Panama is not the world's largest off shore financial centre.
Mossack Fonseca is not the worlds largest offshore lawyer.
The scale of the leak of confidential information is huge, but in fact it represents the tip of the iceberg for the flow of offshore money it represents. The British Overseas territories, especially Bermuda (for insurance), the Cayman Islands and the British Virgin Islands (for trading funds) and the Channel Isles (for private equity and other fund structures) handle a much larger flow of funds. Panama is not the world's most trusted jurisdiction and as a result the level of criminal transactions could be a higher percentage there than in the UK controlled jurisdictions or Luxembourg or Malta. Nevertheless the fact is that the funds flows detailed in the stolen data are still a relatively small amount of global offshore transactions.
The press in the democratic world is predictably outraged, and, equally predictably, is focusing on the wrong target. Singling out individual stories is great human interest, and of course it is an easy target to highlight some public figures who have used the off shore centres to game their domestic tax system. However there are two stories which the newspapers are studiously ignoring.
The first is why such a system of offshore finance is needed in the first place. It is not simply that political leaders and other potential and actual criminals are hiding ill gotten gains. In fact the off shore system is universally used to even out discrepancies and inefficiencies between different jurisdictions and promote cross border funds flows. The reason they are needed is that without them global investment and trade would be a fraction of what it actually is. Yet in a sense the off shore centres are only a necessary evil because the taxation systems of most nation states are irretrievably broken. The centres have delayed the dread day of reckoning when full blown reform of the taxation system is enacted or a collapse in investment brings about a global depression that would dwarf any we have yet seen. The media do not address the fundamental issue of why off shore finance exists on such a scale, preferring only the easy answer of a public witch hunt of prominent individuals involved.
The second uncomfortable truth is why the destination of a great deal of hot money has ended up being the London property market. It is clear that in parts of Prime London a major percentage of the housing stock has been taken out of the market as Asian, Arab and Russian investors buy a portfolio of property on a "buy to leave" basis. The huge surge in London property prices which has driven a wave of house price inflation across the UK is rooted in hot money, at least some of which is indeed criminal. Despite half-hearted attempts, offshore companies pay essentially no tax on UK property and the result has been a boom that has increasingly driven Brits out from their own capital. Successive governments have failed to recognized the massive damage this is continuing to do to our global level of competitiveness.
So as allies of Assad or Putin or other murderous regimes squat tax free in Mayfair, those who might have been living in Central London are pushed miles form their places of work and recreation.
The core of the Offshore scandal is taxation. The inefficient and distorted way that governments have chosen to fund themselves is the direct cause of this. Doing away with offshore centres, without first creating an open, transparent and stable taxation regime would have a catastrophic effect on the global economy. So the Mossack Fonseca data theft is pretty much the last warning.
Tax reform is an issue which can wait no longer. If democratic government is going to maintain its legitimacy in the future, then political and financial figures must accept now where the blame truly lies and completely transform what, how and where it seeks to gain its finance.