Skip to main content

Selling our enemies the rope to hang us

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.


Popular posts from this blog

Post Truth and Justice

The past decade has seen the rise of so-called "post truth" politics.  Instead of mere misrepresentation of facts to serve an argument, political figures began to put forward arguments which denied easily provable facts, and then blustered and browbeat those who pointed out the lie.  The political class was able to get away with "post truth" positions because the infrastructure that reported their activity has been suborned directly into the process. In short, the media abandoned long-cherished traditions of objectivity and began a slow slide into undeclared bias and partisanship.  The "fourth estate" was always a key piece of how democratic societies worked, since the press, and later the broadcast media could shape opinion by the way they reported on the political process. As a result there has never been a golden age of objective media, but nevertheless individual reporters acquired better or worse reputations for the quality of their reporting and

We need to talk about UK corruption

After a long hiatus, mostly to do with indolence and partly to do with the general election campaign, I feel compelled to take up the metaphorical pen and make a few comments on where I see the situation of the UK in the aftermath of the "Brexit election". OK, so we lost.  We can blame many reasons, though fundamentally the Conservatives refused to make the mistakes of 2017 and Labour and especially the Liberal Democrats made every mistake that could be made.  Indeed the biggest mistake of all was allowing Johnson to hold the election at all, when another six months would probably have eaten the Conservative Party alive.  It was Jo Swinson's first, but perhaps most critical, mistake to make, and from it came all the others.  The flow of defectors and money persuaded the Liberal Democrat bunker that an election could only be better for the Lib Dems, and as far as votes were concerned, the party did indeed increase its vote by 1.3 million.   BUT, and it really is the bi

Media misdirection

In the small print of the UK budget we find that the Chancellor of the Exchequer (the British Finance Minister) has allocated a further 15 billion Pounds to the funding for the UK track and trace system. This means that the cost of the UK´s track and trace system is now 37 billion Pounds.  That is approximately €43 billion or US$51 billion, which is to say that it is amount of money greater than the national GDP of over 110 countries, or if you prefer, it is roughly the same number as the combined GDP of the 34 smallest economies of the planet.  As at December 2020, 70% of the contracts for the track and trace system were awarded by the Conservative government without a competitive tender being made . The program is overseen by Dido Harding , who is not only a Conservative Life Peer, but the wife of a Conservative MP, John Penrose, and a contemporary of David Cameron and Boris Johnson at Oxford. Many of these untendered contracts have been given to companies that seem to have no notewo