The Panama Papers: What is so new?

| Updated: October 21, 2017 17:36:15

The Panama Papers: What is so new?

It took me a bit of time to comment on the Panama Papers because it didn't seem appropriate to comment on the issue as the International Consortium of Investigative Journalists (ICIJ ) were releasing the information in instalments rather than in one go.

So I was waiting for more revelations to get a better picture of the situation before I could make my own assessment in the light of further revelations.

I must remind the readers that I did mention about tax havens and their use by the rich to doge taxes in early March this year in this newspaper. But there are no new revelations forthcoming until at this point in time, definitely not on any US citizen or corporation's involvement in the financial misdeeds.

Legalistically, there is a difference between tax avoidance (which is legal) and tax evasion (which is illegal). Tax avoidance is where one uses existing loopholes in the tax laws to minimise the tax burden. They are legal because they remain within the bounds of the letter of the law.

Then what about the spirit of the law, do they break that? I think they do. On the other hand, tax evasion (which is illegal) where one does not pay the tax even when the person is legally bound to pay. So, they break the law which is a criminal offence in most countries in the world.

In most countries any public disclosure of tax information violates the privacy law and to give effect to the protection of privacy there is also the libel law.

The way the legal system operates the individual and corporate tax returns are comprehensively covered by the law to remain outside any private or public scrutiny. That makes it a serious problem to work out who pays tax and how much and who does not. There are instances where litigations between the tax office and large corporations and very rich are normally settled outside the court -- some time for as low as 5-10 per cent of the tax due.

These tax settlements are covered by the privacy laws, so the public can not have any access to what really happened behind the closed doors (I must emphasise that there is no suggestion here that some inappropriate behaviour took place behind the closed doors, rather the rich always get their way or are allowed to get their way through the maze of legal loopholes).

That raises the question how serious are the tax offices in these countries doing their job of collecting the right amount of tax. But in a very limited number of countries such as Finland, Norway and Sweden all tax returns, including of politicians, are publicly available.

These countries are just exceptions rather than the norm. Even tax offices in most countries (definitely in all English-speaking countries) describe the "tax havens" (which imply the rich are dodging taxes) not as such but as "low tax jurisdictions" giving it a tinge of legality.

The problem is further compounded by the fact that large corporations quite often employ retired senior tax officials; even some tax officials after gaining sufficient work experience resign their positions and join big corporation usually with very inflated salary. We already know many ministers always end up in corporate boards.

More importantly, for many countries it is legal to have offshore accounts to minimise tax (i.e. tax avoidance) but not for tax evasion or money laundering.

This is usually done by establishing a non-trading shell company (which exists on paper only).

This type of companies are legal entities and quite often used for tax minimisation (a legal activity) but when such companies operate from offshore tax havens, there is a likelihood that these companies may have shady components to it including tax evasion (an illegal activity). But in this instance the Panamanian law firm in question, Mossack Fonseca is culpable of hiding the true identities of the companies it was working for. So the problem is a systemic one and known for a very long time.

Then why has the Panama Papers become such a hot issue? Even a sense of outrage pervades in countries where politicians and the rich are found to be involved in financial misdeeds as if they did not fathom the problem before or were completely unaware of it.

Many were not only known for hiding their ill-gotten money such as the Sharif and the Zardari families of Pakistan and the Saudi and the Gulf family dictators but also they are still continually amassing wealth using their public offices and hiding and investing them in real estates in countries such as the UK and the USA. The real estate investments by third world leaders and the rich have quite often been known as a channel for money laundering.

The rich and third world despots hiding their ill-gotten money in offshore tax havens is nothing new and can hardly be considered revelatory in any sense of the term. Then what is so new about it? Is it that our memories are very short? To understand that we need to look at the Panama Papers very carefully and who are the people involved in publishing it now and why?

The International Consortium of Investigative Journalists (ICIJ) based in Washington D.C., USA, is at the centre of the revelation of the Panama Papers. It is true that the papers have given us a very rare glimpse of, especially, the secretive world of offshore tax havens, in particular for those who are not familiar with the world of high finance and its intricate modus operandi.

The Panama Papers claimed to be a large leak chronicling the financial misdemeanour of the famous, the rich and the powerful. We are told that the leak was made to a German newspaper, Suddeutsche Zeitung (SZ) in 2015 by an anonymous source. The leak contains 11.5 million confidential documents, a stupendous task to be performed by an anonymous source.

According to the ICIJ, the source did not ask for any financial compensation or anything else except some security measures. The ICIJ collaborated with other media organisations such as BBC, the Guardian, the Washington Post and many others to provide the investigative series on offshore banking.

Before we proceed further we need to know more about the ICIJ. This organisation was founded in 1997 as a project of the Centre for Public Integrity (CPI). The CPI is funded by the Ford Foundation (a CIA-connected Organisation), the Open Society Foundation (funded by George Soros) and the Rockefeller Family Fund, among others.

The ICIJ is also supported by the Ford Foundation and the Open Society Foundation, among others.
The question naturally arises was there any editorial intervention by the funding sources or self-censorship?

One would expect the ICIJ not compromising the objectivity given the nature of the investigation involved. But that can be put to test once we examine what has been leaked and the media outlets that are involved in the leak.

The media outlets that have partnered with the ICIJ in this venture are all well-recognised as the mouthpieces of the political and financial establishments.

The first major leak made by the Guardian was all about Russian President Putin, though his name was not on the list. To make sure the situation does not go out of control where it may have to publish the list of western corporations and very rich individuals in the West involved in financial scams, the paper was quick to reassure that "much of the leaked material will remain private."

One must not be surprised at this if one recollects the Guardian destroyed its copies of Snowden files at the behest of the British intelligence agency, MI6. Other leaders include China's Xi Jinping and Syria's Bashar Al Assad while none of these two appear on the list. Their guilt was by association.

British Prime Minister David Cameron's late father (Ian Cameron) is on the list. But what is so revelatory about it? It has been known for a long time that he ran an investment fund based in Panama, Blairmore Holdings.

Here the question is not about the probity of the Prime Minister but whether he has financially benefited or is still benefiting through inheritance or otherwise from his father's wealth made through his offshore business operations.

This was a leak to balance out against Russian, Chinese and Syrian leaders when their names are not even on the list, yet implicitly they are asked to prove their innocence. Questions are being repeatedly asked why is it that US clients of this law firm are not named yet. Who are these 441 unnamed US clients of the firm? Why the leak is so selective?

There is also a great amount of curiosity about whether the corporate media owners and their business entities, editors and senior corporate journalists are also on the list. More importantly, what about their (ICIJ) financial sponsors -- are any of them on the list? The ICIJ must come clean on these questions to maintain any semblance of its own credibility as an organisation.

There is a growing feeling that this leak is a proof that the corporate media in the West are now moving full throttle to character assassinate the leaders believed to be enemies of the West -- a cool calculated move, as though, to reignite a new cold war. In doing so, the corporate media is now following the US agenda.

So far, this is all about the rich and the famous, but what are the fallouts for ordinary citizens? Of course, there is a genuine sense of anger. There were many attempts made by governments in Britain and other countries to catch the tax evaders and bring them to book, particularly large corporate giants but not much has happened.

Now governments should be seen serious about tax collection and to do that, the tax offices are likely to be vested with more power. The sad thing is that with this extra power they will only be able to target ordinary tax payers who cannot afford to employ accountants and lawyers let alone put their money in tax havens.

The rich, as usual, will have their way with their team of lawyers and accountants, and of course there are always offshore facilities where they can combine their money and holidays in beautiful sunny Caribbean islands which double up as tax havens also.

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