The Panama Papers are a drop in the ocean of offshore tax havens. In total, between $7 trillion and $32 trillion is stashed across the world in around 80 locations. The Panama law firm Mossack Fonseca is said to be the fourth largest provider of offshore legal services, assisting elites to create shell companies where they can hide their money. Mossack Fonseca’s director said the breach was a “successful but limited hack,” in an interview with Reuters.
So the global establishment is hiding far more than has been revealed.
But this leak is not any drop in any ocean. Scrutinizing it has opened the world’s eyes to global tax dodging, which is not necessarily illegal, but certainly facilitates tax evasion and criminal activity. As butterflies in Panama can create hurricanes in Europe, this leak has already whipped up possibly the political storm of the year – even decade – with revelations about many world leaders.
Global fallout
In response to the leaks, Iceland is already undergoing a democratic revolution, while China has increased censorship to dampen public outcry. In Britain, meanwhile, escalating protests are calling for Prime Minister Cameron to resign after he falsely claimed he had not profited from offshore funds. Under pressure, Cameron recently released a summary of his tax accounts, though questions still remain over whether this is the whole story.
In the U.S., there is a strong case that the Panama Papers may help Bernie Sanders to the White House. This is because his democratic rival, Hillary Clinton, both supports the free trade argument that enables tax evasion, and is financially backed by some of the biggest corporate tax dodgers themselves.
London, world tax haven capital
A core thread from the Panama leaks is how the City of London plays a pivotal role in global tax evasion. Historically, it was said that the sun never set on the British Empire, which conquered through war, colonization, genocide and slavery. Today, it seems the sun never sets on British oversea tax havens: rising first on the Cook Islands in the South Pacific, spanning later to Gibraltar, and finishing off the day on the Cayman and other Caribbean Islands. Many other tax havens are former colonies still in London’s tentacles.
The Panama leaks show that half of the 215,000 shell companies created by Mossack Fonseca were registered in the British Virgin Islands. Meanwhile, the lion’s share of the leak has fingerprints in London or Hong Kong, which was recently a British outpost. This reaffirms what Occupy.com published in 2013: London was and remains the "money tax haven of the world," with half of all tax evasion passing through it.
Another Cameron crisis
With his political position ever shakier, Britain's prime minister has appeared both hypocritical and duplicitous in response to his Panama connections. On the one hand, he personally gained from using tax havens and intervened to water down EU regulation. This, of course, contradicts his strong anti-tax haven rhetoric.
A broader conflict is between Cameron's words on corruption and his party's complicity with tax havens. Cameron has tried to push the message that Britain is leading the fight against corruption, laying blame on the countries of the global South – particularly African countries. His message fits perfectly with the post-Cold War neoliberal globalist narrative pushed by the IMF, World Bank and other rich nations.
Blaming corruption on the global South is not only ridiculously false, but racist. Tax evasion, mainly by multinational companies from the North, is estimated to cost poor countries three times more than they receive in aid. Focusing on corrupt leaders in the global South ignores how this type of corruption in the North actually takes a bigger chunk of the pie.
More importantly, it deflects attention away from bigger systemic corruption which, in connection with tax evasion, operates out of centers of global capital like London.
Corrupting reality? Let's talk about transparency
The NGO Transparency International endorses the view that countries of the global South are the most corrupt, illustrated by its Corruption Perceptions Index. This index has been criticized for emphasizing corruption associated with poorer countries, such as "brown envelopes corruption," while ignoring other corruption like white collar fraud. It is additionally denounced for relying on subjective opinions: giving countries blanket scores, reinforcing racist stereotypes and ignoring private corruption.
Contradicting Britain’s central role in global tax havens, TI also asserts that Britain is one of the least corrupt places in the world. In its annual review of global corruption, the organization listed Britain within the top 10 clean countries. Clearly the NGO itself needs more scrutiny, for it has revealed how Britain projects one version of reality while acting according to another.
Granted, Transparency International is far from an independent observer. It receives funding from Britain’s Foreign Investment Department and Foreign Office, and is backed by the international accountants Price Waterhouse and Coopers and Ernst & Young. This potentially opens up an even larger conflict of interest, as these global accountancy firms have been embroiled in multiple allegations of corruption.
An extensive critique is provided by financial campaigner and researcher Joel Benjamin in his article Conflicts of Interest Emerge As ‘Big Four’ Accountants ‘Colonise’ Local Government Audit. With detailed references, the piece shows how the revolving door is in full swing between the big accountants and government; how weak regulation is enabling the firms to make profits at the public’s expense; and how the lack of competition in accountancy means those financial entities can sow up the market. Benjamin also picks out conflicts of interest, for instance, where firms audit both councils and the banks that sell the councils complicated (and possibly illegal) financial products.
Benjamin also notes that Transparency International seems to ignore the problem of these auditors who, inconveniently, are their sponsors. With senior executives from Transparency International caught up in the Panama leaks, further questions into the organization's motives and operations are surely coming.
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