Panama papers offer insight into wealth and deception
It’s not a surprise to learn that the ultra-rich have been hiding their wealth. But with the recent leak of the Panama Papers, we are beginning to see just how far the rich from across the globe are willing to go to hide, share and grow their wealth.
The Panama Papers are a group of 11.5 million leaked files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca. While what they reveal may not be a new concept to the world, the enormity of what they reveal is shocking. The papers show the extreme depths of deceptions not just the rich, but world leaders, politicians and even their families, are using to exploit secret, offshore tax regimes.
In short, some of the people using Mossack Fonseca have avoided ever having to pay taxes in certain countries. They accomplish this by using the firm, and others like it, to set up front companies in tax havens like Panama or the British Virgin Islands. They invest their money there and avoid the taxes they would have to pay in their home countries. This leak reveals that they have had help from big banks and law firms from around the globe to set up shadow companies to hold that money.
While the banks and firms may not be breaking any laws, the papers suggest that they may be looking the other way when it comes to making sure their clients aren’t breaking the law. The investigation has already revealed offenders, such as the British prime minister, pointed to Vladimir Putin and led to the resignation of Iceland’s prime minister. In total, it has revealed the offshore holdings of 140 politicians and public officials around the world – and that’s just the tip of the iceberg.
It’s an unprecedented leak that may lead to unprecedented consequences.
Taxes aren’t new, and tax evasion isn’t new. The rich have been hiding their money for centuries, even when that money was made in lawful ways, for many reasons. And while the United States has two major laws in place meant to stop tax evasion and secrecy, according to an article in The Globalist, the laws do not have enforcement provisions attached to them and therefore have been ineffective.
Even before this reveal, given the fact that financial losses from evasion activity have been steadily growing, the Organization for Economic Co-operation and Development (OECD) has tried to sponsor new regulations that would create transparency. Ninety-seven other countries have signed on to these new regulations. The Obama Administration has endorsed them, but the U.S. is holding up the entire process as Congressional Republicans have refused to sign on.
But now that the problem is so obviously out in the open, there is no avoiding the consequences. When money earned by those in one country doesn’t stay in the country it is meant to support, those that end up losing are the residents and infrastructure of that country. According to numbers reported by Global Financial Integrity and reported in The New York Times, developing economies recently lost $7.8 trillion in cash due to evasion maneuvers. And, according to a quote by Peter Atwater in the same article, it isn’t just the fact that the rich can move wherever they want using these means of evasion; it’s that the rest of the world, the 99 percent, (deserted cities like Detroit and empty, leaking chemical plants like in West Virginia) are left with the aftermath.
Facing the consequences of the leak could mean more pushing from those already behind new guidelines and could make those who were unsure stand up and take notice. And that means a reevaluation of what works and what doesn’t work in regard to our market system. There could be more scrutiny on banks, as they were facilitators of the accounts, and more regulation/taxation across the board. According to Frida Ghitis of CNN, it could be the end of secrets. She predicts that, if all of the claims turn out to be true, they will help change behavior. While being named in these papers doesn’t mean you are guilty of wrongdoing, in many cases it points to leaders who are stealing from their countries and their people.
The leak will be an arguing point for those that were already pushing for more bank regulations and higher taxation of the wealthy. And, if new regulations are enforced, this could mean a new revenue stream for the U.S. Treasury, as those who were evading taxes are forced to pay them.
The repercussions of this leak will continue to be seen and felt across the world as more and more information is revealed. While the specific effects remain to be seen, unmasking the deception that is taking place among the world’s wealthy and powerful is simply the first step toward punishing and preventing additional corrupt and deceptive practices.
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