Leak-Driven Law Shu-Yi Oei Boston College Law School, [email protected]

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Leak-Driven Law Shu-Yi Oei Boston College Law School, Shuyi.Oei@Bc.Edu Boston College Law School Digital Commons @ Boston College Law School Boston College Law School Faculty Papers 4-1-2018 Leak-Driven Law Shu-Yi Oei Boston College Law School, [email protected] Diane M. Ring Boston College Law School, [email protected] Follow this and additional works at: https://lawdigitalcommons.bc.edu/lsfp Part of the Antitrust and Trade Regulation Commons, Banking and Finance Law Commons, Privacy Law Commons, Taxation-Transnational Commons, and the Tax Law Commons Recommended Citation Shu-Yi Oei and Diane M. Ring. "Leak-Driven Law." UCLA Law Review 65, no.3 (2018): 532-618. This Article is brought to you for free and open access by Digital Commons @ Boston College Law School. It has been accepted for inclusion in Boston College Law School Faculty Papers by an authorized administrator of Digital Commons @ Boston College Law School. For more information, please contact [email protected]. U.C.L.A. Law Review Leak-Driven Law Shu-Yi Oei & Diane Ring ABSTRACT Over the past decade, a number of well-publicized data leaks have revealed the secret offshore holdings of high-net-worth individuals and multinational taxpayers, leading to a sea change in cross-border tax enforcement. Spurred by leaked data, tax authorities have prosecuted offshore tax cheats, attempted to recoup lost revenues, enacted new laws, and signed international agreements that promote “sunshine” and exchange of financial information between countries. The conventional wisdom is that data leaks enable tax authorities to detect and punish offshore tax evasion more effectively, and that leaks are therefore socially and economically beneficial. This Article argues, however, that the conventional wisdom is too simplistic. Leak-driven lawmaking has clear benefits, but it also carries distinctive risks, including agenda setting by third parties with specific interests and the leaks’ capacity to trigger nonrational responses. Even where leak-driven lawmaking is beneficial overall, it is important to appreciate its risks when determining how to utilize and respond to leaks. This Article is the first to thoroughly examine both the important beneficial effects of tax leaks, and their risks. It provides suggestions and cautions for making and enforcing tax law, after a leak, in order to best tap into the benefits of leaks while managing their pitfalls. AUTHORS Shu-Yi Oei is a Professor of Law at Boston College Law School. Diane Ring is a Professor of Law and the Dr. Thomas F. Carney Distinguished Scholar at Boston College Law School. We are grateful to the participants of the Sorbonne, Washington & Lee School of Law and Tulane Law School faculty colloquiums; the 2016 National Tax Association Annual Conference; the 2017 Tulane Tax Roundtable; the 2017 Columbia Tax Workshop; the 2017 Boston College Law School Tax Policy Workshop; the 2017 London School of Economics Workshop; the 2017 AALS Annual Meeting discussion panel and Surly Subgroup 2017 Mini-Symposium on “The Future of Tax Administration and Enforcement”; the 2017 Tax Avoidance Conference (Max Planck Institute, Norwegian Center for Taxation, and University of Notre Dame); and the 2018 U.C. Irvine Tax Policy Colloquium for their feedback on this Article. Our particular thanks to Hugh Ault, Eduardo Baistrocchi, Joseph Bankman, Lily Batchelder, Tsilly Dagan, Michelle Drumbl, Adam Feibelman, Maggie Gardner, Maria Amparo Grau Ruiz, 65 UCLA L. REV. 532 (2018) Th omas Gresik, Martin Hearson, Konrad Kai, Chang Hee Lee, Ann Lipton, Omri Marian, Irma Mosquera, Kish Parella, Cees Peters, John Prebble, Alex Raskolnikov, James Repetti, Ian Roxan, Guttorm Schjelderup, Dirk Schindler, Wolfgang Schön, Stephen Shay, Steven Sheff rin, Natalya Shnitser, and Parthasarathi Shome for comments and suggestions. We are grateful to Colin Glaeser, Amandeep Minhas, and Katy Pajak for excellent research assistance. TABLE OF CONTENTS Introduction .................................................................................................................................................. 536 I. The Emergence of Tax Leaks ............................................................................................................ 541 A. Understanding the Emergence of Tax Leaks ............................................................................... 542 1. Ease of Obtaining, Transferring, and Disseminating Data ............................................. 542 2. Th e Growing Signifi cance of Cross-Border Transactions ............................................... 543 B. Significant Leaks of Tax Data ......................................................................................................... 545 1. Th e UBS and LGT Leaks....................................................................................................... 545 2. Th e HSBC Suisse Leak .......................................................................................................... 548 3. Th e Julius Baer Leak .............................................................................................................. 550 4. Th e British Havens Leak ....................................................................................................... 553 5. LuxLeaks .................................................................................................................................. 555 6. Th e Panama Papers ................................................................................................................ 558 7. Th e Bahamas Leak ................................................................................................................. 563 8. Th e Paradise Papers ............................................................................................................... 564 C. Some Initial Observations .............................................................................................................. 568 1. Types of Information Leaked ............................................................................................... 568 2. Imperfections in the Leaked Information .......................................................................... 569 3. Diff erent Transmission Pathways ........................................................................................ 571 II. The Benefits and Risks of Tax Leaks ............................................................................................. 572 A. Cross-Border Tax Administration and Enforcement ................................................................. 573 B. The Benefits of Leaked Information ............................................................................................. 575 1. Leaks as Free Information .................................................................................................... 575 2. Highly Salient Leaks as an Impetus for Reform ................................................................ 576 3. Leaked Data’s Distributional Gains ..................................................................................... 576 C. The Distinctive Risks of Tax Leaks ................................................................................................ 577 1. Th e Dangers of Agenda Capture ......................................................................................... 577 2. Th e Downsides of Heightened Salience ............................................................................. 578 III. Leak-Driven Lawmaking in the Real World ............................................................................. 581 A. Agenda Setters .................................................................................................................................. 582 1. Media Organizations ............................................................................................................. 582 2. Leakers ..................................................................................................................................... 587 3. Secondary Users and Information Consumers ................................................................. 587 533 U.C.L.A. Law Review B. The Messy Transmission of Leaked Data ..................................................................................... 590 1. France and the HSBC “Swissleaks” Episode ...................................................................... 591 2. The German Purchase ........................................................................................................... 592 3. France Shares Data: The U.S. Mess and the “Lagarde List” ............................................. 592 a. The United States Controversy ....................................................................................... 593 b. Greece ................................................................................................................................. 594 4. Enter the ICIJ .......................................................................................................................... 595 a. Reverberations From ICIJ’s Data Publication: Dissemination to New Countries .............................................................................................................. 595 b. Expanded Ability of Some Countries to Use the Data ............................................... 596 5. Shifting Swiss Position .......................................................................................................... 597 6. Lessons From the HSBC Story ............................................................................................
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