The social costs of offshore finance

The social costs of offshore finance

By Luke Vargas   
Successive leaks show Panama is just part of a much larger world of offshore finance. Courtesy: Municipio de Panama
Successive leaks show Panama is just part of a much larger world of offshore finance. Courtesy: Municipio de Panama

Successive leaks of millions of financial documents have pulled back the lid on the lengths to which multinational corporations and the uber rich go to keep their dealings private and reduce their tax burdens.

“Wake” is a weekly foreign policy broadcast produced by Talk Media News and hosted by Luke Vargas from U.N. Headquarters in New York.

The following is a complete transcript of Episode 27, “The Social Costs of Offshore Finance.”

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Luke Vargas: In 2015, the publication of the Panama Papers peeled back the lid on how the world’s uber rich shelter money in offshore accounts, using clever accounting to reduce their tax burdens. Those revelations led to the ouster of two heads of state and embarrassment for many more.

Then in 2017 came the publication of the Paradise Papers, another trove of financial documents that showed us just how little has changed. Today on Wake we’re diving into the world of offshore finance, and what the public needs to know about financial dealings intended to stay private. Stay with us. 


Thanks for joining us. We’re coming to you today from United Nations headquarters in New York.

With us today to talk about the Panama Papers, the Paradise Papers and the latest developments in offshore finance and regulation is Dr. Mary Alice Young, a researcher and Senior Lecturer in Law at Bristol Law School in the West of England, where she’s an expert in transnational organised crime and financial crime. Dr. Mary Alice Young, thank you so much for being with us.

Dr. Mary Alice Young: Thank you.

Luke Vargas: And also with us is George Turner, an investigative writer and researcher with the Tax Justice Network. George, thanks for being with us as well.

George Turner: Thanks for having me.

Luke Vargas: George, let’s turn the clock back a few years and go over the revelations from the Panama Papers. Could you walk us through what the Panama Papers showed the world in 2015?

George Turner: Well the Panama Papers all came from one law firm which was called Mossack Fonseca, based in Panama, but which had offices around the world. And Mossack Fonseca were well-known for a number of years as being a law firm that was willing to take on the kind of clients that other law firms might not be willing to take on.

And so what those papers revealed is how an elite, a wealthy elite and often politically-exposed people – people with links to politicians or politicians themselves – can hide assets that they may have – interests in properties or other things in monetary value – behind offshore structures. So you can set up offshore companies where the ownership of that company remains anonymous and that company owns assets, which means you don’t need to own them in your name.

And the impact of the revelations was substantial. There were a number, over a hundred parliaments and committees and parliamentary committees around the world set up investigations into the Panama Papers. I think as of December of last year there were about 6,500 investigations from tax authorities going on.

Former Pakistani Prime Minister Nawaz Sharif resigned in July 2017 after revelations that he failed to disclose overseas assets. Courtesy: Nawaz Sharif
Former Pakistani Prime Minister Nawaz Sharif resigned in July 2017 after revelations that he failed to disclose overseas assets. Courtesy: Nawaz Sharif

And I think in July the prime minister of Pakistan was removed from office because of unexplained wealth that he had, and that revelation came out of the Panama Papers, so very wide-ranging impacts across the globe, and also impacts on a policy level.

There was an anti-corruption conference – which I think had already been scheduled – but happened quite soon after the Panama Papers broke, and that focused the minds of international leaders on the kind of measures that are required to stop these kinds of practices.

I have to say that not as much progress has been made as people have hoped, but maybe we can talk about that a bit later in the program…

Luke Vargas: We will, but I’m curious as we look back at the Panama Papers, was the shock of those documents the fact that illegal behavior was occuring, or just that there were so many loopholes and ways the world’s financial elites were sheltering assets and keeping them away from tax authorities, even if that behavior wasn’t illegal?

George Turner: Well I think it was both. The thing is the Panama Papers was the leak of around 13 million documents covering tax havens around the world, and going back a number of years. So it was very broad in its scope and it does seem that some of the stuff that was uncovered was unlawful. Other stuff might not have been unlawful but would be questionable. So it’s a mixed bag…

Dr. Mary Alice Young: You said about ‘questionable,’ George – I think that’s totally right. The stuff that isn’t illegal is morally dubious, and that was sort of the most shocking think to come out of the Panama Papers, and certainly the Paradise Papers following that, was the length and the sort of energy that the super rich put into keeping their money away from the tax person.

And not all of that are illegal processes – you can legally exploit these loopholes – but there’s a sort of moral ambivalence around tax avoidance, and many people don’t think it’s wrong because it isn’t illegal.

Luke Vargas: Mary, let me ask you: You’ve been studying this topic for years, and in 2012 you wrote a book on banking secrecy and offshore financial centers, so I’m sure that when the Panama Papers leaked, you knew much about some of the practices that were revealed. But did it still surprise the multitude of ways that financial elites can move around their assets to avoid tax scrutiny? Was there more there than even you imagined?

Dr. Mary Alice Young: I think that there’s still more to come out of this, Luke, and I think we will see more. I don’t think this is the end of it. It’s sort of like the can of worms has been opened and we’ll see more and more of these sort of paper leaks.

No it doesn’t surprise me. In particular, British Overseas Territories and Crown Dependencies have a multitude of ways that enable tax avoidance and tax evasion, as well as criminal money management, and chief of those being strong secrecy laws in these countries.

Courtesy: Bermuda Tourism Authority
Courtesy: Bermuda Tourism Authority

Luke Vargas: And of course, more leaks have come out. And that brings us to the Paradise Papers of 2017, which in addition to revealing even more of the type of behavior seen in the Panama Papers, had the double-whammy of showing that not much has really changed – that regulators aren’t putting a stop to the prevalence of offshore finance. George, how would you describe the Paradise Papers leaks of 2017?

George Turner: So the Paradise Papers was another leak, a massive leak, and this time it didn’t come from just one law firm, but it was a number of leaks pulled together. There was one law firm, which was very prominent called Appleby, that had been hacked, but there was others too.

And actually the point with these ones was that Appleby is kind of a more respectable company in a way, it had more respectable clients, it did more work for big multinational companies that probably would not have done work with a company like Mossack Fonseca based in Panama City.

And so the kind of revelations were a bit different. You had lots of celebrities being named, you had even the Queen of England having an interest in an offshore company, or an offshore investment fund rather.

And the revelations there showed also – and I think these were probably one of the more serious ones – how multinational companies managed to shift profits offshore, and private equity funds.So certainly one of the biggest revelations to come out of it was looking at Apple and looking Nike.

And what we saw with Nike was that all of Nike’s business in Europe – when you buy a pair of Nike Air trainers in Europe, you were buying it not from – let’s say you were in a shop in London – you were not buying those trainers from a UK company, but you were buying them from a Dutch company. And then the Dutch company would pay a large royalty for the use of the ‘swoosh’ brand to a Bermudan company, and so we’re talking billions of dollars of Nike profit made in Europe ending up not taxed in Bermuda.

Apple had a slightly different issue. Apple had a very well-known tax structure in Ireland where it was putting lots and lots of its profits through Ireland and it was being barely taxed at all. Again, this was European and I think profits from the Middle East as well, and the European Union had started to attack that structure and started to put pressure on Ireland to change their rules to prevent this from happening. Because what was happening was profits were draining out of all of the European countries and collecting in Ireland.

At that point, Apple asked Appleby to do a review of all of these different in the world where it operated and asked them: where should we shift our money to next?

And the questions they were asking were quite chilling from a democratic point of view. They were asking, do you have a credible opposition party? Are you likely to see changes in the law in the future which might disadvantage us? So it really showed the power of some of these large multinational companies to…

Dr. Mary Alice Young: …I think Apple had a checklist, didn’t they George, of what they wanted from a jurisdiction?

George Turner: Yeah, exactly.

Dr. Mary Alice Young: They were sort of ticking off what would suit them in order to enable them to continue tax avoidance schemes. But it’s not just Apple. When you talk about the big names – Louis Hamilton, for example, didn’t pay any VAT on his private jet.

So we see big celebrities have come out in the Paradise Papers again in terms of tax avoidance schemes. And these aren’t people who don’t have money. They’re not the people in the community who are relying on food banks or who are struggling to pay a mortgage. These are the richest people in our society who are avoiding paying taxes but still using the services – the British public services such as the NHS – and taking advantage of our police services, and roads, schools, education.

Luke Vargas: Dr. Mary Alice Young, a researcher and Senior Lecturer in Law, at Bristol Law School in the U.K. Mary, hold that thought, because we’ve got to take a short break, but we’ll be right back.

One document leaked in the Paradise Papers shows the results of Apple's "place of business questionnaire."
One document leaked in the Paradise Papers shows the results of Apple’s “place of business questionnaire.”


Luke Vargas: Welcome back to “Wake,” where we explore how events overseas affect our shores. I’m your host Luke Vargas at the United Nations headquarters in New York City.

With me today to talk about the world of offshore finance and the recently released Paradise Papers are Dr. Mary Alice Young, a researcher and Senior Lecturer in Law, at Bristol Law School in the UK, and George Turner, an investigative writer and researcher with the Tax Justice Network.

Mary, let’s pick up on what you mentioned just before the break, which are these celebrities and other public figures whose names came up in the Panama Papers and the Paradise Papers. And I think it’s these names are the basis of so much of the news coverage about offshore finance. And for certain people – whether it’s details about the personal investments of the Queen of England or the Prime Minister of Iceland – maybe it’s important that the public know about the behavior of these public figures so they can be held to account.

But when this just turns into stories about Madonna and Bono and nitpicking their wealth, I wonder if that doesn’t distract from the more mundane and less flashy behavior that many more people are engaged in that, when added together, has a more harmful impact on society than isolated celebrities –

Dr. Mary Alice Young: So the sort of main celebrities that people will know of that were revealed in the Paradise Papers – including Harvey Weinstein, Nicole Kidman, Justin Timberlake, Madonna, Shakira, like I’ve already mentioned, Louis Hamilton, Martha Stewart – were all exposed in the Paradise Papers leaks for having used controversial tax haven secrecy jurisdictions.

But while I can understand the focus on these celebrities, which definitely attracts media attention and brings the topic into public consciousness, it does shift the focus away from the fact that the U.K. fails to do anything about the laws in our Overseas Territories and Crown Dependencies that enable these tax avoidance schemes. I don’t know how George feels about that or has anything to say, but I think there’s a general consensus that the U.K.’s Overseas Territories and Crown Dependencies are sort of conducive to this sort of tax scam behavior.

Courtesy: The Royal Family.
Courtesy: The Royal Family.

George Turner: Yeah, absolutely. I think the issue is that many major economies try and gain some advantage out of the tax system. And what that means is trying to encourage their companies to move profits that are made elsewhere to their country, and that’s to a large extent wrong, really, because the profits made in a country should remain in the country.

The U.S. has this, too, with its policy of allowing companies to keep their money tax-free as long as they don’t repatriate the cash back to the U.S. Now, what that allows is for large companies like Nike, like Apple, like Google and so on, to move profits out of their European operations and then keep them in the Bahamas or keep them in the Cayman Islands tax free, and know that they’re not being taxed either in Europe or in the United States.

And the Netherlands as well is being set up as a place where people can move through Ireland. And what we need is the U.N., actually, to spark some international cooperation so that countries can get together not to do these things.

Dr. Mary Alice Young: Tagging on to George’s point about the United Nations, in 1975 at the Fifth Crime Congress, they actually acknowledged that financial crime involved a high degree of planning, secrecy and sophistication. They discussed financial crime in the context of tax evasion. That was in 1975 and nothing has changed. Nothing really is being done to deal with the situation.

Luke Vargas: Let me build on that. I have long tried to diagnose the political climate in the United States, and one thing I find time and again is a culture in this country, whereby the prospect of closing certain tax loopholes that benefit only the wealthiest Americans is strongly rejected by poor Americans who will likely never enjoy those benefits.

And I think it comes from an aspirational, perhaps delusional sense that we’ll all become billionaires one day and then the law and the tax system really be there for us to enjoy. Now, both of you are in the U.K., but could either of you comment on why it’s so difficult to get countries to close these tax loopholes?

George Turner: I think on the inheritance tax point that that may be the case, that there’s this aspirational – and many people don’t realize that they don’t pay it. So you look at opinion polls, and if you ask people what percentage of the population is subject to inheritance tax, they often grossly overestimate the real amount.

When it comes to the loopholes for multinationals, individuals obviously cannot use these loopholes. And there’s a real competition issue – and this is particularly in the United States where you have this kind of difference between profits made abroad and profits made in the United States – if you are in the United States and only do business in the United States, it is very very difficult to avoid corporate taxes. However, if you are a multinational business it’s much easier.

So there is a fundamental bias in the system towards multinational companies rather than domestic companies. And that’s a real problem. It’s anti-competitive. And I think in that sense, the public attitude is definitely changing and definitely become much more anti-tax avoidance to that extent.

Dr. Mary Alice Young: I think that in the British public there is a certain movement now toward the fact that this is morally dubious, it should be questioned, and the government have to be seen to be doing something. The British Social Attitudes Survey actually discussed with British members of the public their feelings on tax avoidance, and most of them were ambivalent about it.

There’s still a school of thought that if there’s a legal loophole there, why shouldn’t we use it? Why shouldn’t we manipulate it to exploit it? And I’ve asked people this directly and they’ve said, well, I’m not breaking the law. But what they neglect to sort of see is that it’s those at the lowest who suffer because those at the highest level can effectively avoid taxes, and tax avoidance effects socio-economic and cultural welfare on all levels.

Courtesy: British Social Attitudes Survey
Courtesy: British Social Attitudes Survey

Luke VargasMary, we’re running out of time, but let’s build on that and pull back and look at the broader implications of these financial and other social implications of these tax loopholes. We’ve talked about the way tax evasion can deny countries of revenue that they really need.

But beyond simple tax collection, what are some other ways you see the kind of things revealed in the Panama Papers and the Paradise Papers as harming the broader society?

Dr. Mary Alice Young: I think there’s a general downward pressure on those at the bottom rung, if you like, of society in terms of the benefits they receive. I think it has as knock-on effect on the healthcare system.

I think it restricts the availability of public services to those who do pay their taxes. There’s a lot of cause and effect chains here that link tax avoidance to restrictions and a sort of squeezing of public services that many people overlook or don’t see direction, because that’s not often not discussed generally.

Luke Vargas: And Mary, let me just jump in, because you’ve written about how these financial loopholes and money laundering are used by criminal networks. And it would seem that allowing these offshore sites to be so successful also gives a haven to criminals, doesn’t it? 

Dr. Mary Alice Young: When we talk about criminal organizations we immediately think about drug trafficking organizations in Central America or organized crime businesses, but actually what we see –and this has been linked back to criminological studies – is that legitimate businesses act just like what we see as being traditional organized crime businesses. They use the same accountants, the same lawyers, they exploit the same loopholes.

Legitimate businessmen and criminal enterprises want to make money, want to save money and will use the same loopholes, so you could argue that there’s this grey area where we could say that some of these big multinational companies are acting in such a way as they could be classified as a sort of organized crime group.

Luke Vargas: George, any final thoughts? Broader societal consequences of these financial loopholes?

George Turner: Well, I think that the general point is that the whole offshore world allows a certain section of the community to live differently from everybody else. And that is a life which is free from many of the obligations that are imposed on everyone else, free from accountability and in many cases free from justice, and that creates a divided society and that isn’t good for anybody.

Luke Vargas: George Turner is an investigative journalist and researcher with the Tax Justice Network in the U.K. George, thanks so much for being with us. 

George Turner: Thanks very much.

Luke Vargas: And Dr Mary Alice Young is a researcher and Senior Lecturer in Law, at Bristol Law School, in the West of England, where she’s expert in transnational organised crime and financial crime.

Dr. Mary Alice Young: Thank you, Luke.

Luke Vargas: I’m Luke Vargas, signing off. Join us again next week on “Wake.”

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