The Panama connection

A few days ago the leader of the British Labour Party,Jeremy Corbyn, called on the British Prime Minister to consider taking directcontrol of Britain’s Caribbean overseas territories. His remarks – not withoutirony, as of all of the members of the British Parliament, he is among thosewith the strongest track record as an anti-imperialist – respond to the theglobal furor over the so called Panama Papers.

These are the 11.5m files taken from the database of thePanama based offshore law firm, Mossack Fonseca & Co, which were sent in2014 in digitized form on an unsolicited basis from an anonymous source to theGerman newspaper, the Süddeutsche Zeitung. They were subsequently shared withthe International Consortium of Investigative Journalists (ICIJ) in Washingtonand then researched by about 100 newspapers and broadcasters worldwide.

The documents’ contents link national leaders, politicians,their families, close associates, leading business people, individuals subjectto UN sanctions, global figures in sports and entertainment, andnarcotics-traffickers and other criminals, to companies and legal vehiclesregistered in or operated through low or no tax offshore financial centers suchas the BVI or Bermuda.

In part they indicate how the global elite and the world’swealthy use these and other jurisdictions to reduce or obviate their taxliability, hide or launder money, or to obscure the origin or ownership oftheir assets.

Beyond the facts, however, the leaked documents raisebroader questions. They shine a light on growing wealth inequality, the role ofan ever growing army of intermediaries such as Mossack Fonseca dedicated tohelping the very wealthy, and the questionable morality of the individuals andcompanies that seek to avoid the scrutiny of the societies in which they resideor operate.

That said, while the offshoring of wealth and assets may bemorally dubious, hypocritical, and sometimes criminal, it is for the most partlegal.

As such it is a reflection of just one of manycontradictions between every government’s interest in encouraging domesticgrowth and employment by ensuring that investment, money and assets are able toflow freely, and the need for sovereign states and political systems to respondto electorates that want them to exert greater control over those who do notcontribute appropriate levels of tax in the countries in which they operate.

Unfortunately, when it comes to the Panamanian connectionwith the Caribbean, what seems to be lost in relation to the sometimesextraordinary revelations, is that the Caribbean offshore financial servicesbeing made use of, are legal, have mostly been developed with the activeencouragement of successive British governments to facilitate the global roleof the City of London, and underpin the economic stability of many smallCaribbean nations.

That aside, the Panama papers raise many longer term issuesthat are more significant than the naming and shaming of individuals.

The first is that much of what is happening globally isbeing driven by an army of wealth management intermediaries – the lawyers,bankers, tax accountants, and other assorted advisers – who see huge businessopportunity in advising the super-rich on ways that enable them to avoid taxes,debts, legal judgments, and other obligations that ordinary citizens, includingthe moderately wealthy cannot avoid. As with the counter-narcotics industry,the arms trade, NGOs and many other industries, once institutionalised suchservice roles become self-perpetuating, skewed and expanded in their purpose,and need to be better regulated and policed on an international basis.

A second emerging issue, despite the willingness of theCaribbean Overseas Territories to find ways to accommodate internationalrequirements on information exchange and beneficial ownership, is that theirrole is being eclipsed by more opaque locations like Wyoming and Delaware inthe US, Luxembourg in Europe, and Singapore, to say nothing of the rarely spokenabout small nations like the Maldives or the Marshall Islands. The reality isthat without all countries, dependent and independent, agreeing multilaterallyto cease to offer offshore financial services, the desire of the powerful,wealthy and the criminal to hide their monetary affairs offshore will always befacilitated by one or another country.

A third is that the Panama Papers raise serious questionsabout regional cyber security. Mossack Fonseca have said that the leakedmaterial became public because its site was hacked by someone in Europe. If this proves to be the case, it raises allsorts of new issues about the security of offshore financial centres and theability of governments, lawyers, banks and other intermediaries to protect allof their client’s secrets.

The fourth is the inability of Mr Corbyn and otherpoliticians to understand the consequences of the nuclear option of imposingdirect rule on nations like the BVI and Bermuda. They fail to think through thelong term consequences at an international and regional level of such aresponse, or the probability that such actions would lead the overseasterritories to accelerate their desire for independence; an outcome that coulddiminish present levels of co-operation with the UK and others.

And finally, while much of what has been made public may bedistasteful, immoral and damaging, the impact is only likely to be felt in themost democratic of societies. It is no surprise that in Iceland the revelationshave resulted in the resignation of the Prime Minister, but elsewhere the issueis likely to serve only to maintain the influence and power of those allegedlyinvolved or who they protect, in the certain knowledge that if they were everto lose office, the information would be used against them.

It is also worth observing that at the other end of thespectrum, it is likely that many of so far unnamed companies and individuals,who are of no interest to the international media, were using the services ofMossack Fonseca for perfectly legitimate reasons to structure internationaldeals, establish family trusts, to create cross border joint ventures, and forother activities that are perfectly normal, unless they involve the use ofcriminal proceeds, tax evasion or fraud.

Despite this, the angry response to the emergence of a newwealthy elite, paying little tax will not go away, especially so in austerityhit developed nations that have sought to increase their revenue from theirmiddle classes in order to deliver social services for all.

This is not to argue that what has been happening iscorrect let alone just, but to suggest that if governments like the UK, US andothers willingly establish such facilities in order to gain economic advantagefor their enterprises and financial centres, it is hardly surprising thataggressive tax advisers, political autocrats and the super-rich, will seize theopportunity to use such offshore anonymity to increase their wealth and power.

David Jessop is a consultant to the Caribbean Council and canbe contacted at david.jessop@caribbean-council.org

Previous columns can be found at www.caribbean-council.org