Tax Havens: How The Powerful Hide Their Money

Tax Havens: How The Powerful Hide Their Money
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The recent “Pandora Papers” consist of 12 million documents and files that expose the hidden wealth, tax avoidance and, in some cases, the money laundering done by world leaders, politicians and billionaires. The leaks reveal the secret deals and hidden assets of more than 330 politicians and high-level public officials in more than 90 countries and territories, including 35 country leaders.

The International Consortium of Investigative Journalists (ICIJ) obtained the financial records containing 2.94 terabytes of confidential information from 14 offshore service providers that were set up to manage shell companies and trusts in tax havens around the globe. The Washington, D.C.-based nonprofit newsroom consisting of a global network of journalists shared the files with 140 media organisations like the BBC, Washington Post and the Guardian to name a few, launching the broadest collaboration in journalism history.

The reports had more than 600 journalists in 117 countries who had been searching through the files for two years led by the ICIJ, finding stories that will be published this week. The Pandora Papers have once again brought into focus how secret tax havens are being used for illicit purposes by the rich and powerful to avoid paying taxes or to fund criminal enterprises.

What Are Tax Havens?

The term ‘offshore banking’ was coined in reference to island nations with lax taxation rules used by the wealthy to hide their assets. However, the term has now evolved to places outside of a person’s home country where they can hide their money without having to abide by the rules where they live. The Pandora Papers have revealed destinations like Belize, British Overseas Territories such as the Cayman Islands and the British Virgin Islands, Singapore, Cyprus, Switzerland as well as the state’s of South Dakota and Delaware in the US as some of the hotspots for offshore accounts.

These destinations are often known as tax havens or secrecy jurisdictions. What makes these places attractive for offshore accounts is the ease with which organisations and individuals can set up shell companies where a company exists in name only, with no staff or office. The laws help shelter the identity of the owners of these companies as well as have low or no corporation tax. 

Setting up such companies involves spending large sums of money. According to the report, “Aleman, Cordero, Galindo & Lee, or Alcogal, was involved in creating shell companies to move money for Jordanian King Abdullah II, Czech Prime Minister Andrej Babis, Montenegro President Milo Djukanovic and three former presidents from Panama.” Such specialist firms are paid to set up and run shell companies on behalf of the wealthy. These firms also provide the addresses and names of paid directors, thus, protecting the rich and powerful, leaving no trail of who is ultimately behind the business.


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A Legal Source For Illegal Activities

There are no laws against offshore accounts, which make them completely legal. Therefore, wealthy individuals who have been implicated under the Pandora Papers have maintained their innocence as no laws have been broken. However, according to the ICIJ, the secrecy involved with these accounts makes them a good shelter for illicit money flows, enabling bribery, money laundering, tax evasion, terrorism financing, human trafficking and other human rights abuses.

The leak has uncovered that these tax havens have provided political leaders of poorer nations an opportunity to steal from government treasuries whose funds are supposed to be used for the welfare of the people, to build roads, schools and hospitals. Instead, findings reveal that international leaders have themselves secretly moved money and assets beyond the reach of tax and law enforcement authorities.

The Pandora Papers documents span five decades, from 1996 to 2020. It is difficult to estimate the exact amount discovered under these offshore accounts but the estimates have ranged from $5.6 trillion to $32 trillion, according to the ICIJ. The revelation uncovers information of more than 29,000 beneficial owners. The International Monetary Fund has highlighted that the use of tax havens has cost governments worldwide up to $600bn in lost taxes each year.

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