.Twoacademic studiescited by
Nicholas Shaxson,the British author of
TreasureIslands(a landmark studyof the
subject),found that taxhavenscollectively
cost governments $500bn-$600bnayear
in lost corporatetax revenue, whether
vialegal or illegalmeans(those studies
datedfrom2015and 2018). Twoseparate
academic studies(from2016 and2017)
putglobalindividual income-tax lossesat
around $200bn ayear. Of that lost revenue,
low-incomeeconomiesaccountforsome
$200bn.That’sabiggerslice of GDPlost
than inadvancedeconomies andmore
than the$150bnorsotheyget each year in
foreigndevelopment assistance.Astudy by
theTax JusticeNetwork last year cameup
withasmaller overall totalof$427bn.What canbedone?
Theworld begantoclampdownin the
wakeof thefinancialcrisisand initiatives
fromtheOECDgroup ofrich countries
have hadsomeeffect–its Common
ReportingStandardregimehas helped
taxauthorities in 110countries(though
notthe US)track theoffshoreholdings of
theirtaxpayers since2014. Another OECD
deal closedsomeofthe more egregious
loopholes.And thissummer, 130nations
agreed anewglobal minimumcorporate
taxrateof15%,plusfurther measures
on profit-shifting. Life is settoget much
harder forzero-taxterritories,suchas
Bermuda, theBritish Virgin Islandsand the
Cayman Islands. Butthere is little political
impetusfor thekindofradical reformson
transparency demandedby“taxjustice”
campaigners–suchasoutlawingshell
companiesand theanonymous ownership
of companiesand property in general.
Withoutthem, it seemsunlikelythatthe
Pandoraleakwill be thelastof itskind.“The papersreveal the
innerworkings ofashadow
economy in theWest”“Themotherofdemocracyhasgivenbirthtoasystemthataidskleptocratsandthieves”