Bringing tax havens to heel
Five years after the Panama papers exposed the vast scale of offshore banking and business services via the activities of the wealth management specialist Mossack Fonseca, hundreds of billions of pounds are still being secreted away in tax havens. The leak of almost 12m documents, known as the Pandora papers, reveals that 35 current or former heads of state are among the customers of secrecy jurisdictions where huge sums of money are hidden in order to avoid tax and transparency. King Abdullah II of Jordan, Czech prime minister Andrej Babis and Azerbaijan’s ruling Aliyev family are among those with serious questions to answer, along with more than 100 billionaires and rich individuals from all over the world.
Beyond any specific acts of venality, as outrageous as these are, looms a system whose existence is a global disgrace. As a matter of course, and in spite of their immense personal advantages, the ultra-rich are ripping off everyone else. They do this by refusing to pay their share towards the services and resources (health, education, energy, water and governance) on which everyone depends. And they are facilitated and encouraged in this by an industry whose purpose is to shield their wealth and conceal what they are up to.
Underpinning this international tax avoidance infrastructure is the idea that rich people and companies should be allowed to do what they want; that governments’ claims on their money are in some sense unreasonable or unjust. How deeply antisocial this belief and its adherents are has never been better illustrated than now, in the middle of a pandemic and on the brink of climate disaster. Rarely, if ever, has the pooling of global resources to solve our collective problems been more necessary. And yet, the Tax Justice Network reported last year that governments are losing $245 billion annually to corporate tax abuse, and $182 billion to tax evasion by individuals.
The efforts of campaigners and media organisations have borne some fruit. This summer 130 countries signed up to a new global minimum corporate tax rate of 15 percent, along with measures to stop multinational corporations shifting profits around. The EU has a blacklist of jurisdictions lacking transparency, and pressure has increased since Brexit to add the British Virgin Islands, Guernsey and Jersey to it.
But while measures to prevent tax evasion and money laundering have been strengthened, the legal tax avoidance sector is thriving. The chancellor, Rishi Sunak, was wrong to say that the prominent role of the City of London in this system is not a “source of shame.” British crown dependencies and overseas territories were pioneers in the tax avoidance business, and are responsible for a third of the total losses borne by other countries. What makes this even worse is that the countries bearing the heaviest losses relative to their overall public spending are among the world’s poorest —ì and also those hit hardest by Covid-19 and global heating.
The Pandora papers have revealed how many world leaders and other public figures have a vested interest in the status quo. Elected politicians, including Boris Johnson, must now prove that they are not among them. The stashing of vast quantities of cash in tax havens must be stopped.