The public dump of millions of private correspondence and other legal documents as part of the so-called ‘Panama Papers’ leak predictably sparked a media frenzy. In the weeks since, politicians, high-tax advocacy groups, and their allies in the media, have sought to exploit the story as part of a long-running campaign to abolish financial privacy. The nature of the coverage suggests a clear intention to start a new round of attacks on the offshore financial community.
Given international developments over the last few years, including the OECD's recently concluded BEPS project and the adoption of automatic exchange of taxpayer information as a supposed global standard, offshore financial centres might be tempted to think that things can't get any worse. That would be a mistake. If there is one observation that can be made from the OECD's war on tax competition over the last two decades, it is that they are forever moving the goalposts. Their victories are always soon followed by a new round of more ambitious demands.
The tone and tenor of the discussion in the aftermath of the leak has signalled an intention to press forward until all financial privacy rights have been eliminated. Consider the very choice of ‘Panama Papers’ as the name, even though it was comprised of documents from a single firm. Why not, say, call it the ‘Mossack Fonseca Papers?’ The answer is clear. Mossack Fonseca, which has so far not been shown to have committed any wrongdoing in its provision of ordinary legal services for international businesses, is not the target. Panama is.
As a so-called ‘tax haven’ – a designation earned for respecting privacy rights and adopting sensible tax policy – Panama represents precisely what the OECD and the European nations driving its agenda seek to eradicate. The President of Panama's decision to grovel and beg forgiveness through a New York Times op-ed will not take the target off his nation's back, just as previous appeasements have failed to satisfy the OECD in its ever more aggressive pursuit of low-tax jurisdictions.
A common tactic of both the reporters covering the leak and the grandstanding politicians decrying offshore banking has been to conflate tax evasion and legal avoidance. They falsely insinuate that the mere usage of offshore accounts is evidence of wrongdoing. The goal is to stir up a public outcry for ever more onerous rules and regulations, subverting tax competition and paving the way for higher global tax rates.
This false narrative has come at the expense of the real story. There is corruption. There is wrongdoing. And like all criminal activity, it is sometimes facilitated through use of otherwise legitimate and valuable services. Instead of obsessing about the latter, there should be greater discussion of the underlying causes of corruption itself.
What ought to be sparking public outrage is the fact that many nations still lack basic political and economic liberties. They provide a breeding ground political corruption, where the ruling classes are able to loot treasuries without recourse. Graft, embezzlement, bribery, and extortion are common place. If anything should have captured the world's attention, it should be the continued existence of so many illiberal regimes from which law abiding citizens have every reason to want to protect their assets.
In so far as the Panama Papers helped expose that story, they perhaps in part can be applauded. Unfortunately, in their zeal to take down low-tax regimes, the International Consortium of Investigative Journalists caught the vast majority of honest and law-abiding customers of offshore services in the crossfire. Their private information should not be exposed to service an ideological agenda.
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