Jonny Rogers reflects on some of the most shocking revelations in the Pandora Papers.
Photo by Sebastiaan Stam
For the past two years, the International Consortium of Investigative Journalists (ICIJ) has been searching through millions of files with the help of over 600 journalists in 117 countries and territories as part of the “largest investigation in journalism history”.
Their findings – the Pandora Papers – were published in October 2021, exposing the underside of a ‘shadow economy’ which conceals and fortifies the wealth of some of the richest people in the world through offshore dealings.
Like the mythological figure after whom the Pandora Papers are named, the ICIJ claimed that they were “opening a box on a lot of things”. However, unlike the ancient myth, this particular box has not released evil into the world, but rather aims to expose the corruption that already pervades the global economy beyond public knowledge.
How the Wealthy Benefit from Tax Havens
Offshore companies are set up in countries or territories where there is low or no corporation tax, such as the Cayman Islands, the British Virgin Islands, Jersey, Cyprus or Switzerland. Legal loopholes enable people to avoid paying taxes in their native countries by transferring wealth to ‘shell companies’ registered in these places which typically do not have any employees or offices, but exist only as a name. A single office building in the Cayman Islands is the registered home for over 19,000 companies, for example.
Although anyone is able to establish a shell company, they are usually managed by intermediary agents: banks, law firms or offshore providers. For a price, accountants can help wealthy clients establish a network of trusts to conceal assets from interested parties, such as law enforcement officials, spouses or even the general public.
While there are legitimate reasons to secure assets in other countries – such as providing protection from unstable governments or criminal activity – the use of offshore companies to facilitate tax evasion is fiercely criticised within international media, forming the basis for numerous political campaigns.
Former US President Barack Obama called for the cessation of offshore tax havens over a decade ago, with the US Treasury Department issuing regulations to prevent “corporate inversions” in 2016. However, Donald Trump later discouraged corporations from securing wealth in offshore companies by instead cutting taxes for corporations established in the United States.
According to the latest reports from ICIJ, there are more than 800,000 known offshore entities (including companies, foundations and trusts), many of which can be directly traced to the global ‘elite’. This elite includes 35 current and former world leaders, more than 330 politicians and public officials, billionaires, celebrities and criminals.
Some estimates suggest that up to $32 trillion (£24 trillion) is safeguarded by these offshore companies, while the ICIJ declare that “at least $13 trillion is held offshore”.
Who is Benefiting from Offshore Tax Havens?
Political figures listed by the Pandora Papers include Abdullah II, King of Jordan, who has used shell companies to purchase luxury properties worth more than $100 million around the world; the family of Ilham Aliyev, President of Azerbaijan, who has traded London properties worth more than $500 million; and the current leaders of the Czech Republic, Ecuador, Kenya, Gabon, Congo, Lebanon, Côte d'Ivoire, United Arab Emirates, Dominican Republic, Montenegro, Ukraine and Qatar.
Former Labour Prime Minister Tony Blair was revealed to have saved around £312,000 in tax after purchasing a London office worth £6.45 million by establishing another company which dissolved the offshore firm that owned the property. While this process is not illegal, it is strikingly contradictory with some of his previous remarks. In his first speech as Labour leader in 1994, Blair said: “Offshore trusts get tax relief, while homeowners pay VAT on insurance premiums. Middle-income taxpayers get stung, while perks and privileges at the top roll on unstopped.”
It is worth noting, however, that the Pandora Papers are non-exhaustive as a list of tax haven beneficiaries; there is no reason, for example, why people cannot use family members or close associates as a means of hiding their wealth in other accounts. As such, there is no way of knowing exactly how many people are presently benefitting from offshore tax evasion, nor whether those connected to shell companies have legitimate reasons to secure their wealth (having declared these interests to the relevant authorities).
One of the most surprising revelations concerns Svetlana Krivonogikh, a former cleaner who owns properties and other assets in Saint Petersburg and Moscow worth an estimated $100 million. In 2020, around a year before the publication of the Pandora Papers, Proekt Media claimed that Krivonogikh’s daughter is the child of Vladimir Putin. While Putin has not been explicitly traced to a shell company, many of his close associates – including oil magnate Gennady Timchenko and CEO of Channel One Russia Konstantin Ernst, in addition to Svetlana Krivonogikh – have been identified by the Pandora Papers.
Injustice in an Age of Wealth Disparity
While offshore companies most often operate within the law, it is apparent that some world leaders are using their position of power to protect personal wealth and conceal assets that could undermine their public integrity. For example, King Abdullah II was buying numerous luxury properties around the world while Jordanian citizens protested against unemployment, inflation and political corruption as part of the Arab Spring.
Nevertheless, the Pandora Papers, like its predecessors, possess significant political and social influence. Former Czech prime minister Andrej Babiš lost the 2021 elections at the same time that the Pandora Papers exposed his use of shell companies to purchase a $22 million villa in France, despite his claims of innocence. In 2016, Iceland’s prime minister Sigmundur Davíð Gunnlaugsson resigned from office following the revelation that he and his wife bought an offshore company in 2007, having failed to declare his financial interests when entering parliament in 2009.
Alex Cobham, CEO of the Tax Justice Network (TJN), claims that “about half the world’s GDP is potentially hidden from us”. According to research from TJN, around $483 billion (£365 billion) is lost due to tax evasion through both cross-border corporate tax abuse by multinational corporations and offshore tax evasion by wealthy individuals.
“This is not a marginal practice. It is a dominant part of the world’s financial system.” – Alex Cobham, Tax Justice Network
When public wellbeing is directly tied to access to healthcare, education, infrastructure and technology, many feel that avoiding investment in public interests – not least by those with the power, privilege and wealth to make a difference – is simply inexcusable. Although tax havens will not be dissolved overnight, the Pandora Papers are helping to expose the hidden structures that support wealth inequality around the world.
Article on a similar topic: The Politically Connected Profiteers of the Pandemic
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