In the summer of 2016, I wrote an article about the Panama Papers, the offshore industry and international taxation. The article was brief, but decried the lack of transparency which seemed to be costing the world dearly in lost tax revenues. It’s been pretty much half a year since I wrote that article and I have to confess to being pretty disappointed by how little has changed since 11 million documents were leaked from Mossack Fonseca.
It’s true that several high profile cases brought guilty parties to their knees in short order; the Icelandic Prime Minister, Sigmundur Gunnlaugsson; Pakistani Prime Minister, Nawaz Sharif; UK Prime Minister, David Cameron – they were all forced into public grovelling in an attempt to keep their jobs. In the case of Mr Gunnlaugsson, this was unsuccessful – he lost his job within days of the public becoming aware of his involvement with an undeclared offshore company.
But from here on, things seemed to become a lot less impactful. Authorities in the US, Europe and Asia launched ‘investigations’; Mossack Fonseca was raided but continues to operate freely – so I ask the question; has anything actually changed?
The Panama Papers
The story dates back several years at the time of writing this article. The two journalists at the heart of the story, Bastian Obermayer and Frederick Obermaier started their investigation in 2014 when Mr Obermayer was sent millions of documents which exposed the corrupt and illegal practices employed by thousands of shady individuals to avoid tax and hide their financial dealings. To this day, the whistleblower’s identity remains a secret, but the investigation quickly required more resources, leading to the involvement of journalists from around the world who were part of the International Consortium of Investigative Journalists.
So what happened?
According to the two journalists at the heart of the story;
- Investigations have been triggered in 79 countries, comprising 6500 individuals and companies around the globe.
- Mossack Fonseca has been forced to close nine offices and have removed company signs from their head offices in Panama.
- Global awareness has been raised of how offshore finance can fund terrorism.
- Pressure on tax havens has been raised; for example, in Germany, owners of offshore companies must publicly declare their ownership, aiding transparency.
But to my mind, this has amounted to very little. A quick google search for ‘offshore company formation’ returns nearly two million results and a whole host of companies willing to set up an offshore company for a willing buyer. The industry is alive and functioning; it never ceased to! The offshore industry, despite suffering a setback, shows no signs of shrinking.
What is the answer to ending the abuse of the offshore industry?
As in my original article, I believe we need greater transparency and even greater regulation and enforcement. A global register of beneficial owners would be a good starting point. This register could list everyone who has significant control over these companies and their associated accounts and funds. The trouble, of course, is how to enforce this. Serious criminals usually come up with plausible covers and excuses, false identities and are generally pretty difficult to pin down – with resources in much of the western world being squeezed by austerity, it seems unlikely that governments and their citizens would be willing to divert funds from other services to pay for increased enforcement – or to raise taxes for the same purpose.
The leak seems to have spurred efforts to improve transparency, but without these extra funds for enforcement, I’m sceptical of just how plausible a real assault on tax havens and their associated crimes really is. Many of the territories which home these companies are too small to really tackle them; in a fight between the Russian mafia and the state of Panama, who do you think would win?
Until governments around the world increase funds for enforcement, I cannot see an end to the abuse of offshore companies – no matter how frothy-mouthed or swivel-eyed the public get.