ICIJ’s cover page. | Photo Credit: ICIJ

The Pandora Papers: the Revelations Everyone Saw Coming

It comes as no surprise that the rich and powerful operate on a completely different plane to the ordinary man. The Pandora Papers scratched the surface of the parallel shadow economy, leaving the world conflicted on the next step to take from these revelations. Claire from the IAS Gazette navigates through the workings of offshore banking and the shadow economy, and discusses what the Pandora Papers’ revelations mean for the everyday man.

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This story is not one unknown to the public. For years, reports of the powerful partaking in offshore banking and the rich taking advantage of tax havens have littered the news. 

On Oct 3rd, 2021, the Pandora Papers exposed millions of documents, uncovered financial secrets of current and former world leaders, politicians, public officials and a global lineup of fugitives, con artists and murderers. 

What is the ‘Pandora Papers’? 

The Pandora Papers is the biggest investigation spearheaded by the International Consortium of Investigative Journalists (ICIJ) in collaboration with 600 journalists from 150 news outlets. The ICIJ is a global network of 280 investigative journalists who collaborate on in-depth investigative stories. 

The ICIJ conducted a similar investigation a couple of years prior — the 2016 Panama Papers. It focused on exposing the rogue offshore finance industry and was the largest exposé of more than 11.5 million financial and legal records. Essentially, it shed light on a system that “enables crime, corruption and wrongdoing, hidden by secretive offshore companies”. 

For the Pandora Papers, more than 11.9 million confidential files from 14 offshore service providers and two years of investigations done by journalists were obtained. When pieced together,  the shadowy offshore financial system revealed the workings of a secret economy that was catered to benefit the elites at the expense of everyone else. 

Gerard Ryle, Director of ICIJ, called the Pandora Papers the “Panama Papers on steroids”. 

A Dip into the Pandora Papers

  1. 35 current and former world leaders and more than 330 politicians and public figures were involved in offshore dealings.
Map Indicating the Locations of the  336 politicians. | Photo Credit: Aljazeera

The expectation of world leaders to be advocates for the people, to propagate a just and fair society, and to make their citizens’ lives better seems to be a pipedream. It does not give a vote of confidence when people in charge of the country’s finances have their own shadow dealings. 

World leaders named in the Pandora Papers included Ukrainian President Volodymyr Zelenskyy and Former British Prime Minister Tony Blair. It is very interesting to note that they were both elected partly due to their anti-corruption rhetoric. 

Zelenskyy’s 2019 presidential campaign ran on three main promises: maximising efforts for peace in Donbas, fighting corruption to deliver good responsive governance and improving the well-being of ordinary Ukrainian people. However, the Pandora Papers showed that there was a network of offshore companies established back in 2012, seven years before Zelenskyy took office and two years into then pro-Russian President Viktor Yanukovych’s term. Zelenskyy’s office apparently “justified” the use of offshore companies citing protection against pro-Russian forces of the “corrupt” government of the Yanukovych. Zelensky (and close political allies) owned shares in an anonymous offshore entity, a shell company registered in the British Virgin Islands called Maltex Multicapital Corp. One month before he was elected president, Zelensky “quietly transferred” his shares to Sergiy Shefir, a close friend and business partner who became one of his closest presidential aides. Dabbling in crony capitalism whilst running a presidential campaign on the promises of stamping out corruption — how ironic. 

Paralleled to that, a cornerstone of Blair’s economic objectives in his 1994 election campaign was speaking out against the abuse of the tax system: “We should not make our tax rules a playground for revenue avoiders and tax abusers who pay little or nothing while others pay more than their share,” he said.

In the summer of 2017, Tony and Cherie Blair bought a British Virgin Islands company named Romanstone International Ltd.,  a subsidiary of a real estate firm owned by Zayed bin Rashid al-Zayani, Bahrain’s industry and tourism minister. The Blairs’ purchase of the US$8.8 million (S$11.9 million) dollar building via offshore dealings resulted in the exemption of property taxes, valued at more than US$400,000 (S$537,952). 

Moreover, Britain is one of the world’s most powerful countries, and they play a part in setting the international order, formulating global rules, and rallying international cooperation. Tony Blair’s ‘efforts’ to squash corruption certainly fell short. 

  1. The US is central to the global offshore system. 

According to the Pandora Papers, a volume of documents showed that South Dakota seemed to have “rivalled opaque jurisdictions in Europe and the Caribbean for financial secrecy”. The total in South Dakota trusts amounts to almost US$360 billion (S$487.7 billion), with some tied to people and companies accused of human rights abuses and other wrongdoings. 

  1. Billionaires are regular customers of offshore finances. 

This hardly comes as a surprise. Billionaires have rarely acted in accordance with rules that bind everyone else. Does it come as a shock that there is an entirely separate system that billionaires benefit from? 

Robert F. Smith, an American private equity billionaire and tech mogul, has been named in the Pandora Papers. His and Robert T. Brockman’s (another American billionaire)  trusts were once investigated by the US authorities. Smith settled the tax probe by paying US$139 million (S$187.69 million) to the US authorities, and Brockman was indicted by a grand jury in what prosecutors called the “biggest tax fraud in US history”.  

Understanding the Shadow Economy

A definitive definition of the shadow economy is hard to come by, due to its changing developments following fluctuations in taxation and regulations. Even economists and government statisticians find difficulties in estimating the size of the shadow economy. Nonetheless, an attempt to define it put forth by the International Monetary Fund (IMF) describes the shadow economy as an “underground, informal, or parallel economy”. It includes all economic activities that would have otherwise been taxable were they reported to tax authorities.

Table outlining the types of underground economic activities. | Photo Credit: IMF

One may ask how offshore banking ties in with the shadow economy. Firstly, offshore banking is the practice of using a bank in a country you do not live in. While there are legitimate reasons for using offshore banking i.e. you live or travel frequently abroad; the real problem occurs when the rich, powerful and elite dabble in it. Chances of the rich, powerful and elite doing it, is more so that they can avoid tax obligations (since it is harder for authorities to investigate) and commit more illicit activities than actually leveraging on the ease of making and receiving payments in different currencies.

This is when offshore banking becomes part of the shadow economy: a person practising offshore banking and not reporting their income to authorities. 

The purpose of offshore banking allows beneficiaries to control their money by hiding assets from creditors, law enforcement and so on. It involves the careful collaboration of secret providers, law firms, and companies. The more complex the arrangements, the higher the fees, and thus,  more secrecy and protection clients can expect.  

Real-World Implications

The most obvious ramification is how the offshore system enriches the rich and makes the poor poorer. The rich do not have to pay any tax dollars, meaning the government does not earn the tax revenue it could have had. This in turn possibly leads to underfunding of infrastructure, social programs and more initiatives by responsible governments. In fact, according to Serdar Vardar, a Turkish DW reporter, the amount of tax money that could have come from these offshore dealings could have helped the Turkish government finance eight hospitals or 25 schools. 

Biden to float historic tax increase on investment gains for the rich |  Reuters
U.S. President Joe Biden speaks in the Cross Hall at the White House in Washington, U.S., April 20, 2021. | Photo Credit: Reuters

To mitigate this issue of undermining efforts to tax the rich, US President Joe Biden has been pushing to tax the rich in America. However, this could instead compel the rich to increase their efforts in ‘hiding’ their money to escape tax imposition. The government budget could then get even more affected, resulting in politicians imposing stricter tax laws that apply to the rest who don’t partake in the shadow economy at all, ultimately creating a spiral of widening the income gap. 

But the thing is, offshore banking is not entirely illegal. There can be legitimate reasons for choosing the offshore route. The legality of this issue can only be traced back to the political institutions in the country: possible double standards and loopholes of its financial system. Each country has their own set of laws and regulations revolving around offshore banking. Popular offshore destinations mainly include the Cayman Islands, Singapore and Switzerland. The level of regulatory standards differ widely among these offshore financial centres, but generally, there are favourable tax laws, reduced risk and greater growth potential, looser regulations and confidentiality. 

Generally, it is the hiding of offshore assets that is illegal. Most countries require all offshore accounts to be reported to the country’s authorities. It seems that the offshore banking system is at war with itself. On one hand, authorities deem it illegal to not report any offshore dealings, yet the very nature of offshore dealings is built around confidentiality and secrecy. Which then begs the next question: how will authorities keep the powerful accountable, when the very nature of offshore banking is to technically be untraceable? Though there is an increase of offshore banks being more transparent with authorities, it is hard to gauge how many more offshore dealings are left unaccounted for. And typically, the more the customer pays, the higher the level of secrecy they will be granted.

Truth be told, there will never be a system that is completely free from loopholes, and no matter how well oiled the machine is, there will always be a few kinks. 

Now What? 

The Pandora Papers do more than just expose the already known tax evasions, and the two different kinds of financial systems: one for the rich and powerful and another for everyone else. It cemented the performances of world leaders vying for anti-corruption for what it truly is, theatrics. 

Nicolas Jackson, an expert on tax haven and works with the Tax Justice Network in Berlin, said in a DW interview “that the big problem [is] our leaders and the ‘great and the good’ are using these shady offshore centres”. He added that “often there isn’t the political will to investigate” because it is the rich and powerful that are committing these ‘crimes’ and chances are that they are the same ones that decide or influence and enforce policy-making or government action. 

The Pandora Papers did not reveal anything the everyday man had not already suspected. There has to be an explanation for the rich getting richer and the poor getting poorer, and this shady offshore system seems to be a very good explanation. It’s really time for these rich and powerful to stop the charades that they care about stamping out corruption (I certainly do not think that they are fooling anyone). 

The rich get richer and the poor get poorer in steemit too. — Steemit
Cartoon depicting the rich exploiting the poor. | Photo Credit: Kamesh

So what do we do now? Increase taxes on the rich? That would drive them straight to offshore banks, intensifying the problem tenfold. Call out the rich and power in a Greta Thunberg-esqe manner? 2021 saw a record-breaking acceleration in the rise of global sea levels. Publish an exposé to incite public accountability? The Paradise Papers, lead to an even bigger reveal of the Panama Papers, which led to the current massive revelation of the Pandora Papers. 

So, is there really no hope at all? 

Well, an International Monetary Fund Working Paper titled “Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?” found that there was a declining size and development of the shadow economy from 1991 to 2015, except the year 2008 when the economic crisis hit. However, the world is going through one of the worst economic downturns and it would thus be fair to assume that the shadow economy has not declined, but thrived during the pandemic. Conveniently, 650 American billionaires saw their network increase by more than US$1 trillion (S$1.34 trillion) during the pandemic, whilst twenty million Americans lost their jobs. 

The biggest issue with this dual system is that the people that have the capability to shut down its abuses are the very people that are using the system. With political institutions and leaders holding up the shady offshore system, it seems like the only card left is actions from the ground. How much power this card holds, is really up to you.

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The IAS Gazette is a news site run by undergraduates from the Singapore Institute of Management’s International Affairs Society (IAS). Founded in 2018, it traces its roots to The Capital, a now defunct bimonthly magazine previously under the IAS.

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