The Panama Papers leak has confirmed the public’s worst suspicions of tax havens and the wealthy elite’s handling of their assets. The scale of the Mossack Fonseca leak is unprecedented and has already seen one of Putin’s closest associates, the Prime Minister of Iceland and David Cameron’s father thrown into the spotlight. There is no telling what else will be uncovered as investigative journalists pour over the leaked files, and each new revelation further dents public confidence in our tax system.
The shockwaves of this leak also expose the failure of the United Kingdom to play its part in ensuring transparency. More than half of the companies for which Mossack Fonseca provide services are registered in British-administered tax havens. Despite actions of the previous Coalition Government to put pressure on UK Overseas Territories to improve their affairs, the current Conservative administration was unwilling to use its power over the British Virgin Islands and elsewhere when these countries rejected moves to increase transparency. The British Government should be much tougher with these tax havens and put pressure on the companies which are registered there, so that we can finally crackdown on unfair and frankly immoral practices.
The Liberal Democrats have been at the forefront of calling for an independent investigation into tax havens, and crucially, how much our own Government knew about the way in which UK Overseas Territories were operating. It’s going to take a lot of pressure to make the Conservatives act accordingly, a fact underlined by the Prime Minister’s tardiness in being open about his own involvement, but there has never been a greater opportunity to ensure once and for all that we stop these shady deals.
However, if the exploitation of tax havens has had a large effect on the UK, then the impact it has on less economically developed countries is monumental. Many wealthy citizens in developing countries use tax havens to protect their assets, and according to a paper produced at the IMF, this practice causes developing countries to lose around $200 billion a year due to tax avoidance. This figure dwarfs the amount they are given in aid. If we are to see our world develop in a fair and humane way, where states are providing for their citizens, then the way people use and abuse tax havens must be addressed.
Now that the headlines have hit and the public is more aware of the creative accountancy which has existed for years, David Cameron must put his money where his mouth is and deliver on his aim to increase transparency, which was a key part of his G8 agenda in 2013. Tough action at his upcoming anti-corruption summit is critical. He could start making it clear to UK Overseas Territories that, unless they agree to a renewed transparency agenda, including by allowing clear sight for tax authorities of who benefits from trusts held on the islands, then the UK will be left with little option but to impose measures on them through direct rule.
As a liberal I have no desire to use such a nuclear option, but when those over whom the UK has responsibility are facilitating at best very imaginative tax avoidance schemes, at worst corrupt actions, no measures should be off the table. He should also ensure that the UK stops being a safe haven for dodgy money and clamp down on funds in the UK that may have been salted away here by those involved in the murder of Russian lawyer Sergei Magnitsky.
This issue isn’t just about stopping shady deals in sunny places. Our tax system relies on the public having confidence that everyone is treated the same. The Prime Minister’s personal credibility has already been undermined due to his refusal to be clear about his family’s use of offshore companies. He now needs to act in the country’s interest by tackling tax havens or risk the credibility of our entire tax system.