The largest leak in the history of the offshore finance industry offers a glimpse into the damage done to developing economies and their resources due to exploitative tax practices.
Civil society organizations are seizing on the leak as an occasion to renew calls for the world’s donors to protect developing countries’ domestic resources from exploitative tax havens and shell companies, such as the more than 210,000 entities created by Panama-based wealth management firm Mossack Fonseca, according to documents released Saturday detailing transactions of its more than 200 wealthy clientele.
Many in the aid community are looking to the government of the United Kingdom for action to curb tax avoidance. More than half of the shell companies listed in the leaked documents are based in British territories. ActionAid reports that tax avoidance costs developing countries more than $200 billion annually in lost tax revenue.
“The U.K. has been seen by many as a global leader on anti-corruption,” Stephen Twigg, member of Parliament and head of U.K. Parliament’s International Development Committee, told Devex.
“As we have heard during our current inquiry [on corruption] and in today’s news, there is much left to do to ensure the U.K.’s own house is in order,” Twigg said. He called specifically for the extension of public registers of beneficial ownership to the overseas territories and crown dependencies such as the British Virgin Islands, the Isle of Man and Jersey, all implicated as tax havens in the Panama leaks, among others.
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Mandating public registers of beneficial ownership would see the names of owners of shell entities be made at least partially public. For example, government bodies investigating companies that avoid tax would have some access to these records. As it stands, clients of firms such as Mossack Fonseca are permitted to shield identities through third-party intermediaries and wealth management firms in so-called tax havens, such as the Bahamas, the Seychelles, Mauritius and others.
ANCIR, a coalition of African investigative journalism organizations is compiling evidence of exploitation of African countries revealed in the Panama leaks. Many of the cases — which focus overwhelmingly on the continent’s extractive industries — trace lost tax revenue from the national government, through Mossack Fonseca to Western-based companies and individuals.
For example, the leaks have sparked allegations that family members of former United Nations Secretary-General Kofi Annan avoided tax payments on a mortgage for a $500,000 London apartment in 2014 through Mossack Fonseca, among other transactions.
Oli Pearce, head of tax policy at Oxfam International, echoed calls for commitments to reporting beneficial ownership as a crucial first step in increasing tax accountability. He said that Oxfam and others are in the process of tracing lost revenue flows documented in the leaks.
Pearce and others emphasized that even though not all the offshore financial transactions documented in the leaks are illegal, many are potentially destructive to the economies of developing nations and serve to benefit the world’s ultrarich.
“The fact that a number of world leaders, and other very rich and very influential individuals are implicated in the leaks underscores the links between money and power, and that the two are able to reinforce each other in corrupt ways when secrecy facilitates this,” Pearce told Devex.
“Hence, we won't be able to tackle growing economic inequality unless we tackle the secrecy of tax havens,” he said.
The U.K. also tops the list for the number of tax treaties it has negotiated to provide lower-than-average tax rates for U.K. businesses working in developing countries, an ActionAid report shows.
“The reality of this is that Britain is the biggest contributor to tax injustice in the world, which means it has the largest role in fueling tax avoidance, crime and inequality,” member of Parliament and Shadow Secretary of State for International Development Diane Abbott told Devex.
“The biggest victims of this are the world's poor,” she said.
In May, U.K. Prime Minister David Cameron — whose family trust also appears to have been shielded from tax payments by a Bahamian-based shell company set up by Mossack Fonseca — will host a global forum on anti-corruption in London. Twigg said he and others at the IDC hope the forum “provides a perfect opportunity for the U.K. to tackle these issues head on,” adding that “fighting corruption should be at the very heart of the U.K.’s approach to international development.”
Asked about global efforts to curb exploitative tax practices, Pascal Saint-Aman, director of the Center for Tax Policy and Administration at the Organization for Economic Cooperation and Development told Devex that while 132 countries have agreed to adhere to the standard of exchange of information “on request,” the challenge now is effective implementation and “eliminating secrecy through effective reporting.”
“The pushback we are getting now is coming from the multinational companies,” he told Devex.
“We’ve really had a good cooperation between countries to move these forward,” he added, pointing to the recently amended Convention on Mutual Administrative Assistance in Tax Matters, endorsed by more than 100 tax jurisdictions, and the Group of 20 finance ministers’ meeting in Chengdu, China, in July to bring more light to the issue of increasing offshore financial transparency.