Skip to main content
You have permission to edit this article.
Edit
Pandora Papers show the rich will always find a way, by David Fickling

Pandora Papers show the rich will always find a way, by David Fickling

  • 1
{{featured_button_text}}

If you want to know why nearly 40 million leaked documents on the salting away of assets in offshore financial centers have failed to result in comprehensive change since the revelations started eight years ago, Billie Holiday provides a clue: “Them that’s got shall get; them that’s not shall lose. So the Bible said, and it still is news.”

The latest set of leaks to the International Consortium of Investigative Journalists is the largest yet. After sifting the data, media organizations have named King Abdullah II of Jordan, associates of Russian President Vladimir Putin, Czech Prime Minister Andrej Babis and Kenya’s President Uhuru Kenyatta in connection with assets stashed offshore. For all the remarkable revelations about the shadow global financial system for wealthy individuals and businesses since the ICIJ’s first revelations in 2013, though, it’s striking how little has changed.

Measures to wind back this system seem ineffectual at best. Eight years have passed since governments promised coordinated action to crack down on the use of offshore structures to minimize corporate taxes and starve states of revenue, but if anything the movement has been in the opposite direction.

So much money now moves through the world’s offshore financial centers that such paper transactions now account for a greater flow of capital than any country receives from genuine foreign investments. The royalties and licensing fees that underpin these structures are growing faster than trade in physical goods and conventional services.

Far from taking a larger share, most developed nations have coped with the leakage of taxable profits over the past decade by cutting their own corporate tax rates — a tacit admission that enforcement has failed. Mandatory disclosure rules introduced in 2014 to prevent European banks’ use of tax havens seem to have made no real difference, according to a report last month by the EU Tax Observatory.

Why have all these worthy efforts achieved so little?

One explanation suggested by the list of powerful figures named in the latest leaks, dubbed the Pandora Papers, is simply that the people in charge of writing the laws and treaties that underpin international capital flows have much to gain from the current set-up. For as long as an unreasonable amount of wealth and power is concentrated in the hands of a few individuals and businesses, they’ll seek ways to move assets to whichever places promise to treat them most leniently. Consultants will aim to profit from assisting this trade and, in the process, become experts at finding loopholes, further accelerating the concentration of wealth and the erosion of tax bases.

In the U.S. there’s a revolving door between senior roles in major legal and accounting firms and government jobs, as the New York Times reported last month, with a similar situation in the U.K. As a result, firms with an interest in minimizing their clients’ tax bills often have a role in developing the policies that will decide how much the same clients will have to pay.

There’s a deeper issue, however. Those tax laws and treaties are, by their nature, long and complex. When divided up between the world’s 320 national and sub-national jurisdictions crossing as many as five different countries, as with the famed “double Irish Dutch sandwich” tax avoidance structure, the possibilities for loopholes are almost limitless.

Ultimately, the problem lies with the unrestrained capital flows that have moved around the globe since the decline of the Bretton Woods system in the 1970s. While capital can move across borders without restraint, a small portion of that money will always be available to those who want to keep their wealth out of the hands of legal or tax authorities.

The world’s financial architecture is only tentatively starting to contemplate whether the opening of capital accounts — and the loss of monetary independence or exchange-rate stability that inevitably results — has been a good deal, or a devil’s bargain. If governments want to address the cause of tax avoidance rather than apply endless Band-Aids to the symptoms, that decision must ultimately be revisited.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Catch the latest in Opinion

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Related to this story

Most Popular

In the fraud trial of Elizabeth Holmes, the founder and former head of Theranos, emails and text messages have lately held center stage. Many of the communications in question were exchanged between Holmes and Ramesh Balwani, at the time her second-in-command, while the two were in a longtime romantic relationship. Here’s the troubling part: At least some of the messages might not have been ...

TEMPE, Ariz. — When Kyrsten Sinema ran for Senate in 2018, she could not have been more clear. The Democrat did not call herself a Democrat but rather an "Arizona independent." She refused to endorse her party's liberal candidate for governor, who was shellacked the day Sinema narrowly won. Her advertising suggested a strong aversion to partisanship. A lot of people in Washington "are more ...

Even if you don’t follow politics closely, you’ve likely heard about the Hyde Amendment, which restricts taxpayer dollars from paying for elective abortions in federal programs such as Medicaid. It comes up often because Congress routinely incorporates it into its annual spending bills – and now it’s back in the news as lawmakers again wrestle over money. This policy is longstanding: It has ...

The best local coverage, unlimited

Sign up for a digital subscription to The Press of Atlantic City now and take advantage of a great offer.

LEARN MORE

Get up-to-the-minute news sent straight to your device.

Topics

Breaking News