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Opinion

The Hypocrisy of the West and Fiscal Paradise

Roberto Savio, is founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News

ROME, Apr 27 2016 (IPS) - The publication of the Panama Papers has now been digested, like any scandal, after just a few days. We are now getting so accustomed to scandals, that it is confusing, and the general public reaction often is: all are corrupt and politics is all about corruption.

Roberto Savio

Roberto Savio

This, of course, plays out well for the right wing, xenophobic parties, numbers of which are ever increasing in every election, from Donald Trump in the United States, to Nigel Farage in Great Britain who promptly asked for the resignation of British prime minister David Cameron, who is among the users of the legal office of Mossack and Fonseca in Panama, which has helped more than 14.000 clients to create 214,488 companies in 21 fiscal paradises.

In some cases, like Iceland, that brought the prime minister to his knees, is a concrete response to the public indignation. By and large the general reaction was similar to the model of Cameron’s style: deny any wrongdoing, and just wait for the fury to go die down.

The Panama Papers had of course a very prominent space in the media, where the issue was alive for several days (but never more than five). The media put very little effort into looking beyond the Panama Papers and to find out the real situation of the fiscal paradise. Had they done so, a very uncomfortable truth would have emerged: the same countries who speak publicly against such paradise, do very little to eliminate them.

For instance, according to the Panama papers, it emerges that more than half of the ghost companies created by Mossack-Fonseca were registered in the British Virgin Islands. It works there like in Panama: a company pays a fee to register and an annual fee after that (always less than 500 US dollars), and by law the company will have to pay taxes only on the activities realized in the country. It suffices to not have any commercial activity in Panama or in any other fiscal paradise to be completely out of the grip of local tax authorities.

It is clear that the Virgin Islands are a British territory, like the Bahamas, Bermuda, Turk and Caicos, and therefore London could oblige these territories to comply with the international laws on transparency and accountability. The Panama Papers are just, “one firm in one place” says the economist Gabriel Zucman, author of “The Hidden Wealth of Nations: The Scourge of Tax Havens.” So, it cannot be representative of what is happening in the whole world”. The total amount of registered firms avoiding taxation is not really known. In fact, Zucman estimates that the tax havens are now sheltering a staggering 7.6 trillion dollars, or 8% of the world’s financial wealth. And he draws attention to the fact that the United Sates is a major fiscal paradise, just after Switzerland and Hong Kong, according to the Financial Secrecy Index published by the Tax Justice Network, based in Washington.

And here comes a very good example of double standards. After it became evident that Swiss banks were hiding American capital (for which the US Treasury hit them with a heavy fine), in 2010 the US passed the Foreign Account Tax Compliance Act, which requires all financial firms in the world to surrender details about Americans with offshore accounts. But the US has refused to be part of any agreement for exchanging financial information with other countries.

Edward Kleinbar and Heather A. Lowe, of Global Financial Integrity, say that American Banks are awash with money coming from foreign investors. Kleibard, who was chief of staff of the Congress’s Joint Committee on taxation, declares: “ the United Sates demands that the rest of the world tell it when an American holds an account at a foreign institution, but the US does not return the favour by providing similar information on foreign investors, in US banks to their home jurisdiction”.

But in fact, the secrecy of American banks go beyond that. In fact, several states in the US use their constitutional privileges to shelter their banks also from the central government. Heather A. Lowe, the legal counsel and director of government affairs for Global Financial Integrity, Washington, warned that the problem was in any American state, not just in the more notorious one. ”You can create anonymous companies anywhere in the US: The reason people know about Delaware, Nevada and Wyoming is because those states market themselves internationally”.

For instance, Delaware secretary of State has stressed in his annual reports that this marketing efforts have “helped the state to reach thousands of legal professionals in dozens of countries across the globe, to tell the Delaware story”. And Nevada boasted a similar advertisement on the state’s website: Why incorporate in Nevada? Minimal reporting and disclosing requirement. Stockholders are not public records”.

While the legitimacy of taxes as a concept may be up to personal interpretation, what matters in Hillary Clinton’s use of the so-called Delaware loophole, in particular, is her constant harping on the need for corporations and elite individuals to pay their fair share. In other words, Clinton’s employment of North Orange Street amounts to a telling, Do As I Say, Not As I Do. And, as the Guardian notes, both of “the leading candidates for president – Hillary Clinton and Donald Trump – have companies registered at 1209 North Orange, and have refused to explain why.”

John Cassara, a former special agent for the US Treasury Department, reported in the New York Times on April 8where many of the declarations are coming from, about the frustration that fiscal agents have when they try to investigate “who or what is behind that company: you basically strike out. It does not matter if is the FBI, at the federal level, state or local. Even the Department of Justice can’t get the information. There is nothing you can do.” He had to abandon an investigation in Nevada when they found a corporation that had received more than 3700 suspicious wire transfers, totalling over 381 million dollars.

Clearly, one cannot set up rules for global governance, when important rich countries have double standards and cannot even put their own house in order. But the lack of global governance becomes even more evident, when we find out that the debate about global tax negotiations is exclusive to the 34 members of the Organization for Economic Cooperation and Development (OECD), and all the other countries of the world are left out. The Group of 77 and China, which has 134 members, has repeatedly asked that the UN must play a greater role in global tax cooperation but to no avail.

And it is a fact that in the list of account holders in Panama there is a large presence of personalities from Arab Countries, China, Nigeria, Brazil and so on. But there is a cultural problem, for which there is no solution. The fiscal authorities of the OECD countries think that on delicate matters, it is better to exclude the developing countries, because it would create a mechanism of negotiations where they could find themselves in the minority. That of course, would be to recognize that global governance can only be effective with a democratic system of consultation and decision. That is not at all the prevailing mood in an increasingly fractured world. Therefore, it would be normal to expect many more scandals, with spotlight for a few days on the names that could emerge, followed by a total relapse, until the next scandal explodes.

How long this can last without damaging the foundations of democracy, it is difficult to predict. And some defenders of the present system are already maintaining that scandals are proof that democracy is alive. But if the citizen’s growing lack of trust in the political and economic elites continues, it is difficult to see how scandals will help nurture democracy.

(End)

 
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