Paradise Papers: ‘There’s All Kinds of People Who Have Their Snouts in the Trough Here’

17 November 2017 — FAIR

 International Consortium of Investigative Journalists' Paradise Papers

International Consortium of Investigative Journalists’ Paradise Papers

Janine Jackson: Establishment media cover poverty sometimes, sometimes in a compassionate and compelling way. And they cover wealth and the rich, sometimes, sometimes in a thoughtful and critical way. When the discussion called for is about the relationship between the two, the limits of media’s spotlight approach are salient. Such a case may be presented by the Paradise Papers, a trove of some 13 million documents leaked to German newspaper Süddeutsche Zeitung and then shared with the International Consortium of Investigative Journalists, that describes various tax-hiding and avoidance schemes used by politicians and celebrities, along with corporations.

Stories like the New York Times’ “Paradise Papers Shine Light on Where the Elite Keep Their Money” make it all seem pretty dog-bites-man. We read cases like that of Twitter investor Yuri Milner, who used money from a Russian state-controlled bank, or the hedge funder who hid money somehow in Bermuda. But without serious interrogation of the impacts, it comes off a bit like profiles of people who are richer than you and also smarter, especially as so much coverage seems to pivot on the fact that these activities are not illegal.

So what’s the next step on disclosures like these? How do we move them from journalistic feat to drivers of real change, and what sorts of changes do they suggest are necessary? Joining us now to discuss the Paradise Papers is investigative economist James Henry. He’s a senior adviser at the Tax Justice Network, senior fellow at Columbia University Center for Sustainable Investment, and a contributor to the 2016 book Global Tax Fairness. Welcome back to CounterSpin, James Henry.

James Henry: Good to be with you.

JJ: We can’t cover them all, naturally, but what are some of the sorts of mechanisms or maneuvers that are revealed in these documents, that mainly come from this place Appleby, a Bermuda law firm that specializes in offshore funding?

JH: The big picture take-away from this is that we have, really, a global haven industry that consists of a whole lot of enablers, like Appleby, and other law firms mentioned in this include US law firms like Baker McKenzie, the big accounting firm KPMG…. We’ve seen this pattern over and over again. But basically one story here is that this industry has now expanded to the point where at least $30 trillion of private offshore wealth, maybe $3 trillion of corporate wealth, is offshore, beyond the reach of tax authorities. So that’s about 12 percent of total world financial wealth.

And if you went back 30 years, when I started writing about this in the ’80s, they were talking about 15 havens. Now there’s more than 90 offshore. The Paradise Papers are the latest installment. A lot of the journalists writing on this are under the age of 35, and are writing about it for the first time, but I’m just impressed with how long we’ve known about it, and how little we have done effectively to clean it up.

JJ: And when you start to talk about the amounts involved, it moves us directly onto the impact. One can imagine, of course,  what could be the impact of that amount of money if it was actually taxed and actually could contribute to the public coffers in the way it was intended.

JH: We have a big problem, not so much with tax-dodging, but with kleptocracy. It’s a problem of public officials helping themselves to the public wealth and moving it offshore to these havens, financial secrecy jurisdictions, where they can hide it beyond the reach of the home country. I worked on a project involving Angola, where the son of the dictator was basically using the sovereign wealth funds as a kind of ATM, $5 billion moving offshore to havens like Mauritius, which is an African tax haven, with the help of US banks and KPMG and Swiss tax advisers.

So you have to imagine the global haven industry as not just about tax havens. There’s a kind of a Star Wars bar scene of clients here. You have the kleptocrats, you have the giant multinationals like Apple, Nike. Both of them were mentioned in the Paradise Papers as moving assets offshore, beyond the reach of tax authorities, paying themselves royalties tax-free. Then you have mobsters, and then you have the royals. We saw the Queen and Prince Charles mentioned in these papers. Bono the rock star, who likes to worry about development issues; in this case, it turns out he’s been pretty aggressive in use of tax havens to shelter his own income.

James Henry (image: Great Canadian Tax Dodge)

James Henry: “This industry is probably one of the most influential on the planet in terms of lobbying, political contributions. So it’s not so much that we lack the technical ideas to clean up the industry, but we have lacked the political will.” (image: Great Canadian Tax Dodge)

So there’s all kinds of people who have their snouts in the trough here, and the basic thing they’re sharing is this access to financial secrecy, which, you know, without these leaks we wouldn’t know all this stuff. I think that that’s the problem that the world really fails to address, because this industry is probably one of the most influential on the planet in terms of lobbying, political contributions. So it’s not so much that we lack the technical ideas to clean up the industry, but we have lacked the political will.

One thing that comes out of this that I think is really important, is it sort of lays the foundations for a different system of taxation to get at this stuff. And I have proposed, Jeffrey Sachs has proposed, a global wealth tax, which really goes at the top class in the world, a 1 to 2 percent per year tax on wealth, especially anonymous wealth. Most of this stuff we don’t know where it is. If you just withheld against it, you don’t really have to know who owns it.

JJ: Right.

JH: But we’re facing a situation where in order to, say, realize the development goals that we’ve established for the world’s poorest economies, by the year 2030, we need about $80 billion a year. And this kind of revelation just justified the imposition of a cross-country wealth tax on billionaires and high-net worth individuals with assets more than $30 million, and you could easily raise the money that we need.

JJ: And let me just say, that is leapfrogging—the response that you’re talking about, it leapfrogs this whole question of legality, which it seems like a lot of reporters are getting almost hung up on. First of all, secrecy begs the question of legality. [If] you don’t know what’s going on, you can’t even talk about what’s following the law. And then you have made the point that places are invested in this business model, and so the sanctions may not exist. But that’s also part of the problem.

JH: The legality defense of this activity is really the standard defense you hear from the havens every time this comes up, and it’s such a red herring. The point is, first of all, in a lot of countries, like let’s say Angola, these activities aren’t illegal because they control the show. Secondly, in the First World countries, like the United States and the UK and Switzerland, where a lot of this money ends up ultimately, they have devised very complicated legal structures. And so the question of what is legal is really a whole process, involving lots of interpretations and laws. Even if you knew what these people were up to, it would be hard to pronounce.

The way it works in an accounting firm like KPMG is they say: “What’s legal? We define it as tax structure that has a 50 percent chance of surviving an audit.” So it comes down to a kind of probability distribution. There is no bright line between legal and illegal. But that’s just a standard kind of response. The real point is this stuff should be illegal. Whether it is or not is a question for thousands of lawyers.

JJ: Let me just take you back to the big picture for a moment, because I find myself — you know, my frustration in reading some of the coverage comes from the other media that I know exists out there, the media climate, which propagates this view that basically poor people take from the state, and rich people don’t rely on the state and therefore owe nothing to it. There’s an ideological problem here that these bombshells don’t seem to break through.

JH: Well, that’s right. The problem really is a political one, where have to educate people about what’s going on. I mean, many of the largest fortunes on the planet derive from state activity, have benefited from it in many, many ways. These people have enormous amounts of, I guess, representation without taxation. So they really want to control the political system, and influence it directly on a host of policy issues that are favorable to them.

But on the tax side, they really want us to go back to the Middle Ages, when we had peasants pay all the taxes and the landlords and the feudal lords paying nothing. I don’t think that’s a recipe for a healthy democracy. You know, the United States was at the forefront of designing and defending a progressive tax system, and the current trends are in the opposite. We’re going to end up with middle class and the poor paying all the taxes, and the wealthy just taking advantage of globalization to offshore their wealth.

JJ: It seems a good point to mention, I had left it out, but the same CNBC analyst who had told us that Trump’s tax plan is the farthest thing possible from a plan for the 1 percent, he had this to offer, and I’ll just leave you with this. “What’s the biggest take-away from the Paradise Papers leak? America needs tax cuts—now.”

JH: Well, that’s ridiculous. That’s absolutely false. Historically, we’ve had 30, 40 years of tax cuts, the corporate tax has been chopped again and again. Also on the individual side. We’ve been engaged in a race to the bottom with other countries around the planet. No major US multinational pays anything like a 35 percent corporate tax rate. You know, Apple’s average tax rate is less than 5 percent, because they take advantage of the offshoring that they’re already able to do. And the average effective rate for corporations, including small business, in the country is about 12 percent right now, after all the tax breaks.

Furthermore, these companies are the most powerful and most successful in the world. They’re at an all-time high in terms of stock market valuation and corporate profits as a share of national income.

So it’s just ludicrous to propose that the United States somehow is suffering. What we would suffer from would be a gigantic inflated deficit if this tax bill were passed, on the order of $2 trillion, which, you know, I thought the Republicans were opposed to that. But it would be an immediate $800 billion gift to the top hundred companies on the planet, that have stashed $2.6 trillion offshore, because the first stage of it would give them a 5 to 10 percent tax rate on any of that that they rebated, without conditions. And so that would be a huge payday for them.

JJ: We’ve been speaking with James Henry. He’s a senior fellow at Columbia University Center for Sustainable Investment, a global justice fellow at Yale University, and senior adviser at the Tax Justice Network. James Henry, thank you so much for joining us this week on CounterSpin.

JH: You’ve very welcome.

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