The financial crisis and resulting austerity drive have drawn attention to avoidance.
No one used to care about offshore finance. Or at least, hardly anyone.
Back in 2003, recalls Alex Cobham, now head of research at the Tax Justice Network, a small band of activists started lobbying against what they saw as the insidious role of tax havens. The campaigners would spend months trying to get meetings with the right policymakers, only to be told: “We have no idea what you’re talking about.”
Today, the offshore world has become a lightning rod for public anger at a global elite perceived to be using the hidden conduits of the international financial system to stash their fortunes beyond the taxman’s reach.
Millions of leaked documents from the Panamanian law firm Mossack Fonseca represent the largest - but only the latest - milestone in offshore finance’s reluctant journey into the public eye.
“The real tipping point was the financial crisis,” says Mr Cobham. “People experiencing austerity have a different kind of interest in the decisions that are taken about taxation and spending.”
Since then, tax evasion and tax fairness have moved from the policymaking fringe to become the subject of parliamentary hearings, a central issue in a US election season dominated by populist anger, and the underpinning of new financial transparency rules spearheaded by the G20.
Meanwhile, star economists such as Thomas Piketty - and his student, Gabriel Zucman, author of last year’s The Hidden Wealth of Nations: The Scourge of Tax Havens - have found plenty of takers for their argument that inequality is a threat to democracy, and that the offshore system worsens that problem.
If a single person can be credited with drawing popular attention to the offshore world, it may be Bradley Birkenfeld. The banker resigned from UBS in 2005 and proceeded to disclose to the US authorities how his former employer had helped Americans evade tax. In 2007 he told a Senate investigation that thousands of US clients had shielded their cash from the tax authorities.
The Senate probe lifted the lid on some of the techniques of offshore secrecy, in particular the use of shell companies registered in offshore tax havens - or “secrecy jurisdictions”, as campaigners call them - such as the British Virgin Islands and the Bahamas.
In 2009, UBS agreed a settlement with US prosecutors that included a $780 million (CHF743 million) fine for enabling tax evasion.
Dozens more Swiss banks have reached settlements and Credit Suisse in 2014 incurred a $2.6 billion penalty. In the process the banks blew a hole in the discretion that had been their trademark.
There were also more parochial scandals that resonated with taxpayers watching their welfare systems take deep cuts after the financial crisis.
A defining moment came on June 21, 2012, on the Twitter feed of British comedian Jimmy Carr. When his use of a legal tax avoidance scheme was revealed two days earlier, Mr. Carr declared: “I pay what I have to and not a penny more.” After less than 48 hours, during which David Cameron, UK prime minister, described such conduct as “morally wrong”, the comic tweeted that he had made “a terrible error of judgment” and “will in future conduct my financial affairs much more responsibly”. The episode “showed that the world had changed”, says Mr. Cobham.
Analysts of poverty have long been concerned that the structure of multinational businesses allows them to shift profits - and thus tax liabilities - away from countries in Africa or Asia where they operate to places where corporation tax rates are minimal.
In 2014, a team led by Thabo Mbeki, former South African president, estimated that Africa lost $50 billion a year in government revenues to accounting fiddles, often involving tax havens. The same year, the International Consortium of Investigative Journalists - the group behind this week’s Panama Papers disclosure - revealed secret deals approved by Luxembourg that allowed about 350 companies to cut their global tax bills.
In the UK, stories about tax were suddenly afforded outraged headlines on front pages. A notable example was a 2012 Reuters investigation of Starbucks’ tax affairs that revealed the US coffee group had paid just £8.6 million (CHF11.56 million) of UK income taxes since 1998 on £3 billion of sales.
Campaigners against financial secrecy have already seized on the Panama leaks to push for concerted action at an anti-corruption summit Mr. Cameron is hosting in London next month. The prime minister - whose late father is reportedly named in the leaked papers as a Mossack Fonseca client - is said to see combating corruption as part of his legacy.
If he plans to use public anger to make his case, the available reserves thereof have just been topped up.
Copyright The Financial Times 2016
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