Panama Papers may force changes here
Once again greed and power are shown as the motivating forces of some of the world’s most influential people and of the rich who want to get richer.
Political and economic repercussions from the leaking of details of tax-evasion dodges and other offshore financial schemes will continue rippling around the world over the next weeks and months.
How much New Zealand will feature in the Panama Papers by the time most of the revelations have been made is uncertain. But we have already been mentioned in dispatches, enough to make Prime Minister John Key defend the current regulations on foreign trusts and bat away criticisms that New Zealand is some kind of tax haven because of a perceived weak disclosure regime for trustees. Those denials of tax-haven status are not especially convincing.
The Panama Papers are named after Panamanian law firm Mossack Fonseca, the source of millions of documents outlining how billions of dollars of assets have been hidden in dubious shell companies in tax havens and through other questionable crossborder deals. Politicians and business people in many countries are squirming and scuttling for cover after the story was busted open by whistleblowers and an international network of investigative journalists.
Iceland’s Prime Minister, Sigmundur David Gunnlaugsson is one of the early casualties and has resigned. Others named so far include some of Russian President Vladimir Putin’s friends and colleagues; the family of Pakistan’s Prime Minister, Nawaz Sharif; Ian Cameron, the late father of British Prime Minister David Cameron; and Ukrainian President Petro Poroshenko. The importance of the work of the journalists and others who have exposed such massive scams cannot be underestimated. There can of course be legitimate reasons for using an offshore shell company, such as keeping secure trade secrets and deals that need to be confidential. However, shell companies – which do not engage in active business – can also be used as hiding places, to evade taxes and launder funds.
New Zealand does not rank highly on the Tax Justice Network’s 2015 financial secrecy index, based on 15 criteria that include banking secrecy, tax administration efficiency, efforts to avoid tax evasion and money laundering, and international transparency commitments. It is 54th out of more than 90 countries, behind Australia at 44th, the United Kingdom at 15th and the United States in third place. The most secretive financially are Switzerland, followed by Hong Kong.
However, that does not mean New Zealand is lily-white when it comes to schemes involving tax havens. In 2005, then Labour finance minister Dr Michael Cullen was forced to write to state-owned enterprises telling them to behave after The Press uncovered complicated money-making deals by Transpower over the South Island’s high-voltage transmission grid, involving a US bank and the Cayman Islands.
A commission found no fraud or incompetence, but tax laws regarding claiming foreign tax credits were made and new disclosure rules introduced.
Good seldom comes from secrecy, which is more likely to benefit criminality. Privacy must be safeguarded for individuals, but not at the cost of broader societal transparency and accountability.