Saturday,21 October, 2017
Current issue | Issue 1291, (14 - 20 April 2016)
Saturday,21 October, 2017
Issue 1291, (14 - 20 April 2016)

Ahram Weekly

Panama Papers pressure leaders

Financial arrangements revealed by the Panama Papers are part of the world economic system and there may not be political will to change it, experts tell Stefan Weichert

Al-Ahram Weekly

It was a pressured prime minister of Iceland who stepped down from office last week after his connection to the so-called “Panama Papers” scandal was disclosed.

Around 22,000 people went into the streets in the country’s capital to demonstrate against Sigmundur Davíð Gunnlaugsson’s involvement in the scandal, which revealed how some prominent people have been hiding their money offshore to avoid paying taxes in their home countries.

The Icelandic prime minster is the first leader, and so far the only one, to have stepped down after being mentioned in the Panama Papers, which consist of more than 11 million documents leaked from the Panama law firm Mossack Fonseca.

The documents were leaked to the German newspaper Sueddeutche Zeitung by an anonymous source and then distributed to international news outlets through the International Consortium of Investigative Journalists (ICIJ).

Political leaders and important business people around the world, including from several countries in Europe, Asia, the Middle East and South America, are mentioned in the leaked documents.

In the UK, Prime Minister David Cameron is under pressure for his involvement in his father’s fund, which is mentioned in the Panama Papers. A large demonstration took place in Downing Street in London on Saturday, and protesters demanded that Cameron step down as the country’s prime minister. It comes after Cameron admitted to have profited from an offshore trust before he had become prime minister.

“I know I could have handled this better,” Cameron said, according to the UK newspaper The Guardian. “I should have handled this better. I know there are lessons to learn and I will learn them. Don’t blame Number 10 Downing Street or nameless advisers. Blame me. I will learn the lessons,” he said.

Despite Cameron’s assurances that he will make his tax affairs public, the pressure on him remains.

In China, relatives of leader Xi Jinping are mentioned in the papers, putting pressure on his leadership. The Chinese are handling the revelations by setting restrictions on web postings, blocking foreign publications, blaming the West and ignoring the fact that anything has happened, Ralph Jennings, a Forbes magazine contributor in the region, reported on Sunday.

Among other prominent leaders mentioned in the papers are relatives of Pakistani Prime Minister Nawaz Sharif, two cousins of Syrian President Bashar Al-Assad, and close associates of Russian President Vladimir Putin.

In Argentina, Prime Minister Mauricio Macri said, “I have acted in accordance with the law and have nothing to hide” after a federal prosecutor called for an investigation of his involvement in an offshore company mentioned in the documents.

The same argument was used by Nawaz Sharif’s family, but the Pakistani prime minister has been criticised by the opposition, who have called for an investigation. According to Sharif’s son, Hussain Sharif, there has been no wrongdoing.

“There is nothing wrong with it [the offshore companies and property revealed in the papers]. I have never concealed them, nor do I need to do so,” Hussain Sharif said, according to the US news outlet ABC. “It is according to British law and the laws of other countries and is a legal way to avoid unnecessary tax via offshore companies.”

Many Western media outlets have focussed on Putin. While the Russian leader is not directly mentioned in the documents, some of his close associates are named. Putin, in recent comments made in St Petersburg, has blamed the West for the revelations and denied any involvement, according to the Russian news agencies Interfax and Tass,

“WikiLeaks has showed us that official people and official organs of the US are behind this,” he said, referring to a tweet by the organisation WikiLeaks, which had targeted the Russian president for his involvement.

“Your humble servant was not there, but they don’t talk about that,” Putin said. “But there’s still a job to be done. So what did they do? They make an information product, and they found acquaintances and friends.”

Putin went on to defend Russian cellist Sergei Roldugin, an old friend, who was allegedly at the centre of a scheme to hide money from Russian state banks. Some experts and media outlets suspect the Russian leader of using friends and connections to hide his personal wealth.

The Panama law firm Mossack Fonseca, the fourth-biggest offshore law firm in the world, denies that it has done anything illegal. The company said in a statement after the leak, “Nothing we’ve seen in this illegally obtained cache of documents suggests we’ve done anything illegal.”

That might not be true, however, according to Ronen Palan, a professor of international politics at City University in London, who has studied tax evasion and tax avoidance in developing countries. He says that a lot things mentioned in the papers are legal, but it is unlikely that everything is.

“There are certain rules that the company does not seem to have followed,” Palan told Al-Ahram Weekly. “You are required to know where your clients got their money from, and I do not think they have done that. However, it is highly unlikely that Panama will try to get them convicted for it.

“I am not sure that the people who have their money hidden there are all that innocent either, because why would they go through so much trouble to hide their money if it was legal?” he asked.

More than $21 trillion is hidden in secret offshore accounts, more than the gross domestic products of the United States and Japan combined, according to a 2012 report written by James Henry, former chief economist at the management consulting firm McKinsey, for the British activist group the Tax Justice Network.

The methods used by the Panama law firm are known techniques Palan said, pointing out that they are similar to what was discovered when the ICIJ leaked files from the HSBC bank in 2015 and Luxembourg tax rulings in 2014.

The methods involve hiding the ownership of money in so-called “shell companies” that look like real companies but are nothing more than empty shells. Another method is working from an offshore financial centre such as Panama where taxes are low and the level of secrecy is high.

By using “bearer shares”, or bonds of high value, people can transfer large amounts of money almost completely anonymously, because the one who actually owns the bearer shares or bonds is anonymous.

“Tax havens have become a central component in international business,” said Palan, who points to tax havens around the world, including Switzerland, Luxembourg, the Cayman Islands, Singapore and the British Virgin Islands. “Panama is not a large one. The system is much bigger than this,” he said.

The leak was interesting, Palan said, not because it revealed anything new but because it provided evidence. He explained that the world has seen a raft of regulation over the last five to ten years by primarily the United States and the EU to close down tax havens.

“But there are politics involved. There are countries like Luxembourg, the Netherlands and the UK that are trying to slow down any regulations. So even though it is possible to make changes, I do not think that leaders are keen to do it, because they are implicated in it.”

He continued, “For example, the current president of the European Commission is the former prime minister of Luxembourg, Jean-Claude Juncker, who might not be interested in changing things.”

Palan said that the Organisation for Economic Co-operation and Development might be in the same boat. The organisation, made up of mostly Western countries, claims that uncooperative tax havens do not exist.

The reality is different, Palin said, because “Britain is connected to a lot of tax havens in, for example, the British Virgin Islands. However, the US and the EU could change everything if they made changes, which are possible to make.”

On Sunday, the UK newspaper the Sunday Times released an online database of 37.000 names in the Panama Papers. But the leak that forced the Icelandic prime minister to step down is not likely to lead to any more resignations, according to Palan.

“I am not sure if there will be more people stepping down,” he said. “It depends on the ethics of these countries. For example, I am sure nothing will happen in China and Russia, but we will have to wait and see what happens in other places.”

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