Why the Panama Papers' birthday is no cause for celebration

Added 03 Apr 2017
Happy birthday Panama Papers! Today [April 3] marks one year since billions of dollars stashed away in secret bank accounts suddenly saw the light of day when the International Consortium of Investigative Journalists published findings from over 11 million leaked documents. Overnight, politicians, corporate leaders and celebrities found their dirty laundry exposed on front pages around the world.

Despite the name, Panama Papers was not just about Panama. The tax services offered by law firm Mossack Fonseca had been used by wealthy clients all around the world, and the scandal had links to over 20 different tax havens. Panama Papers was not the first scandal either – in recent years we’ve seen numerous examples of large multinational corporations and wealthy individuals dodging taxes.

In the midst of the heated debate about tax havens, an important consequence is often overlooked. Our broken international tax system is a key reason why the world still struggles with extreme poverty and escalating inequality. Tax dodging deprives developing countries of billions of dollars desperately needed to pay for hospitals, schools, infrastructure, and public transport. The Panama Papers showed that businesses from 52 out of Africa’s 54 countries used offshore companies, which are often set up to guarantee the owner anonymity and to dodge taxes. On a global scale, the United Nations Conference on Trade and Development (UNCTAD) has found that one type of corporate tax avoidance alone deprives developing countries of US$ 70 to 120 billion per year.

But where are we now, one year after Panama Papers? Have our leaders started solving the problem? Sadly, the answer is no. We are still stuck with a deeply dysfunctional tax system, full of loopholes and murky corners where ill-gotten wealth can be stashed away in secrecy. The tax havens crisis has not been treated with the urgency and political ambition that a multi-billion dollar scandal deserves. Many governments are still more focused on protecting their multinational corporations and financial service industries than cooperating to solve the problem.

When the world faced a global climate problem, our leaders gathered under the umbrella of the United Nations to negotiate an international deal. Sadly, when it comes to tax havens, so-called global agreements are still being negotiated behind closed doors at the G20 and OECD – also known as the “rich countries’ club” - while more than 100 developing countries remain excluded. This is not new – the OECD has been controlling the global tax system for the last 50 years, and the result is a set of global standards which have failed to give us a functional system, and instead have created large amounts of secrecy. From the perspective of developing countries, it is also problematic that the standards are often very resource-heavy to administer, and that exchange of information between governments relies to a large extent on bilateral agreements, which can be hard to obtain by small developing countries that don’t have strong negotiating powers.

To mark the one year anniversary of the Panama Papers, civil society and trade unions around the world have joined efforts in a Global Week of Action to #EndTaxHavens, coordinated by the Global Alliance for Tax Justice.

The positive news is that solutions are available and this has been common knowledge for years.
Step number one is transparency. Citizens should have the right to know who owns the anonymous trusts and shell companies that are operating in our societies. If the information is made available in a public register, it will be much more difficult to use these vehicles to launder money from tax evasion and other criminal activities. Furthermore, governments need to let the public see where multinational corporations are doing business and how much they pay in taxes in each country where they operate (so-called public country by country reporting).

These tools have already been tested and proven to work. For example, the UK’s public register of company owners is up and running, and across the EU banks are already obliged to publish information about what business they do and what taxes they pay in each country where they operate.

The second step is to introduce a democratic and transparent international decision-making process, as opposed to the secretive and exclusive set-up in the OECD and G20. By establishing an intergovernmental body under the UN, where all countries have a seat at the table, governments can kick-start the negotiation of a truly global deal to end tax havens and reform the dysfunctional global tax standards. There are strong reasons why this is in the interest of all countries.

Lastly, governments must ensure that tax revenues reach those who need it the most. Our governments have committed to protecting human rights and achieving the Sustainable Development Goals, including combating poverty and inequality. The tax scandals have shown that there is no lack of money in this world. But for every year we lose, billions of dollars disappear into tax havens. We literally cannot afford to lose more time – our governments need to get to work.