Relaunching the fight against offshore finance

Editorial of the “World”. Since the publication of the “Offshore Leaks” in 2013, the International Consortium of Investigative Journalists (ICIJ), whose The world is a partner, contributes to revealing the underside of the cards of a shadow finance based on tax evasion. The last part of these investigations, the “Pandora Papers”, published this week, sheds new light on the extent of the phenomenon and the intimate details of its operation.

What is the common point between Abdallah II, king of Jordan, Tony Blair, the ex-British Prime Minister, Raffaele Amato, one of the leaders of the Camorra, whose character inspired the fiction Gomorra, and Dominique Strauss-Kahn, the former director of the International Monetary Fund (IMF)? All of them have had recourse to offshore structures, some run by front men, whose sole purpose is to hide the value and origin of their heritage.

In 2016, the “Panama Papers” unveiled the practices of Mossack Fonseca, an intermediary specializing in this type of assembly. The “Pandora Papers” relate to the activity of fourteen establishments of the same type, the confidential data of which was transmitted to the ICIJ by an anonymous source. The variety of profiles of their clients and the amount of sums concealed are giddy.

As their name suggests, these revelations are a Pandora’s box, which reveals a hypertrophied system, whose outlines are difficult to pinpoint. To tackle this financial evaporation, it would be necessary to start by carrying out an international audit to know precisely how much it amounts to.

Shadow finance adapts

The “Pandora Papers” also show that the movement for regulation and transparency initiated since 2008 is starting to bear fruit. The grossest tax evasion, practiced in confused states, is on the decline. On the other hand, this shadow finance is adapting. Financial flows are now transferred to powerful states, which are much less easy to bring into line. This is the case of Dubai, but also of the United States.

The cover-up has also changed in nature. It is no longer just about tax evasion. These offshore centers are increasingly the receptacles of activities linked to serious crime and money laundering.

This change requires resizing the fight against offshore finance. The fact that dozens of political leaders are involved in these contentious arrangements indicates that the challenge promises to be gigantic. How to reform a system in which certain decision-makers are involved? One of the avenues is to re-establish a blacklist of states that host this type of structure. This work could be carried out under the aegis of the Financial Action Task Force. So far, this body has been little active, but collaboration with the Organization for Economic Co-operation and Development (OECD) and the IMF could lead to a system of sanctions for the countries appearing on this list.

The survey also reveals the role played by law firms, whose economic model is partially based on arrangements that help to cloud international financial flows. The obligation of transparency which has been imposed on banks must also be applied to them.

There remains the thorny problem of the United States, which is playing a double game. While pushing for more regulation when it serves their interests, they shelter tax havens with complete impunity. Joe Biden, who encourages global tax reform, would gain consistency and credibility if he put an end to these contradictions.