Pandora Papers: How the powerful hide wealth offshore

by Lin Taylor | @linnytayls | Thomson Reuters Foundation
Monday, 4 October 2021 16:35 GMT

A general view shows buildings in Panama City, Panama October 3, 2021. REUTERS/Aris Martinez

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The 'Pandora Papers' documents allegedly tie hundreds of politicians and officials to opaque offshore accounts and tax havens. What can be done about a system that - though legal - deprives governments of billions in lost revenue?

By Lin Taylor

LONDON, Oct 4 (Thomson Reuters Foundation) - The world's tax havens look set to face renewed scrutiny following a huge leak of financial documents dubbed the "Pandora Papers", which shine a light on how politicians and public officials make use of opaque offshore accounts and tax havens.

The disclosure of more than 11.9 million records came five years after the "Panama Papers" expose showed how money was hidden by the wealthy in ways that law enforcement agencies could not detect.

The International Consortium of Investigative Journalists (ICIJ), a Washington-based network of reporters and media organisations, said the files are linked to about 35 current and former national leaders, and more than 330 politicians and public officials in 91 countries and territories.

Many of the prominent public figures identified in the Pandora Papers were from developing nations including Jordan's King Abdullah and Kenyan President Uhuru Kenyatta, as well as close advisors to Pakistani Prime Minister Imran Khan.

READ MORE: Key findings of leaked Pandora Papers on offshore wealth

So what is a tax haven and why are they facing scrutiny?

What is a tax haven?

A tax haven is a country or territory where a taxpayer, either an individual or company, can get a lower tax bill overseas than at home.

This is because most tax havens have very little or no corporate tax, which means foreigners can quickly and legally establish offshore accounts with "shell companies".

A shell company is a business that is not commercially active and exists only on paper, making it harder to track down who is ultimately in charge of it.

For example, the Pandora Papers found King Abdullah had amassed about $100 million worth of property in the United States and Britain via firms registered in tax havens like the British Virgin Islands. 

Meanwhile, Czech Prime Minister Andrej Babis moved $22 million through offshore shell companies based in the British Virgin Islands and Washington, D.C., to buy an estate on the French Riviera in 2009 while keeping his ownership secret.

Babis and representatives of Abdullah denied wrongdoing in the respective cases.

Where are these tax havens?

The British Virgin Islands, the Cayman Islands and Bermuda are the "most complicit" in helping multinational corporations evade taxes, according to the Tax Justice Network, a British-based advocacy group. 

The Pandora Papers included nearly 12 million documents and files from 14 financial services companies in countries including the British Virgin Islands, Bermuda, Cayman Islands, Panama, Cyprus, Singapore and Switzerland.

All of those countries are considered tax havens by the Tax Justice Network.

If it is legal, what is the problem?

While legal, tax havens are widely questioned by policymakers and campaigners.

Tax havens collectively cost governments between $500 billion and $600 billion a year in lost corporate tax revenue, according to the International Monetary Fund. 

Poorer countries lose at least $100 billion every year because of tax havens, according to international aid group Oxfam. Africa alone loses $14 billion in tax revenues annually, it added.

Wealth obtained from unscrupulous methods such as bribes can also be hidden away in tax havens in this way, critics say.

How is the issue being addressed?

In June, the G7 reached a landmark deal to back a minimum global corporate tax rate of at least 15%, which would reduce multinational companies' incentive to shift profits to low-tax jurisdictions including tax havens.

A month later, 130 countries - as well as many noted tax havens such as Bermuda, the Cayman Islands and the British Virgin Islands - also backed plans for a 15% minimum tax rate.

The Paris-based Organisation for Economic Cooperation and Development (OECD), which hosted the talks, said a global minimum corporate tax of 15% could yield around $150 billion in additional global tax revenues annually.

But Oxfam has argued that the minimum corporate tax rate should go further and be at least 25%.

(Reporting by Lin Taylor @linnytayls, Editing by Sharon Kimathi and Helen Popper. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

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