Guide to the Paradise Papers

A lot of it is legal, but that’s exactly the problem. It’s not that they’re breaking the laws, it’s that the laws are so poorly designed that they allow people, if they’ve got enough lawyers and enough accountants, to wiggle out of responsibilities that ordinary citizens are having to abide by. Here in the United States, there are loopholes that only wealthy individuals and powerful corporations have access to. They have access to offshore accounts, and they are gaming the system. Middle-class families are not in the same position to do this. In fact, a lot of these loopholes come at the expense of middle-class families, because that lost revenue has to be made up somewhere.

– President Barack Obama, April 5, 2016


Secrecy allows ostensibly respectable people and companies to profit from behavior that would be scandalous if made public. Activities do not have to be illegal to be reprehensible. This truism is a handy prism through which to view the latest leak investigation by the International Consortium of Investigative Journalists.

Much of the leak comes from the files of Bermuda-based Appleby Global. The multinational law firm has offices in tax havens across the world from the Cayman Islands to the Seychelles. The firm amassed a huge American clientele. The almost seven million records reviewed by journalists contain at least 31,000 individuals and corporate clients who are U.S. citizens or have U.S. addresses.

Appleby began protesting weeks ago – when it preemptively revealed the leak – that it broke no laws. The data covers decades of the firm’s work in the secrecy world, during which requirements for client review and government reporting have changed dramatically. It appears that the firm was cognizant of those changes and tried to keep up. As Obama said, the scandal is in how much is legal.

Appleby’s clients, nonetheless, had plenty to hide.

U.S. Commerce Secretary Wilbur Ross, for example, seems to have done a poor job of disclosing his extensive financial dealings as required by disclosure laws – a remarkably consistent failing of Trump administration officials. If Ross had come clean, it would have been noteworthy that he remains in business with a shipping company that reaps huge profits from its dealings with Putin-connected relatives and oligarchs.

Not surprisingly, a slew of folks in Trump’s orbit from Sheldon Adelson to Rex Tillerson are found in the Appleby files.

In 2011, an American-based Russian tech mogul appears to have been a pass-through for the Russian-state financial institution VTB Banks to invest $191 million in Twitter. Gazprom, the Russian government-controlled energy firm, indirectly held a big stake in Facebook through the secrecy world. These revelations take on added significance given how Russia then used both companies to try and influence the American presidential election.

Apple CEO Tim Cook knows that hiding corporate profits from the taxman is publicly toxic. It’s antithetical to Apple’s hip brand and it doesn’t mesh with the progressive-persona Cook peddles to eager anchors on the national news. It also contradicts his testimony before Congress, where he has insisted his company does not employ the secrecy world to escape the taxman. Not exactly true, it turns out. When Irish tax shelters closed, Apple actively went looking to park cash in other tax havens, landing in Jersey.

The global sports brand Nike is another Appleby client. The firm helped Nike escape billions of dollars in taxes on its famous “Swoosh” trademark. These maneuvers robbed much needed tax revenue from American communities where Nike apparel is popular but earned the company’s CEO millions of dollars in bonuses.

The Queen of England had money invested in Brighthouse, a firm that sold rent-to-own household goods to impoverished Britons in exchange for payment plans with interest rates as high as 99.9 percent. A painful truth for Her Majesty as she sips tea from fine bone china in her ornate palace: some of the vast wealth she enjoys comes off the backs of her subjects who can least afford to pay it.

In Canada, Prime Minister Trudeau’s close friend and adviser Stephen Bronfman along with Liberal party bigwig Leo Kolber secreted millions of dollars in Cayman trusts which likely saved them a bundle on taxes. Such behavior is not particularly surprising from the global wealthy. However, that information would have been highly relevant when Bronfman and Kolber lobbied against legislative proposals to tax income from offshore trusts. It might have also cast Trudeau’s promise to crackdown on the secrecy world in front of the U.N. General Assembly in a different light.

This newest leak investigation should increase attention on how multinational corporations feed corruption in the developing world. A poster child for such behavior is Glencore Plc, a massive mining and agriculture conglomerate. It has left a trail of dangerous working conditions, contaminated air and soil and struggling communities from Australia to Argentina. Glencore was such a big Appleby client, it had its own room at the law firm. The company’s highly suspect efforts to win mining contracts, particularly in the Democratic Republic of the Congo (DRC), were aided and abetted by the secrecy world.

This line from ICIJ’s story on Glencore is a fitting epitaph to Paradise Papers:

“Despite living in the DRC’s richest mineral region, 60 to 70 percent of the inhabitants of the region that is home to Glencore’s operations are reported to live in poverty.”

#secrecyworld, #panamapapers, #paradisepapers


EU Committee Report on Panama Papers

It’s worth a quick revisit to the recent work on the secrecy world by a European parliamentary committee. Formed in the wake of the Panama Papers revelations, the committee approved its final report after an 18-month investigation.

A vote on the report by the full European Parliament in Strasbourg will come in December. The conclusions won’t change but the recommendations are likely to be weakened. There are simply too many powerful interests that favor the status quo.

Nonetheless, the battle lines are drawn.

The report by the Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) is damning. It concludes that $2.6 trillion of financial private wealth in Europe is held offshore, leading to tax revenue losses of $78 billion annually. The report also estimates that money laundering accounts for around 2% to 5% of GDP worldwide.

There is plenty of blame to go around for the prevalence of tax evasion and money laundering from lawyers to accountants to company incorporators and tax officials. The list of malefactors is a lengthy one. But the committee was especially truculent toward European member states that have openly flouted EU rules for decades.

EU member states that received a special mention for failing to implement money laundering regulations were the United Kingdom, Luxembourg, Malta and Cyprus. It’s notable that Malta, Denmark and Hungary didn’t even bother to respond to the committee’s inquiries.

Luxembourg in particular was taken to task for prosecuting the whistleblowers behind the Lux Leaks investigation but doing nothing to punish the multinational accounting firms that orchestrated tax schemes to rob the public treasuries of its neighbors.

Shortly after the Panama Papers investigation was published, President Barack Obama gave a press conference. Obama noted that the true scandal of the secrecy world lay with what was legal. The EU parliamentary report points out that legislation around money laundering and who is behind company ownership in the United States, while less ambitious than in the EU, is more effectively enforced.

The committee report paints a picture of legal arbitrage where states benefit from the European Union while they actively sabotage fellow members. It details a number of loopholes that have hobbled European action. Member states fail to report tax information to their neighbors. Despite obligations to create registries of beneficial owners of companies, not all member states have complied nor made this information available to the financial investigative units of EU members.

Tax evasion in many member states is still not a precursor crime for money laundering.

“In many Member states, lawyers cannot be sanctioned for advising non-residents on how to evade tax or launder money in another jurisdiction,” the report notes.

It will be interesting to see if the committee’s more commonsense recommendations such as creating definitions for tax havens, tax evasion and tax avoidance and implementing the anti-money laundering laws already on the books will prosper.

What the report makes abundantly clear is that Europe has a long way to go before it gets a handle on its money laundering and tax evasion problem. What is less certain is whether the political will exists to change that reality.