In October, the International Consortium of Investigative Journalists (ICIJ) in Washington DC obtained the largest data leak known as the Pandora Papers. These files are a series of 12 million documents, emails, and images that expose how some of the world’s richest and most powerful people have been leveraging “tax havens” to hide their fortunes and financial transactions from public scrutiny. The idea is that one can hire a firm to create a shell corporation in an area, such as the British Virgin Islands, Belize, or Panama, with less stringent governmental oversight and financial regulations. These businesses can then launder money or discreetly purchase properties in offshore countries, including properties in the UK and the United States, with less trails that could easily trace the assets back to their true owners. This offshoring makes hidden fortunes easy for the rich and is influential to use in order to evade taxes, hide wealth, or obtain assets away from the public eye.
According to the International Monetary Fund (IMF), the use of tax havens has cost governments worldwide up to $600 billion in lost taxes annually. Although the use of tax havens is completely legal, the secrecy makes it more accessible for illegal activities to occur. Among those accused are Czech Prime Minister Andrej Babis, King of Jordan Abdullah Al-Hussein, former British Prime Minister Tony Blair, Russian President Vladimir Putin, and many others, for a total of 35 current and former world leaders, and more than 300 other current and former public officials and politicians around the world.
Adrej Babis, the Czech Republic’s Prime Minister who purports himself as anti-corruption, was reported to have purchased a $22 million chateau in the French Riviera through the use of companies set up in tax havens. Regarding those exposed who are in positions of absolute power, “I do think the leaders of these countries, King Abdullah and others, do worry about their reputations,” Gary Kalman commented, Director of the U.S. Office of Transparency International.
The King of Jordan, who is in a similar predicament, is in almost complete power over his country and denies wrongdoing. These monarchs face more troublesome issues other than losing their positions of power. Jordan has been receiving heavy financial aid from the United States, and a controversial information leak like this could jeopardize continued funding. Lawyers for the Jordinian King immediately released a message to the public, assuring that money used to purchase the properties was part of King Abdullah’s personal wealth and no money was meant to be used for Jordan. They added in a statement that it was “no secret that His Majesty owns a number of apartments and residences in the United States and the United Kingdom. This is not unusual nor improper.”
Those who support more transparency in the business dealings of the rich argue that although the system of off-shoring companies handling money does have practical, honest uses, it is prone to corruption; therefore, it should be eliminated.
In a bi-partison effort to curtail global corruption after the Pandora Paper’s leak, members of Congress have proposed legal action aimed to make it more difficult for “kleptocrats and other malign actors [to] hide their money.” The ENABLERS Act requires U.S.-based middlemen to undertake “due diligence” to mitigate financial transactions paid from suspicious origins. Jay Adkisson, a reporter for Forbes, describes the bill so far as “useless window-dressing.” He insists that whether or not Congress is going to do something that actually diminishes the corruption issue remains to be seen. Adkisson further points out that the U.S. is one of the largest “tax havens” for wealthy foreign investors and is heavily reliant on foreign investment to keep its economy afloat. “It has made economic sense over the years for the U.S. to enact laws and regulations to make it as easy as possible for foreign persons to invest here.” This also makes the U.S. an ideal place for those seeking to avoid laws and regulations to hide their activity. “If all this foreign money flowed back out of the U.S. at once, the economic effect on the U.S. would be catastrophic.” With more regulations, both the honest and the corrupt will have a harder time investing in the U.S.
Whether the enactment of the Enablers Act will truly make a difference with the U.S. continuing to serve as a safe haven for unscrupulous international actors is yet to be seen. Without another Pandora Papers-type data leak, perhaps we will never know how the most powerful people in the world siphon their wealth.
Written by Huan Changvu of Cabin John Middle School
Graphic by Tatiana Diomi of John F. Kennedy High School