Leaked Documents open a Pandora’s Box of Issues

ICIJ has a small core group of 280 investigative reporters operating through various offices around the world and is also supported by a network of members from more than 100 countries. On October 3, the ICIJ released the Pandora documents, which they claim is the largest journalistic collaboration in history, involving 600 journalists from 117 countries. Contributors included media organizations such as the UK’s BBC and Guardian and India’s Indian Express. The data is in 11.9 million files, consisting of documents, images, emails, spreadsheets, presentations, audio and video files, and even ink on paper. The work was done mostly in secret for almost two years. While the records date back to the 1970s, most of the data pertains to the period from 1996 to 2020.

What the Pandora Papers reveal are the financial dealings of the super-rich, including politicians, businessmen, sports stars, and celebrities. They provide data on secret private trusts “established” or placed in obscure offshore tax havens and the identity of the ultimate beneficiaries of wealth in those trusts. The data also reveals complex multi-layered structures, possibly built to hide the identity of the ultimate beneficiaries. There are shell companies within offshore shell companies, which safeguard wealth in the form of cash, stocks, real estate, planes, yachts, and art. Multiple layers of ownership make it difficult to trace true ownership and beneficiaries. According to the Indian Express, there are at least 380 people of Indian nationality on the Pandora Papers. These include some who are being investigated for financial fraud, and some whose disclosure has come as a surprise. For example, Pandora documents reveal the financial holdings of Sachin Tendulkar, Anil Ambani, Kiran Mazumdar-Shaw, and others, all of which could be legitimate. They also reveal the dealings of the King of Jordan, the prime ministers of Ukraine, Kenya, Ecuador, the Czech Republic and a former prime minister of the United Kingdom. There are data on more than 130 billionaires from various countries.

How is the Pandora Papers different from previous leaks of the Panama Papers, revealed by ICIJ five years ago? Unlike the Panama papers that were leaked from a single source, a law firm called Mossack Fonseca, the Pandora papers come from 14 different providers, whose identities have been withheld. It is a much more complete picture of how the wealthy move their wealth between tax jurisdictions, possibly to evade taxes or to have a “more efficient tax planning” system. The distinction between avoidance and planning is quite fine.

The ICIJ leaks (and Pandora Papers being the seventh most important, the previous ones being Panama and Paradise) put the spotlight on the role of tax havens and the service they provide to the world’s wealthy elite to escape tax and scrutiny in your country of origin. The G20 since the Lehman crisis has dealt with this issue, how to prevent base erosion and profit shifting (BEPS). The role of tax havens has been worrying because they are the cause of huge tax losses. The UK itself loses significant tax revenue due to its own Crown Territories and places like the British Virgin Islands. But despite decades of Labor and Conservative governments, the UK has been unable to plug the loophole, leaving Britons wondering if the political will is strong enough.

The Pandora Papers reveal a new avenue, naming individual states within the United States, which now offer trust structures to hide property in secret. In the past, Switzerland used to be accused of being secretive when it came to safeguarding ill-gotten wealth in Swiss banks. Now it’s even about sub-sovereign entities like the US states There is an elaborate ecosystem that allows this, with law firms and banks also being complicit. The Pandora Papers show that nearly 4,000 banks have helped their clients set up shell companies or offshore trusts to steer their wealth away from the glare of regulators. The G20 BEPS agenda is now updated as BEPS 2.0. consisting of two pillars. The first is that of the equitable allocation of profits and taxable income. The second is a global minimum tax on corporations, so no matter where you go, at least the minimum tax will apply. This US-led initiative already has the support of some 132 countries for a minimum tax rate of 15 percent. The first pillar will imply that even if the profits are recorded in a tax haven, as long as they are not hidden, the country of origin can legitimately tax them. For decades, big companies like Apple, Google, Amazon made profits from their European and global revenues in the tax haven of Ireland. That will now end. In fact, the European Union has fined Ireland for such irresponsible taxes, which amounts to “stealing taxes” from other jurisdictions.

Also in India, many of the wealthy say that they have transferred their wealth to offshore trusts and that everything is legal. Perhaps you are concerned that the tax collector will take some wealth in the form of a wealth tax? The sharp rise of the stock market and the mega injection of liquidity have vastly increased wealth inequality in India and around the world. Most developed countries have a rigid inheritance or wealth tax. India does not. Is there a fear of repayment of the patrimonial duty?

Leaving aside the runaways who have defrauded banks, or defaulted on large loans from public sector banks, another issue to think about is that even if the wealth has been legally salted, does it reflect capital flight? Are wealthy individuals moving significant assets abroad? What is your anxiety? Do you feel that your wealth is not safe in India? If India fully opens its capital account, will we see massive capital flight? Pandora documents pose many problems that need serious introspection. However, one hopes that, like the Panama Papers and Paradise, they will not become forgotten headlines in fifteen days.

(Dr. Ajit Ranade is an economist and senior fellow at the Takshashila Institution) (Distributed: The Billion Press)

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