日本イスラーム研究所 Japan Islamic Research Institute


 

Britain’s Empire of Tax Evasion

       

The “Panama Papers” show that the sun never sets on the United Kingdom’s tax havens.

Britain’s Empire of Tax Evasion

There is a temptation, when looking at the astonishing “Panama Papers,” to start by searching for politicians from your own country who are implicated. If you are British and approach the documents in this way, you’ll find slim pickings in the information released so far.

Among the many thousands of names listed in the leak as possibly implicated in dodgy tax deals, there can’t be any appearance less surprising than that of Baroness Pamela Sharples, the widow of the former governor of Bermuda. That is, until you get to Lord Michael Ashcroft — billionaire, Belizean national, and former deputy chair of the Conservative Party — who would have been more remarkable if he had been absent. Then there’s Michael Mates, a former Tory MP, who stood down in 2010 amid another business scandal. And David Cameron’s late father, but again — hardly a surprise.

To engage in this exercise, however, is to largely miss the point: not just the point of this astonishing leak, but the point of the whole United Kingdom. Because it’s hard not to look at the whole affair and see Britain right at the core of it. Or, at least, the British state, which one might argue is a very different entity.

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There are, you see, a few important facts we are rarely told about the British state. Like, for instance, the fact that it governs more land in the Southern Hemisphere than the Northern; more penguins than any other; that there are 18 legislatures under Westminster’s auspices; and that these include the governments that oversee by far the most important network of tax havens in the world.

With the City of London at its center, Britain’s network of refuges from taxes, regulations, and other pesky laws stretches first to the crown dependencies — the Isle of Man, Guernsey, and Jersey — and then into the 14 British overseas territories: places like the British Virgin Islands, Bermuda, and the Cayman Islands. From there, this web extends to places like Hong Kong, not under British rule since 1997 but, according to author Nicholas Shaxson, still feeding “billions in business to the City.”

The overseas territories — the last vestiges of the old empire — each have slightly different political structures, but all of them have a governor figure, appointed by the British government. All of them hand control of their foreign policy over to Westminster, and all of them depend on the motherland for military protection: The Falklands War is an obvious example, but let’s not forget that when Tony Blair famously claimed Saddam Hussein had weapons of mass destruction capable of reaching British military targets within 45 minutes, he was referring not to London, but to Akrotiri and Dhekelia, Britain’s military bases and overseas territory on Cyprus. Akrotiri and Dhekelia still serve a strategic purpose, which make them the exception; most of the overseas territories have evolved into, essentially, parking lots for the wealth of the .01 percent. It’s worth pointing out that more than half of the companieslisted in the leaked Mossack Fonseca documents are registered in the U.K. or its overseas territories — and they’re not based in Birmingham.

It’s easy to focus on the idea that this is another story about possible corruption in the governments of countries in the “global south” — those developing nations of Africa, Asia, and Latin America — or the former Soviet Union. And, of course, it is that too. But it’s important to recognize that this is also a story about Britain’s changing role in the world.

Of course, the overseas territories are far from new — some date back to the earliest days of the British (or, English, as it was then) Empire and were vital parts of the English tradition of piracy. Bermuda, for example, was managed by a series of English companies before becoming an official royal colony in 1684. But the evolving role of these small corners of British influence tells a story of how, over the last 100 years, Britain switched from a land empire to a financial empire: from conquering the world to laundering its money, through treasure islands distributed across the planet, hiding pots of gold for corrupt leaders, tax dodgers, drug dealers, and embargo breachers.

Want to understand how things on the edges got so bad? Look to the center: The City of London itself is even older than the empire. The 1.12 square miles that make up London’s financial center have had their own constitutional arrangements for a millennium. (As Shaxson notes, it’s said that William the Conqueror allowed the City to keep its “ancient rights” in 1067, as he trashed the rest of the country.) Today, those square miles are governed by the City of London Corporation, whose representatives are elected by the businesses that operate there, and they have an unelected representative who sits in Parliament, as well as their own police force, which has been remarkably unsuccessful in policing British banks.

Because having its own built-in constitutional protections wasn’t sufficient, in 2010, the City paid for more than half of the Conservative Party’s election campaign, ensuring Cameron’s narrow victory (along with the aforementioned Lord Ashcroft) and that any significant new regulations on finance after the 2008 crisis would be politically impossible. To be sure, however, the Labour Party didn’t do anything to regulate the city in the previous 13 years when it was in power — winning it over with a famous “prawn cocktail offensive” that was a key part of its strategy to get into No. 10 Downing St. in the first place. All of this goes a little way to explaining why Britain has, for some time now, been considered the global capital for criminal money laundering among those in the know. Perhaps, with the release of the Panama Papers, the last sheen of respectability will finally be stripped away.

If we want to understand modern Britain, we first need to realize that our primary economic function in the world today is probably our network of tax havens. After all, around $21 trillion is estimated to sit in offshore accounts, of which Britain’s territories are said to make up by far the biggest part. Our own GDP is only around $3 trillion.

Second, we need to come to grips with the serious claims about our role as the global money-laundering capital. This isn’t just something we should be ashamed of — it also causes the country significant economic problems: It pushes up the price of the poundso far as to make our other exports unaffordable (bye-bye, steel industry); it drives up the cost of housing in London and the South East, fueling a vast speculative bubble, which sucks investment out of the rest of the economy. It’s no wonder net investment in the British economy is, according to the economist John Mills, effectively zero.

And third, we need to think about how this gradually dawning economic reality interacts with our politics: not through the obvious corruption of direct bribery, but through revolving doors between government and civil service, through old boys’ networks and friendship groups, through perfectly legal election donations and media dominance, which all combine and operate to cement the role of finance as Britain’s most important industry.

It was not so long ago — within my grandparents’ lifetime — that Britain was at the center of the biggest empire in human history. Many observers have considered the present day, understandably, as the post-imperial era, placing the end date of empire somewhere around the time Britain withdrew from South Asia. But perhaps we got ahead of ourselves — perhaps we’re only just now seeing the final stages, the physical empire replaced with a hidden financial one. And perhaps the Panama Papers will be seen as the moment when this empire, too, finally began to come unstuck.

New ‘Panama Papers’ Report Hits China’s Red Elite

       

Those named as offshore mavens included a Stanford freshman and a descendant of Mao Zedong.

New ‘Panama Papers’ Report Hits China’s Red Elite

e global image of Capitalism with Chinese characteristics took yet another hit on April 6, when the International Consortium of Investigative Journalists (ICIJ), in conjunction with German outlet Süddeutsche Zeitung,published a China-focused report that peels back further the curtain that usually shields the financial machinations of China’s elite and well-connected from public view. The report, authored by former Foreign Policy reporter Alexa Olesen, reflects the author’s access to the trove of 11.5 million underlying documents leaked from Panama-based law firm Mossack Fonseca, which has specialized in the formation of offshore entities in jurisdictions like the Cayman Islands and the British Virgin Islands (BVI), a leak first exposed on April 3 and dubbed the “Panama Papers.”

While the latest findings are unlikely to surprise Chinese palace-watchers, they cement the country’s reputation as a place whose leadership, despite its Communist provenance, is both willing and able to use the levers of international finance to obfuscate asset ownership and to utilize positions of power to benefit friends and family. The results includes a dizzying array of shell companies with meaningless monikers like Glory Top, Ultra Time, Keen Best, Dragon Stream, and Purple Mystery.

For the first time, the April 6 report names each of the eight current and former members of China’s elite, Politburo Standing Committee (PSC) with a family member implicated in the leaked papers. The list reaches surprisingly far back into China’s history, touching even Mao Zedong, the founder of the People’s Republic of China. It includes:

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  • Mao Zedong (deceased), who led the country with an iron fist from 1949 to his death in 1976: Mao’s grandson-in-law incorporated a BVI company in 2011.
  • Hu Yaobang (deceased), who headed the Communist Party from 1982 to 1987: Hu’s son, Hu Dehua, was shareholder, director, and beneficial owner of a BVI company incorporated in 2003.
  • Li Peng, former Premier: Li’s daughter, Li Xiaolin, owns a BVI company incorporated in 1994. She and her husband previously owned the entity via bearer shares, which obfuscate ownership.
  • Zeng Qinghong, former Vice President: Zeng’s brother, Zeng Qinghuai, was director of a company incorporated in Niue, later shifted to Samoa.
  • Jia Qinglin, former PSC member: Jia’s granddaughter Jasmine Li Zidan (no relation to Li Xiaolin) became the owner of an offshore company in 2010 and later came to own two BVI shell companies with total registered capital of $300,000.
  • Xi Jinping, current President: Xi’s brother-in-law, Deng Jiagui, acquired three offshore firms over several years.
  • Zhang Gaoli, current PSC member: Zhang’s son-in law, Lee Shing Put, owned shares in three BVI companies.
  • Liu Yunshan, current PSC member: Liu’s daughter-in-law, Jia Liqing, was director and shareholder of a BVI company in 2009.

Other notable Chinese clients of Mossack Fonseca who have not held high office include Shen Guojun, founder of a Chinese shopping mall chain, and Jackie Chan, the kung-fu star notable for his worldwide appeal and his full-throated expressions of fealty to the ruling party, including a 2009 statement that the people of China “need to be managed.” Shen and Chan, together with others, owned a BVI company incorporated in 2008. The report states neither Shen nor Chan responded to repeated ICIJ requests for comment.

The report states, correctly, that setting up offshore entities is not itself illegal. Neither are Chinese leaders necessarily in a position to control their family members’ behavior. But the report nevertheless shows that those close to China’s leaders abided by something other than the highest standards of transparency. It undermines the leadership’s frequent, if self-serving, invocations of patriotism. And it appears to confirm the belief, widely held among average Chinese, that those close to influential officials trade on their connections and live by a set of rules different from that of ordinary citizens. Citizen activists have long called for stricter asset disclosure laws in China, but to no avail; some have even been jailed for their efforts.

It’s vanishingly unlikely the report will make major waves in China. The country’s censors have apparently been working overtime to scrub social media of damning mentions of the Panama Papers, which have already named Deng Jiagui, Li Xiaolin, and Jasmine Li, among others, as having been involved in, or having benefited from, the establishment of offshore entities. While Chinese media has reported on the Panama Papers’ existence, it has collectively said nothing about their nexus with Chinese leaders, instead focusing on how leaked documents implicate soccer star Lionel Messi.

Censors have good cause to be afraid of the backlash that would otherwise ensure; the new report includes several details likely to infuriate even a jaded citizenry. Jasmine Li, granddaughter of Jia Qinglin, somehow became owner of offshore entity Harvest Sun Trading Ltd. while still enrolled as a freshman at Stanford University.  Li Xiaolin, daughter of Li Peng and a middle-aged oil executive, averred to state media in 2014 that that she had no offshore companies — in fact, by then, she had controlled a BVI entity for about ten years. She held (but no longer holds) ownership via bearer shares, which are technically owned by whoever has physical possession of them, making it impossible to establish a registered owner. It was a neat trick — too neat even for BVI authorities, who outlawed the practice in 2009. The report states Li Xiaolin did not respond to repeated ICIJ request for comment.

Perhaps most sordid is the story of the infamous Gu Kailai, the imprisoned wife of (also jailed) former politician Bo Xilai. Gu became famous in China and abroad after poisoning erstwhile British friend-cum-“white glove” Neil Heywood in 2011. (Businesspeople who act as proxies for the wealth of leaders’ families are colloquially called bai shoutao, meaning “white gloves.”) Heywood had threatened to expose Gu’s ownership of an expensive villa in southern France, which she hid using a BVI entity. Gu, desperate not to allow a disclosure that might imperil her husband’s political ascent, murdered Heywood in a hotel room. Two weeks later, the new ICIJ report reveals, she transferred ownership of the entity to an associate.

And where exactly were the lawyers during all of this shady business? The report repeatedly notes Mossack Fonseca’s evident failure to conduct rigorous “know your customer” checks prior to papering deals for members of China’s de facto aristocracy. The process, known in the profession as “KYC,” is standard procedure that respected firms follow before entering into formal lawyer-client relationships and helps ensure a firm is in compliance with international laws, including those against money laundering. The report implies such practices, if more strictly followed, would likely have flagged power players like Deng Jiagui and Li Xiaolin. Meanwhile, Jasmine Li, granddaughter of Jia Qinglin, bought a shell company for $1 from another firm client and apparent “white glove,” Zhang Yuping, who founded a Chinese luxury watch concern, yet there is no evidence the firm asked Li for her photo ID, a standard practice.

It’s possible that Mossack Fonseca found itself bewildered by the various Chinese names employed — after all, surnames like Li, Zhang, Hu, and Liu are widely used in China, and their bearers very rarely possess any nexus with leaders of the same name. But the firm, the ICIJ report notes, set up shop in Hong Kong in 1989, then established a foothold in the mainland in 2000 — it now boasts offices in eight mainland Chinese cities, including several, like Ningbo and Jinan, not considered conventional destinations even for globe-trotting foreign lawyers.

Mossack Fonseca, in other words, had been an early and deep operator in China. The report states that Mossack Fonseca’s China offices handled the formation of 29 percent of all active companies set up by the firm, and its busiest office was in Hong Kong. In what now resembles a bit of foreshadowing, in a Bloomberg interview conducted before the ICIJ revelations, founding partner Ramón Fonseca declared his intention to make the sprawling firm “the right size — smaller.”

 
     

e global image of Capitalism with Chinese characteristics took yet another hit on April 6, when the International Consortium of Investigative Journalists (ICIJ), in conjunction with German outlet Süddeutsche Zeitung,published a China-focused report that peels back further the curtain that usually shields the financial machinations of China’s elite and well-connected from public view. The report, authored by former Foreign Policy reporter Alexa Olesen, reflects the author’s access to the trove of 11.5 million underlying documents leaked from Panama-based law firm Mossack Fonseca, which has specialized in the formation of offshore entities in jurisdictions like the Cayman Islands and the British Virgin Islands (BVI), a leak first exposed on April 3 and dubbed the “Panama Papers.”

While the latest findings are unlikely to surprise Chinese palace-watchers, they cement the country’s reputation as a place whose leadership, despite its Communist provenance, is both willing and able to use the levers of international finance to obfuscate asset ownership and to utilize positions of power to benefit friends and family. The results includes a dizzying array of shell companies with meaningless monikers like Glory Top, Ultra Time, Keen Best, Dragon Stream, and Purple Mystery.

For the first time, the April 6 report names each of the eight current and former members of China’s elite, Politburo Standing Committee (PSC) with a family member implicated in the leaked papers. The list reaches surprisingly far back into China’s history, touching even Mao Zedong, the founder of the People’s Republic of China. It includes:

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  • Mao Zedong (deceased), who led the country with an iron fist from 1949 to his death in 1976: Mao’s grandson-in-law incorporated a BVI company in 2011.
  • Hu Yaobang (deceased), who headed the Communist Party from 1982 to 1987: Hu’s son, Hu Dehua, was shareholder, director, and beneficial owner of a BVI company incorporated in 2003.
  • Li Peng, former Premier: Li’s daughter, Li Xiaolin, owns a BVI company incorporated in 1994. She and her husband previously owned the entity via bearer shares, which obfuscate ownership.
  • Zeng Qinghong, former Vice President: Zeng’s brother, Zeng Qinghuai, was director of a company incorporated in Niue, later shifted to Samoa.
  • Jia Qinglin, former PSC member: Jia’s granddaughter Jasmine Li Zidan (no relation to Li Xiaolin) became the owner of an offshore company in 2010 and later came to own two BVI shell companies with total registered capital of $300,000.
  • Xi Jinping, current President: Xi’s brother-in-law, Deng Jiagui, acquired three offshore firms over several years.
  • Zhang Gaoli, current PSC member: Zhang’s son-in law, Lee Shing Put, owned shares in three BVI companies.
  • Liu Yunshan, current PSC member: Liu’s daughter-in-law, Jia Liqing, was director and shareholder of a BVI company in 2009.

Other notable Chinese clients of Mossack Fonseca who have not held high office include Shen Guojun, founder of a Chinese shopping mall chain, and Jackie Chan, the kung-fu star notable for his worldwide appeal and his full-throated expressions of fealty to the ruling party, including a 2009 statement that the people of China “need to be managed.” Shen and Chan, together with others, owned a BVI company incorporated in 2008. The report states neither Shen nor Chan responded to repeated ICIJ requests for comment.

The report states, correctly, that setting up offshore entities is not itself illegal. Neither are Chinese leaders necessarily in a position to control their family members’ behavior. But the report nevertheless shows that those close to China’s leaders abided by something other than the highest standards of transparency. It undermines the leadership’s frequent, if self-serving, invocations of patriotism. And it appears to confirm the belief, widely held among average Chinese, that those close to influential officials trade on their connections and live by a set of rules different from that of ordinary citizens. Citizen activists have long called for stricter asset disclosure laws in China, but to no avail; some have even been jailed for their efforts.

It’s vanishingly unlikely the report will make major waves in China. The country’s censors have apparently been working overtime to scrub social media of damning mentions of the Panama Papers, which have already named Deng Jiagui, Li Xiaolin, and Jasmine Li, among others, as having been involved in, or having benefited from, the establishment of offshore entities. While Chinese media has reported on the Panama Papers’ existence, it has collectively said nothing about their nexus with Chinese leaders, instead focusing on how leaked documents implicate soccer star Lionel Messi.

Censors have good cause to be afraid of the backlash that would otherwise ensure; the new report includes several details likely to infuriate even a jaded citizenry. Jasmine Li, granddaughter of Jia Qinglin, somehow became owner of offshore entity Harvest Sun Trading Ltd. while still enrolled as a freshman at Stanford University.  Li Xiaolin, daughter of Li Peng and a middle-aged oil executive, averred to state media in 2014 that that she had no offshore companies — in fact, by then, she had controlled a BVI entity for about ten years. She held (but no longer holds) ownership via bearer shares, which are technically owned by whoever has physical possession of them, making it impossible to establish a registered owner. It was a neat trick — too neat even for BVI authorities, who outlawed the practice in 2009. The report states Li Xiaolin did not respond to repeated ICIJ request for comment.

Perhaps most sordid is the story of the infamous Gu Kailai, the imprisoned wife of (also jailed) former politician Bo Xilai. Gu became famous in China and abroad after poisoning erstwhile British friend-cum-“white glove” Neil Heywood in 2011. (Businesspeople who act as proxies for the wealth of leaders’ families are colloquially called bai shoutao, meaning “white gloves.”) Heywood had threatened to expose Gu’s ownership of an expensive villa in southern France, which she hid using a BVI entity. Gu, desperate not to allow a disclosure that might imperil her husband’s political ascent, murdered Heywood in a hotel room. Two weeks later, the new ICIJ report reveals, she transferred ownership of the entity to an associate.

And where exactly were the lawyers during all of this shady business? The report repeatedly notes Mossack Fonseca’s evident failure to conduct rigorous “know your customer” checks prior to papering deals for members of China’s de facto aristocracy. The process, known in the profession as “KYC,” is standard procedure that respected firms follow before entering into formal lawyer-client relationships and helps ensure a firm is in compliance with international laws, including those against money laundering. The report implies such practices, if more strictly followed, would likely have flagged power players like Deng Jiagui and Li Xiaolin. Meanwhile, Jasmine Li, granddaughter of Jia Qinglin, bought a shell company for $1 from another firm client and apparent “white glove,” Zhang Yuping, who founded a Chinese luxury watch concern, yet there is no evidence the firm asked Li for her photo ID, a standard practice.

It’s possible that Mossack Fonseca found itself bewildered by the various Chinese names employed — after all, surnames like Li, Zhang, Hu, and Liu are widely used in China, and their bearers very rarely possess any nexus with leaders of the same name. But the firm, the ICIJ report notes, set up shop in Hong Kong in 1989, then established a foothold in the mainland in 2000 — it now boasts offices in eight mainland Chinese cities, including several, like Ningbo and Jinan, not considered conventional destinations even for globe-trotting foreign lawyers.

Mossack Fonseca, in other words, had been an early and deep operator in China. The report states that Mossack Fonseca’s China offices handled the formation of 29 percent of all active companies set up by the firm, and its busiest office was in Hong Kong. In what now resembles a bit of foreshadowing, in a Bloomberg interview conducted before the ICIJ revelations, founding partner Ramón Fonseca declared his intention to make the sprawling firm “the right size — smaller.”

 
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Will the Panama Papers Be a Catalyst for Change?

       

It’s not about Vladimir Putin’s cronies or crooked billionaires. If real reform is going to come, it’ll have to be based on popular anger at the merely well-off using tax havens to move money.

Will the Panama Papers Be a Catalyst for Change?

If it were not for the sheer enormity of the data dump, the “Panama Papers” scandal might have been met with the global equivalent of Captain Louis Renault’s “shocked” realization that there was gambling in Rick’s Café Américain. After all, the revelation that there is rampant corruption in weakly governed countries or in places run by strongman dictators isn’t much of a revelation. One need not delve too deeply into the history books to find similar activities; the billions found to be held offshore by Hosni Mubarak, Muammar al-Qaddafi, and Zine el-Abidine Ben Ali easily make the point. Indeed, so well-known was Mubarak’s penchant for corruption that the Swiss bank that held some of his assets reported them to the new Egyptian government — before they were even requested.

But sometimes more actually is more, and the Panama Papers certainly provide more of everything — documents, shell companies, clients, countries affected, government officials involved — than has ever been made public previously. The volume of information makes WikiLeaks look like amateur hour. Add some bold-faced names like Putin, Xi Jinping, and Nawaz Sharif, as well as relatives of bold-faced names (e.g., David Cameron’s dad and Ilham Aliyev’s wife and kids), and a blockbuster of a scandal is born. With so many different facets of the story beyond the obvious charge of corruption, such as the potential political fallout and tax evasion by celebrities, the media will be feeding off this for weeks.

Fusion puts the number of current or former government leaders tied to Mossack Fonseca — the Panamanian law firm at the heart of the matter — at an even dozen. But more than 10 times as many current and former politicians and government officials also took advantage of the benefits anonymity provides. Some 29 Forbes-level billionaires are among those outed by the person or persons who provided the data to Germany’s Süddeutsche Zeitung newspaper. Data related to Americans who might have been involved have not yet been released.

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While this story is still in the early days of its timeline, it is not too early to debate whether the Panama Papers are likely to be a catalyst for change. Whereas 9/11 was the impetus for the elimination of shell banks, and the 2008 global financial crisis created the political will to initiate the Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting (BEPS) plan, it is unclear if what has gushed out of Panama will be perceived as a crisis. If it is perceived as such, then real change, in the form of the elimination of anonymous shell corporations, may be achieved. However, if the illegal activities of the politically ensconced and financial elite are seen as terrible but, alas, just business as usual, little reform is likely to occur.Put another way, after enduring the seemingly endless whorl of bank scandals, Lux Leaks, corporate tax evasion, sweetheart deals, and kickbacks, is the world suffering from corruption fatigue?

The answers to two questions may indicate which way this will play out. The first question is, who are the people among the 14,000 clients who are not well-known political, business, or entertainment figures? How much money do they have, how did they make it, and why do they hide it? The second is, how will society react to the scandal? Will they grumble for a while but ultimately shuffle back to their Sisyphean struggle against inequity? Or, perhaps, will another Mohamed Bouazizi emerge? Bouazizi, the street vendor who self-immolated in protest over the impenetrable miasma of corruption, bureaucracy, and maltreatment by the Tunisian government, ultimately spurred a revolution.

Iceland’s government has already fallen as a result of the Panama Papers leak, but a strong, simultaneous, coordinated protest by civil society across many countries is a much harder ask. If there is no demonstrated will to demand transparency from government, the Panama Papers will ultimately be another in a list of whistleblower actions that cause a stir but not much more than a handful of prosecutions. Ironically, the test of this leak’s impact may not be driven solely by revelations about world leaders implicated in the Mossack Fonseca scandal that are currently driving the headlines. It will be about the relatively well-off, but otherwise unknown, individuals who use opaque companies to shield their wealth. If it is determined that the bulk of those hiding money offshore are not the ultra-wealthy but include the local restaurateur hiding money from the tax man or the neighborhood dentist hiding money from his ex-wife, then that may be the impetus political leaders need to act. The common assumption is that only the extremely wealthy can avail themselves of the benefits of the murky world of international finance. But with an internet browser and a few hundred dollars, anyone can gain access to what was once an exclusive club. If those now hiding funds offshore are among the upper-middle class, severe corrosion of the tax base will have begun and the tipping point will have been reached.

The steps to attack the problem are not difficult to conceive but need significant political will to implement. The crux of the problem is not tax havens themselves or even offshore bank accounts. It is the secret, anonymous ownership of companies that allows tax evaders, money launderers, and corrupt government officials to act with impunity. Take away the ability to create companies anonymously, and many other challenges become easier to address. If civil society perceives the Panama Papers as a crisis and reacts assertively, and it is determined that the merely wealthy are using the offshore financial system in significant numbers, the political will to effect change may instinctively follow.

This would, of course, require global cooperation, which could begin with the G-8 or the G-20 leading the way while coordinating with other rule-making bodies. Given that the G-20 was the catalyst for the BEPS project in 2013, this approach has proved very useful in the past. Plus, individual nations can and should demonstrate leadership as well. The U.S. government, which was so effective in pushing for more transparency in global banking with its passage of the Foreign Account Tax Compliance Act in 2010, could similarly spearhead the effort to require transparent ownership of all newly incorporated entities. There will always be outliers — countries that refuse to adopt the new requirements. But, over time, those will become increasingly rare as their pariah status is readily apparent.

 

Taxpayers of the World, Unite!

       

The Panama Papers confirm that the world’s elite cheat, lie, and steal. Will the masses finally do something about it?

Taxpayers of the World, Unite!

Perhaps the simplest thing to say about the “Panama Papers” is something most of us already know: The rich are not like you and me.

The deepening scandal, born from the leak of a vast trove of documents from the Panamanian law firm Mossack Fonseca, has inspired a curious mixture of shock and apathy. The documents, which show the extraordinary lengths the global elite have gone to in order to shield their wealth from taxation, are at once big news and old hat.They provide the nasty details of the kind of business most savvy people assume goes on all the time. You and I pay our taxes; the wealthy find ways to avoid them. For some, reading about the Panama Papers will feel like being told by your parents that Santa isn’t real: merely the final confirmation of a suspicion that you have harbored for a very long time. The game is rigged, and unless you are part of the global one percent, it isn’t rigged to help you.

Were our system healthier, our governments and institutions more responsive to public demand, our people more convinced that the system worked the way it’s intended, our courts and legislative bodies more conducive to securing justice at the expense of the moneyed and the connected, we could expect mass indictments, reform of tax and trade law, and a wide-scale rethinking of what, exactly, we’re globalizing in the age of globalization. A healthy social system would mark this moment as a historical turning point. But this is not a healthy social system, and most of the people living within it know that, and so few of us can muster much in the way of righteous indignation. This is depressing; it is also rational.

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That isn’t to dismiss the importance of the leak or to attempt to snuff out hopes that it might lead to prosecution, though the precedent set by the near-total absence of criminal charges following the 2008 financial crisis is not encouraging. Rather, the point is simply that while this leak should inspire outrage and, I naively hope, change, the actual information provided has not so much opened us to a new world of understanding as merely enabled us to see the details of a world that we already know far too well. That the super-rich utilize shell companies and tax havens, that they employ shadowy entities to help them hide their finances from government scrutiny, that they play by an entirely separate set of rules than the rest of us — these are the banal assumptions of anyone who has even a loose grasp of global capitalism.

Still, the sheer diversity of the players involved is remarkable. The roster is thick with international bad actors, present and past, who we already knew full well were nefarious: Vladimir Putin, Muammar al-Qaddafi, Hosni Mubarak. But sprinkled among them — and there are surely more nuggets to be found — are prominent figures from the world of international politics, sports, and entertainment whose reputations had previously been intact. The martial arts star Jackie Chan shows up in the documents, which allegedly demonstrate his connection to six separate companies involved with Mossack Fonseca. So does Lionel Messi, the Argentinian soccer player widely regarded as the world’s best.

Nothing in particular unites the various people and groups found within these documents, except for the only things that matter: their incredible wealth and their incredible desire to keep as much of it as possible. This is the new cosmopolitanism, the 21st-century international community, a community of those with the resources to belong to no nation. If the traditional symbol of globalization has been the closure of a factory in Ohio and the opening of one in Bangladesh, the new symbol might be entirely digital, a computer in Panama wiring funds between, say, London and the Bahamas, on behalf of a Russian billionaire who made his fortune in Saudi Arabia. The very idea of countries dissolves into an impossibly complex digital network of shady dealings, undertaken by those with no particular loyalty to country and plenty to themselves. Even referring to the country of origin of the super-rich seems quaint. The rich are their own nation now.

There are obvious resonances with international political conditions. For years now, discontent and instability have been a constant of world news. The Arab Spring, anti-immigration animus in Europe, left-wing protest movements in the United States, heated elections in Greece, strikes in China, anti-Muslim violence in Myanmar, and on and on. Anger appears to be the default state of the world political scene. As this list shows, this anger has not congealed into a definable political direction. Instead, political parties and leaders the world over, both principled and opportunistic, seek to take advantage of a profound and loud message that is being expressed by regular people: Something has gone badly wrong. Scandals like the Panama Papers provide further fuel for these feelings, demonstrating to the global 99 percent that their feelings of being cheated are justified.

In the United States, the spirit of civil unrest has played out most obviously in the current presidential primaries. Both major political parties are facing unexpected insurgent campaigns for their presidential nominations. In the Democratic Party, the self-declared socialist Bernie Sanders harries establishment favorite Hillary Clinton from the left, taking her to task, among other things, for her coziness with the financial industry titans who were directly responsible for the devastating global financial crisis of 2007 and 2008. In the Republican Party, Donald Trump has effortlessly stoked nativist sentiment, whipping large crowds into a frenzy with anti-immigrant rhetoric and opportunistic application of economic populism. Against both of these outsider campaigns, the establishment parties are pushing back hard, hoping to maintain their stranglehold on our political process. Sanders and Trump could hardly be further apart in terms of their ideology and temperament, but both embody a political moment in which American voters are bent on change.

Yet despite this sense of agitation and unhappiness with the status quo, neither of these insurgent candidates stands a particularly good chance of becoming president. The establishment parties are flexing their muscles. On the Democratic side, though Sanders has racked up impressive wins, he remains a long shot to earn the nomination, in part thanks to the (patently undemocratic) caucus and “superdelegate” systems. And though Trump still dominates the delegate count, his momentum has flagged lately, and GOP leadership openly plots how to deny him the nomination at the national convention. For as much as the American voter might favor dramatic change, it appears that the elites who run the country maintain their control of the system.

That same sense of the inevitability of elite domination attends the international discussion of the Panama Papers. For as much controversy as will surely follow, and as much anger as I’m observing in reaction to the story, there is another palpable feeling attending these discussions: exhaustion. The seemingly permanent hold that the elite have on power inspires anger, but it also inspires weariness. We can be sure that some small number of figures implicated by the Mossack Fonseca documents will see an indictment; we can be equally as sure that the vast majority of the wealthy figures named will continue to enjoy all of their old privileges. The only thing that seems more certain than the continuing outrages brought about by the malfeasance of elites is their ability to avoid any consequences for those outrages.

It’s an old saw to say that political ignorance breeds political impotence. Knowledge is power, goes the propaganda. Concepts like false consciousness depend on the idea that average citizens lack understanding about the economic and social systems around them and thus are incapable of changing them. Yet I can’t help but feel that the truth is darker: Knowledge of how deeply corrupt the rich are, and how inoculated they are from the consequences of that corruption, makes meaningful action seem like an impossibly difficult task. Solutions to the vast inequalities in wealth and power that grip the world seem either insufficient to create change, too sweeping to become reality, or both at the same time. Thomas Piketty, whose 2014 book on the inevitability of wealth inequality under capitalism caused a sensation, argued that perhaps as much as 10 percent of world GDP goes unaccounted for in taxation thanks to schemes like those outlined in the Panama Papers. Yet his solution in that text, an international wealth tax, seems at once feeble in what it attempts and simultaneously far too ambitious to become actual reality.

The situation is not hopeless. Progress is possible. Look at Iceland, where, as I write, the prime minister has just announced his resignation, in the face of fierce public protest over financial machinations he had tried hard to keep secret. But to move forward, we need to recognize how badly things have gone. In his 2012 book, Twilight of the Elites, on the collapse of public faith in institutional authority, Christopher Hayes writes, “We now operate in a world in which we can assume neither competence nor good faith from the authorities, and the consequences of this simple, devastating realization is the defining feature of American life.”

As the Panama Papers make clear, this is hardly a condition unique to the United States. With the passage of time, the title of Hayes’s book has come to seem naive. For as surely as elites have failed us, their grasp on power seems as sure as ever. Our trust in elites may be dying, but they seem quite capable of navigating a world where no one expects to trust them. What we are confronted with is a world in which this communal understanding that our elites have cheated, lied to, and failed us makes no difference to their ability to hold onto power. We expect this from them; we would be more surprised if they weren’t cheating the rest of us. The question is, will anger at the corruption and failure of our elites dissolve into apathy and exhaustion, as people come to believe there truly is no alternative? Or will it explode?

The Opinion Pages | Editorial

The Panama Papers’ Sprawling Web of Corruption

 
         Photo
 
         Credit The Heads of State

The first reaction to the leaked documents dubbed the Panama Papers is simply awe at the scope of the trove and the ingenuity of the anonymous source who provided the press with 11.5 million documents — 2.6 terabytes of data — revealing in extraordinary detail how offshore bank accounts and tax havens are used by the world’s rich and powerful to conceal their wealth or avoid taxes.

Then comes the disgust. With more than 14,000 clients around the world and more than 214,000 offshore entities involved, Mossack Fonseca, the Panama-based law firm whose internal documents were exposed, piously insists it violated no laws or ethics. But the questions remain: How did all these politicians, dictators, criminals, billionaires and celebrities amass vast wealth and then benefit from elaborate webs of shell companies to disguise their identities and their assets? Would there have been no reckoning had the leak not occurred?

And then the core question: After these revelations, will anything change? Many formal denials and pledges of official investigations have been made. But to what degree do the law and public shaming still have dominion over this global elite? A public scarred by repeated revelations of corruption in government, sports and finance will demand to know.

It took scores of reporters convened by the German daily Süddeutsche Zeitung, the recipient of the leaked cache, and the International Consortium of Investigative Journalists, with whom it shared the data, more than a year to sort through the information, and it will take governments, commissions and prosecutors a long time to determine what laws have been violated, what taxes have been avoided and what remedial steps must be taken.

The fallout from the revelations has already begun. The prime minister of Iceland, Sigmundur David Gunnlaugsson, linked in the papers to a secret account, on Tuesday became the first public official forced to resign. Britain and Germany, among others, have announced that they are investigating whether citizens named in the papers avoided paying taxes. Americans do not figure prominently in the data trove, though that should not excuse the United States government from joining in a thorough investigation.

Offshore banking is not in itself illegal, and not all those named should be presumed to have done wrong. But it is clear that the secrecy of the sort Swiss banks formerly provided and now lawyers in Panama offer is a magnet for ill-gotten fortunes and tax evaders.

 
       

Above all, the Panama Papers reveal an industry that flourishes in the gaps and holes of international finance. They make clear that policing offshore banking and tax havens and the rogues who use them cannot be done by any one country alone.

Lost tax revenue is one consequence of this hidden system; even more dangerous is its deep damage to democratic rule and regional stability when corrupt politicians have a place to stash stolen national assets out of public view.

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