What are the so-called “Panama Papers”?

By Adam George

The Panama Papers are the unparalleled leak of 11.5 million files from the world’s fourth largest offshore law firm, Mossack Fonseca. These files have basically revealed what a lot of us had already suspected; some of the most influential people on our planet have been adept at covering their fortunes from both the tax man and, in some cases, law enforcement agencies.

The people exposed in this leak include 143 politicians from around the world and twelve national leaders, most notably David Cameron and Vladimir Putin. A $2 billion trail leads all the way to the Russian leader. Putin’s best friend, Sergei Roldugin, is at the centre of a scheme in which money from Russian state banks is hidden offshore. Some of it even ended up in a ski resort where Putin’s daughter Katerina got married in 2013. The other national leaders involved in this scandal include the Prime Minister of Pakistan Nawaz Sharif and the Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson, who has since resigned. The revelations also show that six members of the House of Lords, three ex-Conservative MPs and dozens of donors to British political parties have benefited from offshore assets.

“Frankly some of these schemes where people are parking huge amounts of money offshore and taking loans back to just minimise their tax rates is not morally acceptable.” Those were the words of Prime Minister David Cameron back in 2012. Cameron was discussing the tax arrangements of comedian Jimmy Carr and to be honest it is very hard to disagree with the Prime Minister’s sentiment. However, thanks to the recent leaking of the infamous Panama Papers it has emerged that the Prime Minister himself was actually benefiting from one of these “very dodgy tax avoiding schemes”.

After the news of the leak broke, Cameron denied ever making any profit from offshore companies which has since proven to be a lie. After five days and five different statements, the truth finally emerged that the PM had a £30,000 stake in his father’s company, Blairmore Holdings, a company based in the Bahamas. This has led to mass protests in London and a Twitter hash tag of ‘#resignCameron’ trending for days. This disappointing evidence from Panama must, surely, put more demand on David Cameron to stop trying to ignore the issue of tax havens and tax avoidance.

The Panama Papers are also embarrassing for Cameron because they identified the British Virgin Islands, an overseas territory of Britain, as a major centre of overseas activity. This calls into question the PM’s claims that he is leading the fight internationally against tax evasion. Recently he has attempted to brush off criticism by pointing to a conference he is hosting next month against corruption. However, holding a conference is not exactly going to clamp down on the abuses taking place. Cameron’s Brussels voting record on tackling these issues is patchy at best, and actively unhelpful at worst. To find out where this corruption lies it is imperative that we allow the authorities to know who owns both companies and trusts.

The UK does now have a ‘beneficial ownership register’ for companies and this is definitely a step in the right direction. However, the UK government were key players in preventing this transparency to go further and also cover the trusts. Perhaps these revelations from Panama force the Prime Minister into serious action, but this is still uncertain.

The Russian President, Vladimir Putin, has described the publications as an attempt to destabilise Russia and claims that there is no evidence of any corruption on his part. Speaking at a media forum in St. Petersburg he noted that his own name was not mentioned in any of the 11.5 million papers and argued that journalists had sought to “pin allegations on his friends and acquaintances”. He even suggested that the papers were orchestrated by the United States government officials and spy agencies. Putin also defended his friend Mr. Roldugin and claimed that it was “nonsense” Roldugin had made billions of dollars.

In plain speaking tax avoidance is the arrangement of one’s financial affairs to minimise the tax that they have to pay. In most cases it is totally legal and above board, however a lot of people view it as morally wrong. It should not be confused with tax evasion which is completely illegal in all forms. A classic example of entirely benign tax avoidance is when the general public put their savings into an Individual Savings Account (ISA) to avoid paying income tax on the interest earned by their cash savings. ISAs were established by the Government to encourage regular people to save. So when people avoid tax in this way they are doing precisely what Parliament intended.

However, there is a big grey area in relation to a lot of other tax avoidance schemes created by accountants and often only marketed to wealthy people. Sometimes HMRC will argue that rich people are extracting a tax saving benefit that MPs never intended them to have. The rich people’s lawyers will argue that it is not clear what Parliament intended. Often the only way to resolve this question is in the courts.

An example of this kind of contested scheme in recent years are the film investment funds, established after the government introduced a tax break to encourage people to invest in films made in the UK. HMRC has challenged and shut down a host of these funds after concluding that they amounted to evasion. It is difficult to see where David Cameron’s offshore fund sits on this spectrum. When former Prime Minister Thatcher government removed restrictions on the amount of money UK residents could take out of the country in the 1980s it made it extremely possible for Britons to buy into these offshore funds (which then invested in stocks and shares all around the world). It is common today for people to invest in off-shore funds – and many ordinary people will be doing so through their pension funds without even knowing it.

Labour has attempted to capitalise on the Tories’ woeful handling of the Panama Papers scandal by demanding a public inquiry and has also published a five-point plan to increase tax transparency. The Shadow Chancellor, John McDonnell, has said that the argument over tax avoidance comes down to an “issue of basic morality”. Labour proposes that there should be an immediate enquiry into the Panama Papers and also that all MPs and peers should be made to publish details of any offshore investment that they hold. They have also called for more resources to be made available to the HMRC so they are able to investigate any potential breaches of the law. McDonnell went on to say that the fact that more than half of the companies named in the papers were registered in UK-governed tax havens is a “matter of shame”. He went on to state that “not only has this government impeded international efforts to crack down on tax avoidance and to tackle tax havens but senior figures are personally implicated in these immoral schemes”.

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