April 14, 2016
Seen as the biggest corporate data leak in history, the so-called Panama Papers continue to rattle the tax authorities around the World, as they scramble to plug loopholes that were so immaculately exploited by wealthy individuals, businessmen and politicians to hide their wealth and evade taxes.
Though described as a perfect epitome of moral debauchery, many acted within the legal ambit to transfer their money using the cover of shell companies and offshore accounts. The 11.5 million documents exposed the offshore holdings of 12 current and former world leaders or their relatives from Pakistan, China, Russia, Iceland, Britain, Saudi Arabia and Azerbaijan, besides hundreds of other individuals.
The International Consortium of Investigative Journalists (ICIJ), an international media watchdog, and the German newspaper Süddeutsche Zeitung were the first to seize the data from the Panama-based law firm Mossack Fonseca Group which handled the legal and trust services to its customers. The information was later shared by over 100 other news agencies worldwide.
These documents have raised serious questions as to how some of world leaders or their relatives generated all that money and then transferred to offshore companies. They also exposed how the law firms and banks sell financial secrecy to celebrities, billionaires and political leaders around the world.
The leaks created huge uproar all over the world and already Prime Minister of Iceland, Sigmundur Davio Gunnlaugsson has resigned while the David Cameron’s survival as a Prime Minister hangs on a sharp edge. Pakistan’s Prime Minister Nawaz Sharif is also under fire from the media and the opposition, whose two sons and a daughter have links to offshore accounts.
As many anticipated, Russia and China resorted to conspiracy theory, blaming CIA for the leak. The two governments have since blocked internet accesses to information on Panama leaks.
Clifford Gaddy — an economist with the Brookings Institution and former adviser to the Russian Finance Ministry during 1990s — wrote in his April 7 blog that it was the Russian government which supported a hacker who wrote to German newspaper and offered to leak the information in 2015. Gaddy wrote that it “makes Putin and his reputation for corruption seem like less of an outlier and more of standard operating practice.”
There are many countries which have lower tax rate than others and offer a lucrative refugee to those who pay high taxes in their countries. Many of these countries choose not to tax any income of non-citizens and very low taxes on the investments, making them “safe havens” for tax evaders and avoiders.
One example of tax heavens is Cayman Islands which has a similar tax structure as that of Switzerland, the top destination for money where banks held $6.5 trillion in assets management in 2015, of which 51 percent originated from abroad, according to UK-based Tax Justice Network, a firm which tracks movement of wealth for tax avoidance.
Although these shell companies are legal entities, these are predominantly utilized by those who want to hide their “black” money from the country they belong. In recent past, huge companies like Apple and Google saved billions of dollars by avoiding taxes in completely legal ways. Although, US tax laws require the expats earning from overseas to file yearly tax returns but it allows an expat an exemption of $100,000 income from abroad. In general, American citizens’ benefit from the offshore companies doesn’t come from the tax savings but from tax deferment, meaning that a US expat can postpone the payment of taxes into the future and can reinvest profits within the company and defer taxes for very long time.
Sharif’s government in Pakistan is trying to deflect the pressure spearheaded by cricketer-turned-politician Imran Khan, and from political commentators, who are demanding a high level probe and even suggesting Sharif should follow the example of his Iceland counterpart, Davio Gunnlaugsson.
Even before the Panama Papers, Gunnlaugsson was long under a cloud for links to an offshore company, he had started along with a partner in 2007 when he was not even a parliamentarian. In 2009, after winning a seat in parliament, Gunnlaugsson sold his stakes in the company, “Wintris” to his wife.
Panama leaks showed he owned the offshore company with his wife but had not declared it when he entered the parliament. Gunnlaugsson, who is accused of concealing millions of dollars’ worth of family assets, denies any wrongdoings.
Unlike Gunnlaugsson, there is no evidence yet to prove Prime Minister Sharif is a beneficiary of offshore accounts of his two sons and a daughter, or that money was illegally transferred to these accounts.
Pakistani media is making a references to a 2005 book “Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System” by Raymond Baker, an American businessman and scholar seen an “authority” on financial crimes, to make a case against Sharif in connection with Panama Papers.
In reality, the book is not a researched document to prove the “illegal empire” of Sharif family but it is written to argue about how the free-market system operates illicitly and corruptly with devastating consequences and to reveal how dirty money, poverty, and inequality are inextricably intertwined.
Besides Sharif, the book also discussed his rival and two-times Prime Minister, Benazir Bhutto, who was assassinated in 2007, as well as military’s billions of dollars of business empires, exploiting loopholes in tax and banking systems. Using reference from that book to blight Sharif in the backdrop of Panama revelations would thus be naïve.
Before making any conclusions, it would be prudent to ascertain if the money owned by Sharif juniors was transferred from Pakistan and, if yes, whether due taxes were paid. There is also a need to firmly establish if Mr. Sharif, his wife and his daughter – who is slowly slithering to national politics — are the direct beneficiaries of these accounts.
The enquiry commission announced by Mr. Sharif to look into allegations against his sons and daughter must include people of integrity and must be allowed to work freely without any pressure.
The opposition should give a fair chance to the commission to find the truth instead of trying to draw any political mileage out of it. The aim should only be to find the truth and expose the wrongdoers , rather than settling personal scores.
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