Pandora Papers expose financial crime
The Pandora Papers investigation by the International
Consortium of Investigative Journalists (ICIJ), a non-profit newsroom and
network of journalists based in Washington, D.C., has revealed there are still
some go-to havens for those looking to hide illicit wealth.
The people who don’t get mentioned as much in the media
coverage of the Pandora Papers, however, are the enablers devoted to helping
the richest people in the world get richer and to pass on their wealth while
avoiding or evading taxes. These enablers help criminals and kleptocrats
launder their ill-gotten gains.
They may not be as wealthy as their clients, but they are
paid millions to hide trillions.
For many years there has been a well-established “wealth
defence industry” made up of a coalition of professionals — ranging from
advisers and bankers to lawyers, accountants, notaries and estate agents — who
use anonymous shell companies, family offices, offshore accounts and trusts to
help the world’s richest people shield their wealth from tax collectors.
These highly compensated “enablers” are assisting oligarchs,
dictators and criminals around the world.
There’s been a lot of mainstream reporting on the actual
crimes, abuses and financial misdeeds of malicious foreign states and wealthy
individuals. But what about the intermediaries to the financial system who
handle the details and provide the get-away mechanisms for the criminals?
Some elites pay respected professionals and businesses to
open political doors, to lobby against sanctions, to fight legal battles and to
launder money and reputations. In doing so, these institutions and individuals
push the boundaries of the law and degrade the principles of our democracy.
According to the Deloitte Anti-Money Laundering Preparedness
Survey Report 2020, the amount of money laundered in one year is estimated to
be between two per cent and five per cent of global GDP, or from US$800 billion
to US$2 trillion annually.
The ICIJ’s FinCEN Files offer unprecedented insights into a
secret world of international banking, anonymous clients and, in many cases,
financial crime.
They show how banks blindly move cash through their accounts
for people they can’t identify, failing to report transactions with all the
hallmarks of money laundering until years after the fact, and even do business
with clients enmeshed in financial frauds and public corruption scandals.
The insidiousness of ‘dark money’
Corruption and financial wrongdoing are by their nature
secretive and often deeply complex. Dark money — essentially spending meant to
sway political outcomes with no information about the source of the money —
buys access to courts and politicians, consequently making society less fair
and more inequitable.
What often distinguishes ordinary rich people from the
oligarchy is that all oligarchs invest in wealth defence. They use their power
and wealth to amass more power and wealth, to lobby and to rig the rules around
them.
One of the challenges in cracking down on financial crime is
the global race to the bottom among tax havens that are trying to entice
customers by offering more lucrative incentives and a higher degree of secrecy
for companies. Enablers who are part of the wealth defence industry develop and
market strategies, structures and schemes to avoid tax liabilities and
regulatory scrutiny.
Beneficial ownership databases aimed at combating
money-laundering have become an increasingly popular reform around the world in
the aftermath of the Panama Papers, which focused international attention on
how corporate anonymity can enable a range of social ills.
As this trend continues, there’s hope that as more
jurisdictions institute greater beneficial ownership initiatives and tax
transparency, remaining “outlier” offshore destinations like Bermuda, the
Cayman Islands and Malta will be sanctioned into compliance by the threat of
exclusion from the global financial system.
In the meantime, many jurisdictions continue to evade law
enforcement agencies that chase the secret money trails of tax dodgers and
criminals.
Due to all the obvious regulatory and enforcement gaps, and
to the seeming lack of political will to address those gaps actively and
practically, there are some encouraging signs suggesting governments around the
world are being forced to act.
There’s now a growing global demand for greater transparency
and accountability, combined with calls to address the widening wealth inequity
as well as demands from investors for the adoption of ESG (environmental,
social and governance) principles.
While those factors play a role in getting the attention of
senior political leaders, the cynical reality is that the probable primary
motivation of these leaders is the serious and alarming trend of a reduction in
tax revenues. The endorsement of the concept of a 15 per cent minimum global
tax rate by G7 leaders at their June 2021 summit is a clear indication that the
winds of change are coming.
The current model is not sustainable. Fiscal realities,
along with political pressure and necessity, will force political leaders to
act. They’ll soon have to do much more than pay lip service to wealth inequality
and power imbalance, which allows the wealth defence industry and their clients
to subvert the system and avoid paying their fair share.
Greater transparency and accountability are needed to expose
the enablers and to reduce the loopholes that enable wealthy individuals and
criminals, along with corporate entities, to operate with impunity.
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