Business Daily Media

The next Pandora Papers exposé is inevitable – unless governments do more on two key reforms

The next Pandora Papers exposé is inevitable – unless governments do more on two key reforms

The International Consortium of Investigative Journalists (ICIJ[1]) is in the process of working through another mountain of documents showing how the rich and powerful use the global financial system to hide their wealth and avoid taxes.

Those 11.9 million records, dubbed the Pandora Papers[2], follows similar leaks in 2017 (the Paradise Papers[3]), in 2016 (the Panama Papers[4]) and in 2014 (the Luxembourg Leaks[5], or LuxLeaks).

Commenting on the 13 million financial and tax documents comprising the Paradise Papers in 2017, we wrote that[6] “governments have not learnt their lesson and taken action”.

Four years later here we are again. Some progress has been made on the critical reforms needed – in particular, eliminating the secrecy that shrouds tax havens – but there’s still more to do.

Systemic issues

In sorting through these new documents, journalists have quite reasonably tended to focus on the “easy connections” and “known individuals”. This work has identified at least 956 companies with more than 336 beneficiaries who are “high-level politicians and public officials”.

This includes Vladimir Putin’s mistress allegedly having assets worth US$100 million, Jordan’s King Abdullah II using offshore companies to buy three Malibu mansions[7] for US$70 million, and the 11-year-old son of Azerbaijani president Ilham Aliyev owning nine waterfront mansions[8] in Dubai worth US$44 million.

Also on the list of 35 current and former national leaders, including Czech prime minister Andrej Babiš, Kenyan president Uhuru Kenyatta, Ukrainian president Volodymyr Zelensky and former British prime minister Tony Blair.

But as juicy as these stories are, we should not be distracted from the systemic issues that lead to the wealthy using offshore legal entities and accounts. It’s not always nefarious or illicit.

Read more: Pandora papers: 'it's time to pursue lawyers and accountants who enable tax evasion' – offshore tax expert Q&A[9]

Protecting assets

In the Pandora Papers are arrangements that, with incomplete information, may appear suspect but may be quite legitimate.

An example might be the 81 trust structures established in the US state of South Dakota and at least 100 more in various other US states where trust disclosures, especially about beneficial ownership, are not mandatory. To properly assess these transactions we really need more information.

Read more: What's in the Pandora Papers? And why does South Dakota feature so heavily?[10]

The use of complex business structures, involving countries with high levels of secrecy, may be done to facilitate tax avoidance. But it might also be “asset protection”.

Weak property rights

In countries with weak property rights and unreliable judicial systems, even those who accrue wealth legitimately can fear losing it.

Consider, for example, the case of China’s billionaire actress and singer Zhao Wei, who in August was “erased from history[11]”, or Jack Ma[12], China’s richest man until he criticised financial regulators[13] last year.

This creates a demand for assets held in other countries (preferably secretly) and a legal system that protects ownership of those assets. It also likely explains why 3.3 million of the 6.9 million documents in this latest leak relate to offices located in Hong Kong.

An analysis of these documents recognising the relative strength of property rights in the countries where individuals, or their businesses, are based would be interesting — and not just as an “academic” exercise.

In many countries, particularly developing countries, weak property rights contribute to lack of capital for economic development by creating incentives for the legitimately wealthy to use offshore accounts and assets.

This suggests a critical need to enhance property rights in these countries.

Weak legal systems also facilitate wealth accumulation through corruption or exploitation.

Unfinished business

Five years ago when discussing the revelations from the Panama Papers, we suggested the first thing the global community needed to do was require the public disclosure of country-by-country reporting of company tax affairs by all tax authorities. This idea (known as CbCR) emerged from OECD and G20 recommendations made about the time of the Luxembourg Leaks in 2014.

Read more: Three strategies to fight the tax avoidance revealed by the Paradise Papers[14]

About 100 countries have adopted the CbCR policy, at least in part. The problem is that in too many cases – such as Australia and the US – the disclosures are only to the tax authority, not to the public.

In 2017 we also recommended all countries have public registers of beneficial ownership of all entities.

There has also been some progress on this. Significant pressure has been applied to tax havens or secrecy jurisdictions such as the Bahamas and Switzerland. But more is needed.

In Australia, for example, the Paradise Papers led to the government floating the idea of a public register of beneficial ownership, but this was shut down soon after. In the US, states such Delaware and South Dakota are still “secrecy jurisdictions”.

Some progress has been made in making tax havens and secrecy jurisdictions more transparent. But many would say the progress has been mainly benefited wealthy countries, helping them increase tax revenue and to be seen to be doing something to fight corruption, while still allowing corruption to flourish in poorer nations.

Until countries such as the US and Australia embrace the reforms that have been on the table since LuxLeaks, expect further document leaks with similar results in the next five years.

Authors: Roman Lanis, Associate Professor, Accounting, University of Technology Sydney

Read more

Business Daily Media Business Development

Turning resolutions into short-term survival and long-term growth tactics

Few Australian industries have been harder hit by the pandemic than hospitality. After two years of lockdowns, social distancing restrictions, staff shortages and supply chain woes, 2022...

Paul Hadida, General Manager, APAC at SevenRooms - avatar Paul Hadida, General Manager, APAC at SevenRooms

The ‘baby bust’ is set to kick-off an AI-boom

The Australian workforce is set to see almost an entire generation retire within the next 15 years. Firstlinks predicts that there will be more baby boomers exiting the workforce than 15-y...

Andy Mellor Regional Vice President of Australia at Kofax. - avatar Andy Mellor Regional Vice President of Australia at Kofax.

How Microsoft's Activision Blizzard takeover will drive metaverse gaming into the mass market

Ready Player 1,000,000,0001?Sergey NivensMicrosoft was positioning itself as one of the pioneers of the metaverse even before its US$75 billion deal to buy online gaming giant Activision Bli...

Theo Tzanidis, Senior Lecturer in Digital Marketing, University of the West of Scotland - avatar Theo Tzanidis, Senior Lecturer in Digital Marketing, University of the West of Scotland

Some of the super-rich want to pay more tax – but society cannot afford to depend on them

Shutterstock/PilgujDemands for the super wealthy to pay more taxes are not new. But they don’t usually come from billionaires or millionaires.Yet on January 19 2022, around 100 of the ...

Peter Bloom, Professor of Management, University of Essex - avatar Peter Bloom, Professor of Management, University of Essex

A killer app for the metaverse? Fill it with AI avatars of ourselves – so we don't need to go there

Ready avatar one?Athitat ShinagowinBig numbers coming. Microsoft’s US$75 billion (£55 billion) acquisition of Activision Blizzard has landed – true to Call of Duty vernacul...

Alex Connock, Fellow at Said Business School, University of Oxford, University of Oxford - avatar Alex Connock, Fellow at Said Business School, University of Oxford, University of Oxford

Labelling Equipment; Prayers Have Been Heard and, Answered

If you are an instrumental part of a management team for a business that now requires labels for their products or goods, then traditionally you’d have had one of three choices, if the...

Business Daily Media - avatar Business Daily Media

Content & Technology Connecting Global Audiences

More Information - Less Opinion