Pandora Papers revelations can weaken democracy

When we published the Panama Papers five years ago, we knew that this leak would not be the only one. Indeed, shortly afterward we were passed the Bahamas Leaks, then the Paradise Papers. The FinCen Files followed, sent by a brave whistleblower to our colleagues at Buzzfeed. 

And now there are the Pandora Papers, possibly the biggest leak yet from the world of tax havens. The papers reveal how hundreds of politicians — including the leaders of 35 countries — have been hiding their money in shell companies, trusts and foundations.

This takes us to the core of the problem: politics.

Booming offshore business

The existence of tax havens has been known for years. And the fact that shell companies are used by tax evaders, fraudsters and other criminals is equally familiar. Despite this, there has so far been little willingness to really change anything.

Investigations have been launched, some politicians have stepped down, and some were even put behind bars. A few laws were also tightened. At last, there are more countries with a register in which it is possible to look up who really owns companies. The G20 nations even agreed on a global minimum tax rate, though it is a ridiculously low 15% and applicable only to large corporations.

But no decisive move has been made. And the big business of offshore finance has continued unperturbed.

We are far from having the practical means that would permit international investigators to rapidly exchange information, and further still from any sanctions on tax havens. Indeed, how would this be possible when one of the biggest tax havens in the world is the United States, of all places. The US states of Delaware, Nevada and Wyoming have been under fire for years, but nothing has been done. In fact, when the tax haven of the Bahamas tightened up its laws under pressure from the United States, many offshore clients simply took their business elsewhere — to the US state of South Dakota.

Political irresponsibility

US governments have long been at the very forefront when it comes to calling on other countries to be more transparent and to turn away from dirty money. But at home, in their own backyard, they do not look as closely. The swindlers of the world are grateful for it.

But, if it is hypocrisy you are looking for, you don't need to go so far abroad. The European Union is hardly wrapped in a shroud of glory in the fight against tax havens. Just two days after the first publications from the Pandora Papers, the EU's finance ministers took Dominica, Anguilla and Seychelles off the tax haven black list — at a meeting in Luxembourg, the picturesque tax haven in the heart of Europe.

How are we meant to explain to people that politicians have not taken action for years while at the same time we constantly reveal them to be beneficiaries of the offshore system? That the very actors in society who could and should put an end to this dire state of affairs have profited from the system? That they have taken barely any remedial steps since the Panama Papers? 

All this is, indeed, difficult to explain.

Yet much is at stake. Almost every problem of the present day has something to do with tax havens, shell companies and shadowy trusts or foundations. Be the issue climate change, corruption, financing of terrorism or the ruthless exploitation of entire continents, a link to shell companies is always quickly found because such an arrangement is almost always used in an effort to obliterate any incriminating traces.

At the same time, the world of tax havens is a world of the rich and the superrich. Doing offshore business means not only fewer taxes but also the liberty to choose which laws to comply with. That starts with taxes but also affects rights of inheritance and laws on liability and debt. And this is an unacceptable problem for society.

Fight for democracy

Permitting a small number of people to choose the laws that apply to them will create a two-class society: the offshore world and the rest of the world. People will no longer identify with a society in which there are different rules for different individuals and in which "those on high" can follow their own laws.

This poses a danger to our democracy, as it makes it easy for populists to garner votes — they need do nothing more than inveigh against the financial elite. And we, as journalists, give them more grist to the mill with every leak, because we confirm that this elite obeys its own chosen set of rules.

This makes the fight against tax havens a fight for democracy. That is an important fight — and one we cannot afford to lose.

Bastian Obermayer and Frederik Obermaier are journalists with the German daily Süddeutsche Zeitung's investigative research department. In 2016, they initiated the global Panama Papers revelations by sharing data that had been passed to them with the International Consortium of Investigative Journalists (ICIJ). They were both awarded the Pulitzer Prize in 2017 for what they did.

This article has been translated from German.