On April 14, 2016 the world's leading economies took a step toward denying tax evaders and money launderers around the world the opportunity to hide behind anonymous shell companies. Acting in the wake of the Panama Papers scandal, finance chiefs of G20 countries, meeting in Washington, supported proposals requiring authorities to share the identities of the real owners of shell companies. They also backed the proposal of creating a blacklist of international tax havens which do not cooperate with information-sharing programmes.
The G20 finance ministers and central bank governors said in a statement that making the beneficiary owners of companies, trusts and foundations transparent "is vital to protect the integrity of the international financial system". Doing so is important "to prevent misuse of these entities and arrangements for corruption, tax evasion, terrorist financing and money laundering". The declaration came in the wake of the Panama Papers scandal. An alleged offender Spain's industry minister Jose Manuel Soria resigned on April 14, 2016 over allegations he had links with the offshore companies.
Files from the leaked documents of Panama law firm Mossack Fonseca revealed that Soria was an administrator of an offshore firm in 1992. He was just the latest among a number of powerful officials, including the leaders of Russia, Iceland, Britain and Argentina, linked by the Panama Papers to offshore tax havens. The leak provided the impetus for the strong proposals to the G20 on April 13, 2016 by Germany, France, Italy, Spain and Britain. The five said they would take the lead on creating an international database that provides tax and other authorities the identities of the owners of shell companies, trusts, foundations and other vehicles often used to hide assets.
British Finance Minister George Osborne said in a statement, "Today we deal another hammer blow against those who hide their illegal tax evasion in the dark corners of the financial system". Speaking during the Spring Meetings of the World Bank (WB) and the International Monetary Fund (IMF), WB President Jim Yong Kim said that the illicit financial activities enabled by tax havens undermined the fight against poverty. He said, "When taxes are evaded, when state assets are taken away and put into these havens, all of these things can have a tremendous negative impact on our mission to end poverty and boost prosperity".
The G20 pledged to support growth with more fiscal actions like more investment, rather than relying on central banks to stimulate activity with monetary measures like low or negative interest rates. This is under pressure from the IMF and WB to help prevent the world economy from stalling. They said that "Monetary policy alone cannot lead to balanced growth. We will use fiscal policy flexibly to strengthen growth, job creation and confidence". The ministers, however, warned that the global economy faced a number of serious risks, among them is the possibility that Britain would pull out of the European Union (EU). They said, "Geopolitical conflicts, terrorism, refugee flows, and the shock of a potential UK exit from the EU also complicate the global economic environment".
The G20 statement came during the IMF and WB Spring meetings in Washington, where officials warned of potentially severe damage to the regional and global economies from the so-called Brexit. With two months to go before Britain holds a referendum on quitting the EU, IMF chief Christine Lagarde called on the two sides to save their "long marriage". She said that "Because keeping Europe together after what it has gone through over the last century, and what the risks are on the horizon... is actually a huge asset which is vastly underrated in my view".
Moreover, the draft joint communiqué of G20 said that making the beneficiary owners of companies, trusts and foundations transparent "is vital to protect the integrity of the international financial system". Doing so is important "to prevent misuse of these entities and arrangements for corruption, tax evasion, terrorist financing and money laundering". The group said that it is "essential" for all countries to implement disclosure standards of the international Financial Action Task Force on shell companies. They said, "We particularly stress the importance of countries and jurisdictions improving the availability of beneficial ownership information to, and its international exchange between, competent authorities for purposes of tackling tax evasion, terrorist financing and money laundering".
According to the joint draft communiqué, G20 economies moved a step closer on April 16, 2016 toward ending the ability of tax evaders and money launderers to hide behind anonymous shell companies. Acting in the wake of the "Panama Papers" scandal, G20 finance ministers meeting in Washington supported proposals requiring authorities to share the identities of the real owners of shell companies. They also backed creating a blacklist of international tax havens which do not cooperate on information-sharing programmes.
The writer is a retired Professor of Economics, BCS General Education Cadre.