SECOND QUARTER 2016, VOLUME 11 ISSUE 1 TAX JUSTICE FOCUS THE PANAMA PAPERS MUST MAKE US RE-THINK feature CORRUPTION Nicholas Shaxson In the past definitions of corruption have kept attention and political pressure away from the offshore sector and its like Global Witness had set the stage with professional enablers. The Panama Papers make it clear that this industry is creating a two-tier world of harsh penalties in-depth investigations into giant scandals in Africa and Asia, with many tangled trails for the majority and corrupt immunity for the few. leading to tax havens. But nobody, as far as I know, had yet brought tax havens and corruption explicitly and deliberately The launch of Berlin-based Transparency Consortium of Investigative Journalists (ICIJ), by dictators and their corrupt cronies are into the same analytical framework. In his International in 1993 kick-started a new which co-ordinated media coverage of the stashed in (or via) the secrecy jurisdictions. groundbreaking 2005 book Capitalism’s global conversation about how corruption Panama scandal, was entitled Giant Leak of Achilles Heel, Raymond Baker focused on Second, on a more systemic global level harms development. Until then, the World Offshore Financial Records Exposes Global traditional views of corruption but he did Bank and others had danced around the issue, Array of Crime and Corruption. Among tax havens are corrupting the fabric of hint at something else: fearing it was ‘too political’ and might annoy many other things it noted: our societies and our democracies, and their client countries. More than any other corrupting market economies. They are Where did the money go? Into western “The files reveal offshore companies linked organisation, Transparency International put undermining – corrupting – public faith coffers, where it can be accommodated with to the family of China’s top leader, Xi corruption onto the world’s agenda. in the institutions that are supposed to all the courtliness and secrecy available Jinping, who has vowed to fight “armies of promote the public good. Havens provide to the world’s rich, whether saints or But its core analysis, focusing heavily on corruption,” as well as Ukrainian President the world’s wealthiest and most powerful scoundrels. Petro Poroshenko, who has positioned individual acts like bribery and defining people and corporations with escape routes himself as a reformer in a country shaken by corruption as “the abuse of entrusted power from their social responsibilities: from tax; Shortly afterwards, in March 2006, a UK corruption scandals.” for private gain,”, missed a big part of the from disclosure and discovery; from crime- parliamentary report entitled The Other fighting agencies; from financial regulation Side of the Coin: the UK and Corruption in picture: a global architecture of corruption We feel it in our bones: tax havens are – or from accountability for other forms Africa, while also largely focused on bribery, with tax havens, or secrecy jurisdictions, at its somehow corrupt, and corrupting. But how, of bad behaviour. The result is one set of got closer to the new corruption agenda. In core. exactly? Tax havens enter the debate in two laws for them, and another set for everyone a section on international financial loopholes main ways. The Panama Papers, a leak of 11.5 million else. If that doesn’t corrupt democracy and and cross-border money laundering, inserted documents from the Panamanian law First, the offshore world of secrecy is a society, it’s hard to know what does. firm Mossack Fonseca, are the latest lurid gigantic, delocalised receptacle for the “We feel it in our bones: tax A new debate emerges exposure that must make us re-think proceeds of (traditionally-defined) corrupt havens are somehow corrupt, what corruption is and where it happens. practices like bribery, and a facilitator of The first stirrings of a new corruption The flagship article by the International those practices. All those assets looted debate began just over a decade ago. Groups and corrupting.”

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Switzerland, the UK, US, Jersey, Luxembourg at the urging of Baker and TJN’s Director, “We were greatly helped by the fact that it was dawning on or Singapore – among the “least corrupt.” John Christensen, it said: The CPI draws heavily on opinion within the many people, amid a global financial crisis, that the global Accusations of hypocrisy have been business community and while it does help economy had been profoundly corrupted.” leveled against the UK and other western investors decide where to invest, it is of little use to Nigerians to be informed that their governments for condemning corruption in the biggest corruption players in our analysis our back yard. That is where our policies country is among the world’s most corrupt. Africa without addressing their role in supply were no longer poor African nations but the can have most effect on corruption: both on They want to know where their stolen side and laundering issues. largest repositories of illicit loot: in first place the pernicious daily stuff that undermines money is. was the United States, followed by (in this trust in institutions in country after country Christensen, a former economic adviser to order) Luxembourg, Switzerland, Cayman and Christensen remembers talking to a TI – and on the more generalised corruption the tax haven of Jersey, and Prem Sikka, a then the United Kingdom – all now widely director after his 2006 presentation, and caused by the offshore system’s role in professor of accountancy, had been making recognised as among the most important said he was “visibly shocked”. He promised undermining public trust in democracies and this argument for some time, to anyone who players in the offshore world (by 2015, under to take it up with his co-directors: a process the world economy. would listen. In September 2006 Christensen a tweaked methodology, Switzerland was at of discussion and dispute began inside the laid out the new analysis in full for the the top, with the U.S. at number 3). organisation – a discussion which, insiders In building up to the global summit meeting first time, in a paper presented at a Royal tell me, continues today. on corruption in London in May, Prime Geographical Society conference on the This ranking was a great surprise to nearly Minister David Cameron has the perfect theme of “Geographies of Corruption,” Its everyone back then – and our new index got At a meeting in Nairobi in 2007 to launch opportunity to demonstrate leadership by abstract said: publicity around the globe. We were greatly Tax Justice Network-Africa, a small group declaring ‘Game Over’ for Britain’s tax haven helped by the fact that it was dawning on of us began discussing the methodology for empire. He has the authority to require The elephant in the living room of the many people, amid a global financial crisis, a new Financial Secrecy Index to rank the corruption debate is the role played by the that the global economy had been profoundly Britain’s Overseas Territories and Crown tax havens in order of importance – a move global infrastructure of banks, legal and corrupted. Dependencies to create public registries aimed specifically at countering the CPI. At of beneficial ownership, for starters, and accounting businesses, tax havens and the same time Christensen published an The west finally finds it can he should not hesitate to exert that power related financial intermediaries in providing updated analysis, entitled “Mirror, Mirror, on if they resist. Anything less would be an offshore interface between the illicit and the Wall, Who is the Most Corrupt of All?” influence corruption hypocrisy. the licit economies. This interface facilitates He describes the intentions: Tax havens began to defend themselves, capital flight and tax evasion, distorts global typically through deflection: ‘we should be And, while we’re at it, let’s bring the markets to the disadvantage of innovation Until then corruption had a black face. It angry at Africa’s kleptocrats’, they’d say: City of London and all its frauds and and entrepreneurship, slows economic was important to have African voices saying ‘not at tax havens.’ Clearly there is blame growth by rewarding freeriding and mis- ‘Before you point the finger at us, kindly in both areas – but sixty years of western misdemeanours firmly into the corruption directing investment, and increases global clean up the criminogenic environment development assistance and finger-wagging debate, as David Whyte suggests in his inequality. created by the West. about good governance hasn’t delivered introductory piece to this edition. Now the goods, because in a post-imperial age there’s an argument waiting to be had. He attacked Transparency International’s Markus Meinzer and Richard Murphy westerners have little influence, other than to famous Corruption Perceptions Index undertook the research for the first serve as agents of further corruption. Nicholas Shaxson is author of Treasure Islands: (CPI), noting that it ranked the world’s Financial Secrecy Index, which came out in Tax Havens and the Men Who Stole the World, most notorious tax havens and repositories October 2009 (and has since been published The one area where we do have influence, and Poisoned Wells: the Dirty Politics of African for corruptly obtained loot – including every two years). The FSI up-ends the CPI: though, is in cracking down on the havens in Oil. He writes for the Tax Justice Network.

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