I think the people of Pakistan need to know more about Panama Papers. Even though Imran Khan is not mentioned in these papers, he has acted boldly to offer himself for thorough probe, even before such a probe is conducted in to the affairs of the Prime Minister and his family under a Commission headed by the CJ.
My today’s column constitutes of the Economist’s editorial note which carries a heading that shows the importance of this issue.
LEAK OF THE CENTURY
THREE years ago a watchdog published a series of reports on tax havens based on leaks of confidential documents. Some nervous clients of Mossack Fonseca, a law firm in Panama that specialises in setting up offshore companies, asked if their secrets were safe. The law firm told them not to fret; its data centre was “state of the art” and its encryption algorithm was “world class”. Whoops. This week the same watchdog, the International Consortium of Investigative Journalists (ICIJ), published the first stories based on a trove of leaked data on Mossack Fonseca’s clients (see article).
The leaker (whose identity has not been revealed) provided the ICIJ with 11.5m files covering nearly 40 years. The “Panama papers”, as they have been dubbed, unveil the offshore holdings of 140 politicians and officials, including 12 current and former presidents, monarchs and prime ministers. They show how money was moved around and hidden by at least 33 people and companies blacklisted by the United States for allegedly doing business with rogue states, terrorists or drug barons. The sums involved are huge; so are some of the names.
Friends of Vladimir Putin, the president of Russia, have shuffled $2 billion through a network of banks and offshore firms, the ICIJ claims. The brother-in-law of China’s president, the children of Pakistan’s prime minister and the cousins of Syria’s dictator all did business with Mossack Fonseca. So did the late father of David Cameron, Britain’s prime minister.
The law firm denies wrongdoing, as do many of its clients. And indeed, there are plenty of legitimate reasons for using offshore companies or bank accounts. When two firms set up a cross-border joint venture, for example, they may choose to incorporate it on neutral turf. And the citizens of unstable countries often seek safe places to park their savings. But offshore companies are also used to dodge taxes and hide illicit wealth.
Browsing through the data that the ICIJ has so far disclosed, it is striking how rich the cronies and relatives of some politicians have become. The daughters of Azerbaijan’s president appear secretly to control gold mines. A nephew of South Africa’s president, Jacob Zuma, has done nicely out of oil contracts in the Democratic Republic of Congo, where South Africa has sent more than 1,000 peacekeepers. Ordinary citizens are incensed. Mr Zuma faced impeachment proceedings this week over allegations that he misappropriated public money to build himself a palace and refused to pay it back (seearticle). Furious protests forced Iceland’s prime minister to resign, after his wife was revealed to have secret offshore investments with claims on the country’s failed banks.
Corruption makes the world poorer and less equal. When politicians steal, they reduce the amount of public cash left over for roads or schools. When they give sweetheart contracts to their chums, they defraud taxpayers and deter honest firms from investing in their country. All this hobbles growth.
Cleaning up tax havens will not end graft. The prime responsibility for this lies with national governments, many of which should do more to make their finances transparent and their safeguards against cronyism stringent. But it would help if kleptocrats were less able to hide their stashes. Hence co-ordinated global efforts are required to crack down on corporate anonymity and to stop the middlemen who make it so easy for crooks to launder their loot.
Dredging the canal of corruption
Many schemes described in the Panama papers involve anonymous shell companies, whose real owners hide behind hired “nominees”. Such vehicles are known as the “getaway cars” for tax dodgers, launderers and crooked officials. It is time to untint their windows by creating central registers of beneficial ownership that are open to tax officials, law-enforcers—and the public. The penalties for lying when registering a firm should be stiff. Britain and a few smaller countries have led the way in this. Others should follow.
Next, regulate the law firms and other intermediaries that set up and husband offshore companies and trusts. They are supposed to know their clients, weeding out the dodgy ones. But too many are paid to act as buffers, offering an extra layer of protection against those who pry. Governments make great efforts to ensure that global banks comply with anti-money-laundering rules, while this shadow financial system is barely policed. That must change. Governments could start by making it a criminal offence to enable tax evasion by others. Mr Cameron will host a global anti-corruption summit next month. The Panama papers give him just the platform he needs to persuade other governments, and his own, to turn their tough talk of recent years into action.
