The “Panama Papers” sensation is a timely reminder of how governments depend on the disclosure of secret data to fight their declared war on international tax evasion. The finance ministers of the Group of 20 largest industrialized nations and emerging economies were on the verge of falling asleep at the wheel, yet again.
Granted, they have achieved more since 2009 than even optimists had hoped. In the midst of the financial crisis, then-German Finance Minister Peer Steinbrück, a member of the center-left Social Democratic Party, and Angel Gurría, general-secretary of the Organisation for Economic and Co-operation Development, had placed the issue on the agenda, with their blacklist and verbal attacks on Switzerland.
Since then, the OECD has created an international standard for the automatic sharing of financial data, which 96 countries will introduce by the end of 2018. The Base Erosion and Project Shifting, or BEPS, project has also imposed internationally harmonized limits on corporate tax avoidance.
The only problem is that this year, in which both agreements were supposed to be implemented, the usual dithering has returned in many countries. It was questionable whether the United Kingdom would truly force its offshore financial centers to provide transparency. And in Germany, it wasn’t just the opposition that no longer believed that the country still wanted to be a pioneer in implementing the new European Union money-laundering guideline. The usual game of hide and seek got underway.
As long as the United States was not on board yet, and it was unsure whether China would cooperate, many European Union countries were unwilling to press ahead.
The more frequently data leaks occur, the more circumspect we must be in how this information is handled.
But all that changed overnight with the release of the Panama Papers. Now the British Prime Minister David Cameron is under fire because of information about his deceased father’s Panama dealings, meaning he is also likely to ramp up the pressure on Britain’s tax havens.
Perhaps the Panama business model is already dead. There is nothing that secretive criminals fear more than the disclosure of where their money is hidden. And if it apparently becomes possible to extract what is probably all the data from the last decade from a law firm, the message is clear: Anonymous accounts are no longer safe anywhere.
This is especially true in light of the earlier international offshore leaks from Singapore-based Portcullis Trustnet and the so-called Luxembourg leaks, as well as the roughly one dozen CDs containing account data with implications for tax evaders from Swiss and Liechtenstein banks, which German government ministers acquired from data thieves.
Switzerland underwent a Damascene conversion with the threat to all holders of offshore accounts that banking secrecy no longer guaranteed them protection. The business model already began to falter when Washington threatened to withdraw the licenses of major Swiss banks to do business in the United States unless they reported the offshore accounts of US citizens.
Without the disclosure of secret data, no progress would have been made toward a more equitable global tax system. But there are substantial side effects. For one, reports of what is apparently an enormous movement of illicit earnings in democratic countries contribute to a general loss of confidence. Paradoxically, more and more Germans believe there is a growing problem, whereby ordinary people dutifully pay their taxes while the rich shirk their responsibility.
In fact, the opposite is true. It is becoming increasingly difficult to find safe places to hide money, in fact, tax evasion has become so expensive that it is now only worthwhile for arms and drug dealers, as well as despots hoarding flight capital in countries other than their own. All others are now paying a horrendous premium.
Secondly, media coverage of suspicions of tax-avoidance has grown to huge proportions. In many cases, the information that is actually leaked is that individual X has an offshore company in Panama or an anonymous account in the Cayman Islands. This establishes reasonable suspicion for prosecutors, and the cases often prove to be unfounded, though not always. In the case of Gunter Sachs, for example, the courts were alerted to trusts that seemed dubious but ultimately proved to be above board.
Third, the differences become blurred. There is indeed a difference between a German automaker leasing its aircraft through an offshore company, because the global aircraft leasing business is primarily conducted through such companies, and an anonymous company from Panama using the transaction to facilitate arms deals.
All of this is not an argument against the disclosure of leaked data. The benefit is far greater than the damage caused by these side effects, and the aircraft business is presumably rethinking its business model. But the more frequently data leaks occur, the more circumspect we must be in how this information is handled.
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