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Pandora’s depressing déjà vu

Oligarchy is a weekly newsletter tracking how the super rich are changing the world for the rest of us. In this edition: Pandora’s depressing déjà vu; making American Samoa the fall guy

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I must admit that I’m finding the whole Pandora Papers thing a bit depressing, despite my best efforts not to. Five years ago, the Panama Papers exposed wrongdoing by rich and powerful people. Then the Paradise Papers exposed wrongdoing by rich and powerful people. And now, here we are in 2021, it seems rich and powerful people are still doing wrong, and nothing has been done about it by anyone capable of doing so.

It feels a little bit like being punched in the nose by a procession of strangers, and gradually coming to the realization that the police officer over there isn’t helping because he hasn’t noticed, or that he doesn’t care, but because he’s on their payroll.

Even the name chosen by the International Consortium of Investigative Journalists is a bit grim. I appreciate they wanted to keep to the alliterative theme established by the two previous giant data dumps, but Pandora really doesn’t help my mood.

  • “We call the project Pandora Papers because this collaboration builds upon the legacy of the Panama and Paradise Papers, and the ancient myth of Pandora’s Box still evokes an outpouring of trouble and woe,” the ICIJ explained.

Trouble and woe. Great, just what 2021 needs more of.

I’m afraid an unfortunate journalist from the BBC bore the brunt of this yesterday when he rang me up to ask my opinion on offshore ownership of London property by a particularly grim crook, and I really struggled to summon up my usual rage. He sounded close to tears by the time I was done. The issue, as I made clear in an article I wrote yesterday, and which I make clear every opportunity I get, is that we’re not fighting kleptocrats and tax-evaders here. Whatever you might read on some of the more extravagant corners of Twitter, kleptocrats and tax-evaders really don’t have a powerful lobby in the major Western wealth havens, such as the United States, Switzerland and United Kingdom. Vladimir Putin has not bought a sufficiently large number of politicians to make any difference to grand policy.

The problem is far worse than that.

The issue is that large corporations and ultra-wealthy people use offshore companies too, because these companies minimize costs, regulations, and taxes for legal money just as effectively as they do for illegal money; and their lobby is a ferocious one. As James Henry, the American economist put it a decade ago: “there’s no interest group more rich and powerful than the rich and powerful.” The expert on this is Ronen Palan of London’s City University (here’s a recent paper): he is one of the few people I know able to cut through the incredible complexity expertly erected around this simple fact.

I did a talk at a conference last month in which I laid out how British shell structures (specifically, Scottish Limited Partnerships) had hidden the ownership of hundreds of billions of euros laundered out of Eastern Europe, and how the U.K. Treasury had sabotaged efforts to better regulate these structures, because doing so would add costs to fund managers, who might leave London for Luxembourg if not treated well. You can read all about it in my next book. I illustrated what this failure to act means, by telling the story of a family I know who have been unable to access life-saving medicine because of corruption in Ukraine and contrasted the terrible sacrifice they make for the frankly trivial sums being saved by Britain’s private fund industry. As it turned out, one of the people in charge of that policy was in the room, and accused me of being “emotive”, which seems like an interestingly patronizing way to put it.

If you want to remind yourself why corruption matters, I thought this was a good read:

  • “Shadow states have a negative impact on democracy and accountability. But the damage they do goes well beyond this. It undermines inclusive development through three related processes: creating a culture of impunity, which facilitates corruption and diverts resources from productive investments; manipulating government expenditure and other public resources and opportunities to sustain the patronage networks and ensure the shadow state’s political survival; creating monopolistic or oligopolistic conditions that increase prices and enable companies with links to the shadow state to make excessive profits.”

That strikes me as a pretty high price to pay to stop a fund manager moving to Luxembourg, which – let’s face it – is a threat he probably isn’t going to follow through on anyway. But perhaps that’s just me being emotive.

In short, this problem is systemic and almost too vast to grasp, so how do we confront it without despairing?

I keep coming back to something that Daria Kaleniuk once told me, when I asked her the same question in her office in Kyiv. In case you don’t know Daria, she’s co-founder of the Anti-Corruption Action Centre, an extraordinarily resourceful and seemingly tireless collection of Ukrainians determined to improve their country by stopping its officials and politicians from robbing everyone else. Ukrainian activists have more reason for despair than most, but she and her colleagues remain hopeful and energetic, and full of ideas for how to force the pace.

  • “I don’t think about solving these problems 100%,” she said. “We’re at 5% at the moment, so I think about getting to 6%. And then, when we get there, I’ll focus on seven.”

So, the solution is to focus on small achievable goals. In the U.K., there are already two draft bills ready to go – one imposing transparency on offshore-owned property, one imposing order on Companies House – which the government could introduce if it wanted to. At present, they’re stuck in the dreaded limbo labeled “if parliamentary time allows”, but if there’s enough pressure, that time will appear. Here’s a petition you can sign which makes this point, should you want to.

In the United States, the FACT coalition has been at the forefront of efforts to clean up the country’s lousy corporate registries. It has already produced a blueprint for how the Treasury Department should implement the financial transparency legislation passed in January, but it also stressed the need for better resourcing for regulatory and enforcement agencies.

  • “While the strong implementation of new laws is important, we need to see vigorous enforcement of current laws and increased resources to tax authorities and government agencies around the world investigating financial crimes,” said Ian Gary, FACT’s executive director. “In the U.S. this means significant increases in funding for the IRS to go after tax cheats and for FinCEN to conduct investigations commensurate with the scale of the global offshore secrecy problem illuminated by the Pandora Papers.”

There are two demands to make in the two most important wealth havens: more money for enforcement, and transparency of ownership. The first reform would mean there will be more goodies chasing the baddies, and the second reform would mean the baddies will have fewer places to hide. That’d take us to 6%, and when we’ve done that, we’ll pick ourselves up and push towards seven.

BUT AT LEAST THE EU IS ON IT, RIGHT?

Fortunately, the European Union is way ahead of the competition when it comes to tackling offshore skullduggery, as shown by a new update to its “tax haven blacklist” (official title: “the revised EU list of non-cooperative jurisdictions for tax purposes”). In case you’re not aware of the list, the European Union has published this useful primer on what it’s for, and what it’s achieved since its creation.

  • “First proposed by the Commission in January 2016, the EU list of non-cooperative third countries has proven a true success in promoting fair taxation worldwide. Since the first list was adopted by Member States in the Council in December 2017, many countries have taken concrete measures to comply with tax good governance standards. With each update of the list, we see that this clear, transparent and fair process is delivering real change.”

We all know that a key problem exposed in the Pandora Papers is the way that rogue jurisdictions are able to provide shelter for illicit money, and thus shield its owners from scrutiny, investigation or prosecution. So this list sounds like a great idea. Name and Shame, that’s the spirit. As of October 5, we have a new list. Drumroll, here they are.

  • American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu.

If you’re looking at that list and scratching your head, you’re right to. There’s a reason why almost none of them have featured in the Pandora Papers leaks, and that’s because they’re not important. The significant countries – the UK, its major offshore territories; EU members like Luxembourg, Cyprus, the Netherlands, and others; the United States; Switzerland – have once again not been blacklisted.

So, yes, sorry, I lied five paragraphs ago when I said the European Union was way ahead of the competition in tackling the kind of issues exposed in the Pandora Papers. What I meant was that Brussels has once again produced its pathetic quarterly excuse-for-inaction list, which ignores the major problems and instead bullies a small selection of places too diplomatically feeble to do anything about it. Nothing at all would be better than this. Extraordinarily, the list is even worse than the last one, since the EU has removed the Seychelles and Anguilla, which have at least been involved in financial scandals in the not-too-distant past.

  • “In the next months, European governments have the opportunity to reform the EU’s blacklist. They must blacklist zero per cent and very low tax jurisdictions, set up indicators to detect where companies have fake economic activity and require transparency of their real owner. The reform must make the blacklist fit for purpose. Otherwise, the list will remain a whitewashing tool which allows the wealthiest and the most profitable companies to continue escaping their fair share of taxes,” said Chiara Putaturo, EU tax expert at Oxfam.

So here’s my achievable goal for anyone in the EU: transform this list into something worthwhile, even if it means upsetting your allies and your member states; or else drop it altogether.

WHAT I’M READING

I’m deep into Hilary Mantel’s third Thomas Cromwell novel – The Light and the Mirror — at the moment, and loving it. However, since it’s about power struggles, corruption, mismanagement, untimely death, secrets, unreliable narrators, and biased legal proceedings, it naturally has nothing to teach us about oligarchy.

But I am looking forward to seeing Catherine Belton in conversation with Ben Noble next Monday, streamed from Pushkin House in London. She’s written about Putin’s People; he’s written about Alexei Navalny; there could be few better double acts to explain what’s going on in the Pandora Papers, and what we need to do about it.

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Oliver Bullough

Oliver Bullough is an author and journalist from Wales, who specializes in writing about financial crime, often when it has links to the former Soviet Union. His most recent book is Moneyland, why thieves and crooks now rule the world and how to take it back, and he is currently trying to write another one despite lockdown.

@OliverBullough