Thursday, 16 November 2017

Lessons from the “Paradise Papers” Leak

It has been nearly two weeks since the news broke that yet another offshore law firm’s accounts had been hacked and subsequently leaked. After the ‘Panama Papers’ scandal that broke in 2016, this latest leak – the so-called ‘Paradise Papers’ – has the capacity to engulf a large number of particularly influential and recognisable people. Yet, it is worth questioning a. what this leak actually portrays, b. what the effect of the leak may be, and c. what the leak tells us about the larger picture? To answer those questions, the following seeks to introduce the leak, and provide some context for the claims that are consistently emanating from it.

The so-called ‘Paradise Papers’ leak, which is the catchy title being given to the leak of documents from a Caribbean-based Law firm called Appleby (its ‘fiduciary’ arm is called ‘Estera’ after a recent management buyout), is the second-largest document data leak, with the so-called ‘Panama Papers’, derived from the Law firm Mossack Fonseca, holding that unfortunate honour of being the largest data leak on record (2.6 TB of files were released then, as opposed to 1.4TB from Appleby). However, some perspective is required within a world were sensationalism is currently the order of the day. So, firstly, what is the reality of offshore investing, and does that relate to these stories of, seemingly, widespread tax avoidance? Secondly, what can we take from these leaks with regards to the ‘bigger picture’?

Offshore investing, in very general terms and in order to provide a realism check, is legal. The ability to invest one’s funds offshore, traditionally in a small jurisdiction that does not have the most sophisticated regulatory structure, is noted as being a viable and useful investment strategy for a number of reasons. Whether it is to diversify one’s exposure to risk, to protect one’s assets from political variabilities (like war or political instability, for example), or to protect against market volatility, there are a number of benefits to investing offshore. However, ‘investing offshore’ masks a number of variances which really should be revealed: offshore investing may relate to an investment fund being ‘domiciled’ abroad, which is legal, but offshore investing is sometimes cited when people attempt to remove their income from tax authorities, which is not legal. Whilst some who are caught in the crosshairs of this latest scandals have not, necessarily, been accused of operating illegally, it is really the close connection between the business and political elite and these tax-avoiding schemes which is causing the scandal to have such an impact. Whilst allegations of illegality will likely be forthcoming, at the moment the focus is on both a. proximity between the scheme and the elite, and also b. the issue of declaration, as witnessed by the story enveloping Lord Ashcroft at the moment. Yet, the proximity-issue points to a much larger issue, and one which, rather regrettably, is difficult to paint in a positive manner.

The former British Prime Minister, David Cameron, once opined that tax avoidance – in relation to the comedian Jimmy Carr being outed as using an aggressive tax-avoidance scheme – is ‘morally wrong’, with his successor, Theresa May, vowing to combat tax-avoidance almost immediately after taking office. However, the first point to note is that it will be incredibly interesting to hear Theresa May’s responses to this latest leak, one which puts some of her Party’s most revered figures in the centre of the scandal (one doubts she will be as forthcoming this time – more on this below). The second point is more abstract; the absolutely incredible amount of people and corporations caught up in this scandal can only tell us one thing: tax avoidance, or at least doing everything possible to reduce one’s tax burden, is inherent within society (particularly, rather obviously, for those with large reserves of funds). This should not really be revelatory, but the response to the Paradise Papers suggests that maybe it is. This latest instance of proof that influential people systematically ‘game the system’ should be the spark that initiates deep-rooted reform of the market-centred society we live in, but one should be able to realise how fanciful that thought is when looking at the impact of the Panama Papers.

Yet, the development of a story that is just over 10 days old continues unabated, with more and more of the elite being linked to the scandal. Billionaires like Robert Kraft, sports stars turned celebrities like Gary Lineker, Lewis Hamilton, and performers like Shakira, Nicole Kidman and Madonna have all been caught up in the scandal to varying degrees. Furthermore, it was stated above that it would be interesting to hear of Theresa May’s views on the scandal, speaking from a British perspective, and that interest was only heightened today by the news that ‘Theresa May’s Husband has “serious questions to answer” on tax avoidance’; Business Insider leads with a story this evening that ‘investment advisors Capital Group, where Mr May is a relationship manager, used offshore law firm Appleby to arrange investments in tax havens’. Quite what Mr May does in his role as ‘relationship manager’ of a private equity firm, at the same time as being the Husband of the Prime Minister of the United Kingdom, is not quite revealed by the publication, but certainly adds another dimension to the unfolding scandal. Furthermore, it is probably more proof, if proof were needed, that tax evasion, tax avoidance, high finance and high politics are essentially all one and the same. Yet, a massive story published today regarding a ‘landmark study’ that links Conservative-driven austerity to over 120,000 deaths since 2010 that could have been avoided if wealth was not being systemically extracted from society – quite a time to break a story after the scandal that confirmed the widespread removal of private funds from national tax authorities. The report regarding the links between austerity and increased mortality rates will be covered in a future post, but for now it is enough to say that this Paradise Papers scandal should be garnering far more action, far more anger, and ultimately far more effectual change than it is doing; as to why that is, one must look to the system for answers.

Keywords – tax, Paradise Papers, Business, Politics, Celebrities, Finance, Law, Capitalism, @finregmatters

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