A conspiracy to cover up a truth, a truth reaching into the lives of every man, woman and child on this planet with key players at all levels of government and business: the truth about the existence of extra-terrestrials. It sounds fantastical at first, that such a wide ranging conspiracy could exist in the world, but such a conspiracy does exist with its truth being of financial origins rather than extra-terrestrial ones. It relies on silence being maintained and a careful balance of legality and discretion, its players keen to keep it that way.
But the silence is over and the truth is out. In the biggest ever leak of confidential documentation since the embassy cable leak of 2010: 11.5 million tax and financial documents have been passed to the German paper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists (ICIJ).
The documents come from one source, the Panamanian legal firm Mossack Fonseca. This firm administers wealth and sets up legitimate companies in offshore tax jurisdictions, operating in over 42 countries including the popular tax havens of Switzerland, Cyprus and the British Virgin Islands.
The ICIJ has spent the last six months sifting through the massive amounts of documentation but the revelations from the files investigated so far have been explosive. Current and former heads of state, prominent businessmen, senior politicians, heads of committees and organisations have been implicated.
The highest profile individuals implicated include Vladimir Putin, the Pakistani prime minister Nawaz Sharif, the president of Ukraine Petro Porshenko and the Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson (who has been forced to resign his position as a result of these revelations). However the list of individuals implicated grows by the day.
We can expect strong denials from the implicated, a raft of resignations and the suppression of all utterances of the story in the more extreme governments like Russia and China. The damage done will vary on the party or persons being implicated.
The obvious question is, how long has this been going on?
It is highly likely that this has been going on for many years, as a succession of individuals from the past and present have successfully moved money free of tax to these tax havens , keeping it out of the hands of the international tax system.
The worrying thing is, it’s totally legal and above board.
A tax haven is a country where certain taxes are collected at a reduced rate or not at all. These countries operate in an environment of total financial secrecy. Individuals and organisations can be assured of total discretion and secrecy in investments and companies which are incorporated in these locations often pay little or no tax. Financial services organisations (like Mossack Fonseca) exist in these countries to help individuals circumvent the payment of things like income tax or corporation tax.
What can the British government do to combat this?
As I confirmed previously, using tax havens in this fashion is completely legal, no laws have been broken it is just the exploitation of loopholes in existing legislation. There is however a moral and ethical illegality, it is not right for these individuals or organisations to exploit laws to deprive countries and governments of legitimate tax revenue.
Closing the tax laws for everyone would ultimately prove to be counterproductive and would involve the re-writing of hundreds of laws and treaties to close the loopholes at potentially high cost. There is also no guarantee that this would solve the problem, as new loopholes may be found by those multinational organisations whose finances allow for the recruitment of individuals who can examine tax law. This allows these organisations to continue and become richer.
The British Government can instead exercise the moral imperative with itself in the same way that it did with the governmental expenses scandal. The records of any MP or member of the House of Lords implicated should be published and there should be significant political pressure for that individual to close down these financial instruments and make reparation to the Inland Revenue. The house can then preclude any future instances by writing a constitutional code requiring the declaration of any and all offshore investments or prohibit the investment of any MP/ Lords money into offshore tax avoidance financial instruments.
The laws of incorporation of UK businesses are far simpler and less prone to loopholes. It is there that the UK government can make the legislatory changes which will enable it to make headway in solving this issue.
Many of the tax havens of the world are former British crown dependencies and overseas territories. Unable to exert direct pressure on these governments, they can use the existing association of the Commonwealth to force these countries to exercise greater financial responsibility and increased taxation.
By highlighting and addressing its error in this matter, the British government can show the world that it is a transparent, morally and ethically sound government. It can say to the world: do as we do. Though it may not change anything, it is important that we act in a just, fair and transparent way.
© R Simmons. All Rights Reserved.