Revelations from the Pandora Papers have unveiled searing secrets: the King of Jordan covertly spent more than $100 million on property in Malibu, Washington D.C., and London while billions of foreign aid poured into his country; Russian President Vladmir Putin’s alleged mistress acquired a luxurious condominium in Monaco months after reportedly giving birth to a child with Putin. Some of the world’s wealthiest, including 35 current and former world leaders, 330 politicians from 91 countries and territories, and various criminals have been using offshore accounts to surreptitiously move money into tax havens—and the U.S. ranks among the most popular destinations. This unprecedented leak of nearly 12 million confidential financial documents exposes a shadowy economic system that enshrines economic inequality.
Published on October 3 by the International Consortium of Investigative Journalists, the Pandora Papers throw light on the shadow economy of the affluent elites at an unprecedented scale, falling into a familiar ominous pattern of legalized corruption observed from the Panama Papers in 2016 and the Paradise papers in 2017. All of these disclosures revealed how elite financial institutions help clients stash money in offshore destinations known as tax havens, countries, or jurisdictions that demand minimal or no taxation from foreign businesses or individuals. Though tax havens themselves are legal—existing in a harmonious balance that allows companies to reduce tax burden and small nations to attract capital—the ultra-rich have often leveraged tax havens to illegally obscure wealth from taxes, inhibit investigations, and shirk public accountability by setting up shell companies or other forms of disguised ownership in offshore accounts.
The U.S. government has long been adamant about curbing foreign tax havens. “It’s a tax code that makes it all too easy for… a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all,” President Obama said during a remark on tax reform on May 4, 2009. Yet, the Panama Papers revealed the U.S. to be among the world’s greatest exploiters of tax havens. “How ironic – no, how perverse – that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour,” wrote Swiss Anaford AG lawyer Peter Cotorceanu in a legal journal in 2016. “That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA,” he added. The Pandora Papers have further testified to the truth of Cotorceanu’s satirical comment: tax havens in the U.S.’s midwestern states are now among the top venues of sheltering money alongside the Cayman Islands, Panama, and Switzerland. As a prominent case in point, South Dakota harbored $360 billion assets in trusts according to the recently released papers. Although trust companies are required to confirm the identities of all clients and pose additional scrutiny for foreign depositors, the oversight on these companies is limited at best and pernicious at worst.
Because of often-deliberately opaque legal codes, the complex offshore finance system is difficult for governments to monitor. Additionally, because of a consistent defunding of the Internal Revenue Service and other such agencies, even having the money to investigate large-scale tax fraud often poses a challenge.
As money is transferred offshore, governments find it increasingly challenging to monitor the transactions, forcing nations to resort to curbing tax avoidance and restricting tax havens from the outset. In the meantime, as select elites continue to leverage such structures, the system continues to contribute to the ever-growing economic disparities in the world. By avoiding high tax rates, billionaires deprive countries of economical resources, as what should have been tax revenues to support public funding are stashed away in private ownership. Affluent politicians who advocate for anti-corruption can escape political accountability while sitting on billions of property. Criminals who face allegations of human rights abuse, financial crime investigations, or other legal charges can withhold money from governments. Despite their glaring faults, this exploitation of legal loopholes by the ultra-rich seems unlikely to change: those who benefit from the system are the same people who are most capable of affecting the political shifts towards financial equity, leaving little incentive for reform.
Nevertheless, the leak of the Pandora Papers does provide a beacon of hope. As the publication of the papers expose hypocritical politicians, some will face immediate blows to their reputation and political careers. More importantly, the collaboration of the record-breaking team of investigative journalists suggest that in the era of digital surveillance, not only may investigative journalism become more accessible, but that these whistleblowers are more than ever committed to uncovering wrongdoing in solidarity. Thus, while the depressing truth of the Pandora Papers about the offshore economy system uniquely addresses the sharpening economic inequality of the twenty-first century, the dedicated efforts of whistleblowers behind it—in pressuring lawmakers into an accelerated course of reform—provides a cause for optimism.