By Tove Maria Ryding
While our ministers have been delivering speeches about the importance of a healthy financial system, transparency and global tax justice, it seems an international group of financial experts, bankers, lawyers and middlemen have been busy racking their brains to solve the riddle: “How do you make trillions of dollars disappear into thin air?”
They’ve come up with a lot more than the good old “stuff your money in your mattress”. In fact, when it comes to doing magic tricks with money, the financial industry has proven to be a regular group of Harry Potters.
Golden opportunity to fix flawed EU regulation
It has long been known that companies and other legal structures that are anonymously owned and controlled are a key mechanism used to launder money and hide fortunes in tax havens. Despite this, the political leadership and will to take action has so far been limited, even though the EU’s Anti-Money Laundering Directive – a key directive and an opportunity to close the loopholes that make financial secrecy and illicit financial flows possible – was opened up for revision some months ago. But the political opportunity is still there and the directive review provides the key moment to ensure public registries of the real owners of companies, trusts and foundations. Armed with this information, governments, researchers, media and citizens will gain insights into our financial system through public registries, instead of through scandal stories on the front page of the world’s newspapers.
A flood of secrets
Scandal stories were exactly what started hitting the newspapers all over the world last week, revealing very intimate details about the magic tricks up the sleeves of the financial industry, as well as the identity of the people who used them to hide their secret money. After digging through more than two million leaked documents, summarising up to 260 gigabytes of information concerning more than 170 countries globally, the International Consortium of Investigative Journalists (ICIJ) has documented the artificial shell companies tied together in structures designed to confuse, mislead and create a dead end for anyone searching for the truth.
This global financial scandal, which quickly got nicknamed ‘offshore leaks’, includes details about how major European banks, including the French banks PNB Paribas and Crédit Agricole, as well as Germany’s largest bank, Deutsche Bank, have been setting up shell companies in offshore tax havens to offer clients financial secrecy and low or no taxes. The same is true for several Swiss banks and more than 100 Swiss lawyers.
In France, the former campaign treasurer of French President François Hollande, Jean-Jacques Augier, was one of the individuals revealed as an investor in offshore business in the Cayman Islands. In the UK, The Guardian has launched a so far unsuccessful search for an unknown woman who, as the official director of more than 1,200 companies, is apparently running what would have to be one of world’s biggest business empires. And in crisis-hit Greece, journalists found more than 100 Greek-owned offshore companies that the Greek authorities had never heard of.
Outside Europe, many more outrageous facts were published, involving convicted criminals, high-level ministers and even heads of state all over the world.
The state of the offshore world shouldn’t come as a surprise to anyone. For years, broad coalitions of non-governmental organisations (NGOs), including Eurodad, have been pointing out this problem and explaining the technicalities of the tax dodging world as well as the extremely negative impacts it is having on the world’s poorest. We have been calling for political action to stop it but the response from governments has been very limited and insufficient. However, this often very technical discussion has now been brought to life as rich people’s dirty laundry is suddenly spilling out through newspaper headlines.
ICIJ has made it clear that much of the exposed activity (although far from all) is in fact legal. But that is actually one of the central points in the discussions about the EU’s Anti-Money Laundering Directive: should tax crimes be included on the list of crimes that qualify as money laundering offences? So far, this proposal has not received support from EU member states. However, as the stories about how the mega-rich are violating our tax laws and hiding their billions continue to pour out, it’s clear that public patience is running out and the call for consequences is growing.
Governments feeling the heat
Responding to the offshore leaks, French President François Hollande yesterday called for “eradication” of the world’s tax havens. Together with the Belgians, Germans and several other governments, the French have also demanded access to the leaked data. This, however, only raises the obvious counter-question:
Why haven’t you governments collected this information yourselves?
Other governments are also feeling the pressure. In Luxembourg, which has otherwise been known to resist EU initiatives on increased transparency, the government has now expressed a willingness to strengthen the EU exchange of bank information. The rumour about increased financial transparency seems to be causing nervousness among rich tax evaders. For example, the Danish paper Politiken reports Danes urgently withdrawing their fortunes from Luxembourgian banks and driving off with the cash in the back of a car. The European Commission responded to the message from Luxembourg by asking Austria to follow their example – a request that has clearly turned up the heat on the Austrian government.
Also the private sector seems to be responding the growing pressure. In Switzerland, several banks have now given German customers an ultimatum: Prove to us you’re not evading taxes, or find yourself another bank.
In Denmark, the government has offered a 60% reduction in fines, no jail time and full discretion for all tax evaders who confess to the authorities before 30 June 2013 – an offer that many wealthy Danes are expected to make use of.
Meanwhile, in the UK, the fact that a major part of the documented activities have centred around British overseas territories (such as the British Virgin Islands and Cayman Islands) has raised questions about the role of the UK government, which is otherwise known for its progressive rhetoric on action against financial secrecy.
Another tragic chapter in the global financial system
‘Offshore leaks’ also adds another scary twist to the financial crisis, which has already become a Greek tragedy, in more than one sense of the word. After learning how bad practices and irresponsible behaviour in the financial industry served as the fuel that kicked off the global financial crisis, citizens all over the world have seen their hard-earned tax money being channelled into political packages to bail out our banks. Meanwhile the global economy keeps on spinning downwards. Many ordinary people have already had to pay for the crisis with their jobs and their homes. And in the world’s poorest countries, the financial crisis is the key argument presented to explain why the amount of official development assistance keeps dropping.
But this is where offshore leaks enter the stage, shining the spotlight on a very sad fact. While the rest of the world is struggling, members of the very same banking sector that was bailed out with our tax money has teamed up with a global web of lawyers, accountants and middlemen to help the world’s mega-rich, corrupt politicians and other criminals hide away their billions of dollars from tax authorities and, in some instances, prosecutors.
It is a relief to hear governments express a will to take strong action and solve these problems. However, it’s now crucial to remind our governments that time is of the essence. The more time we leave for tax evaders to come up with new and even dodgier ways of hiding their billions, the longer this sad chapter in the history of our financial system will continue. In this case, time really is money – and now is the time for global transparency and tax justice.