an overview of the offshore industry

| Update:
Oct. 24, 2021, 10:30 p.m.

On October 3, the International Consortium of Investigative Journalists (ICIJ) began publishing the Pandora Papers, a massive exhibit on companies that provide tax evasion or evasion services and, in some cases, tax evasion services. money laundering to the very rich and powerful of the world, including more than 330 current and former politicians from 91 countries. Among the politicians involved in the documents are those who rose to power promising to fight corruption and increase transparency in their countries.

The Pandora Papers have disclosed nearly 12 million documents that have brought to light the secret world of offshore companies and trusts. These offshore destinations for business are often referred to as tax havens. The documents rely on leaks from confidential files of 14 different offshore wealth management service companies operating around the world, including Switzerland, Singapore, Hong Kong and the UK, as well as companies in well-known tax havens such as Belize, Bahamas, Seychelles and British Virgin Islands. .

The survey, while shedding light on offshore tax havens in general and their modus operandi, shows how the United States has become a major player in the global offshore tax haven industry. South Dakota, in particular, was mentioned in the Pandora Papers because 81 of the 206 US-based trusts identified in the documents with assets worth more than US $ 1,000 billion are based in the South Dakota.

The Pandora Papers reveal complex networks of companies that are set up across borders to hide the ownership of money and assets. These offshore countries have some common characteristics such as easy to set up companies assisted by the legal system, generally referred to as ‘shell’ or trust companies, which means that they do not employ people or carry out a specific activity. themselves and help hide their activities or assets.

A shell company is a legal entity that only exists on paper. Its sole purpose is to hold and hide assets. It is designed in a way like a series of Russian dolls, hidden one inside the other, which makes it almost impossible for the IRS to find property or owners. Therefore, for tax purposes, the shell company must reside in a tax haven.

These “front” companies are designed for a variety of reasons. They are created to evade or avoid tax; money laundering and hiding their assets from those to whom they owe money. It costs a lot of money to get tax advice and advice. Thus, owners of front companies are very careful about spending money and will only do so if the benefits far outweigh the costs, that is, it has to be profitable.

In this context, the difference between tax evasion and tax evasion must be clearly understood. Tax evasion is illegal, that is, not paying the tax that was owed. But tax evasion is legal when you organize your affairs in such a way as to show that the tax was not due. The UK government says tax evasion “involves operating in the letter, not the spirit, of the law.” Now the Pandora Papers show that the distinction has lost its meaning.

The confidential documents show senior officials, oligarchs and billionaires using “shell” companies to move wealth abroad and anonymously purchase real estate or luxury goods. But it is very difficult to say how much money is hidden in these offshore tax havens. According to the ICIJ, estimates range from $ 6 trillion to $ 32 trillion. The International Monetary Fund (IMF) estimates that the use of tax havens costs governments around the world up to US $ 600 billion in lost tax revenue each year.

The leak highlights the increasingly important role that U.S. states such as South Dakota, Florida, Nevada and Delaware have played in facilitating global tax evasion schemes. Newspapers show that South Dakota now competes with very opaque jurisdictions in Europe and the Caribbean when it comes to financial secrecy. The US states with the most active trusts are South Dakota (81), Florida (37), Delaware (35) and Nevada (14).

President Joe Biden (who represented Delaware in the US Senate from 1973-2009) has been at the forefront of a tougher global regime for corporate taxation and has denounced the rich who hide money. money in offshore tax havens, but leaked documents show the United States to be one of the top destinations for billions of dollars in hidden foreign money.

The Guardian noted that “in a development that may prove embarrassing for US President Joe Biden, who has pledged to lead international efforts to bring transparency to the global financial system, the United States is stepping out of the escape as a leading tax haven ”.

It’s not just those popular secret jurisdictions like Delaware and South Dakota in the United States and British territories like Jersey, Guernsey, Isle of Man, Gibraltar and British protectorates like Bermuda and the British Virgin Islands. , but also the city of London is a tax haven. The Guardian noted that “the leaked documents vividly illustrate London’s central role in the murky offshore world. The British capital is home to wealth managers, law firms, business start-ups and accountants. All of them exist to serve their ultra-rich clients. “Tax havens also contribute to the rise of crime and corruption.

Nicholas Shaxson in a New York Times article wrote: “But there is one country at the heart of the system, and that is Great Britain. Seen with its partially controlled territories overseas, Britain plays a pivotal role in the global concealment of money and assets. , as a member of the ruling Conservative Party said last week, “the money laundering capital of the world”. And the City of London, its “golden financial center, is at the heart of the system.”

Even countries that proclaim themselves to be “business friendly” are also very low tax countries. This type of country includes Ireland, the Netherlands and Singapore. They are also for the same purpose of attracting investment and money flow to these countries.

There are always bad reasons for wanting to keep things a secret. Surprisingly, these “shell” companies are legal in the territories where they are established, otherwise they could not operate there. Whether legal or not, these “shell” companies are conduits to commit fraud such as tax evasion and to deprive people who might have rights to these assets or tax minimization. They are also used to launder dirty money which can be the proceeds of crime, corruption and bribes. No wonder the global public perception of these “shell” companies, even when they are legal, is completely immoral and illegitimate.

However, the politicians listed in the Pandora Papers, in some cases, insist they haven’t done anything wrong. Take the example of Najib Makati, a fabulously wealthy businessman and now serving as Prime Minister of Lebanon, a country today in financial and economic bankruptcy and the capital Beirut where people currently live with almost no electricity, proclaimed his innocence.

Makati has even established itself as the defender of the “free market” to defend its offshore investment in Monaco through an offshore company it owns and based in Panama. In a statement, Makati said “a logic that goes against liberal trade practices and good governance in liberal economies, principles that the Makati family upholds.” One can presume, based on his statement, that he is not going to interfere anyway with the outcome of the “free market” for the supply of electricity or more precisely the lack of it in Beirut.

This isn’t the only weird twist involving the Pandora Papers, there are others. There are 336 politicians identified in the newspapers but none are from the United States. This is quite surprising considering the fact that the ICJI has found over US $ 1 trillion held in US-based trusts, the entire mechanism for tax avoidance and money laundering.

However, the newspapers included 19 Russian politicians and 38 Ukrainian politicians. This inconsistency prompted Russian RT to ask “Could the CIA be behind the leak of the Pandora Papers, given their curious lack of focus on US nationals.” The editor of the Global Times also suggested that US and Western “intelligence agencies” were involved in the leaks. Additionally, in a TV interview, RT’s Afshin Rattansi told George Galloway that the people who funded the ICIJ were linked to intelligence agencies.

The general objective is to provide detailed information on the financial crimes of people from countries considered enemies of the United States. Such a complete absence of corrupt politicians in the United States has surprised many others, reinforcing the idea that the whole exercise can be a means of political intervention in developing countries, as the editor suggests. head of the Global Times. In fact, White House Press Secretary Jen Psaki gave this view greater credibility when she said that President Biden is committed to “fighting corruption as a man. fundamental interest of national security ”.

The newspapers expose a shadow financial system that benefits the richest and most powerful in the world. It’s almost like obscenity on public display. The involvement of very powerful political figures, as revealed in the Papers, explains why the existing political institutions seem incapable of putting an end to the system which allows the concealment of wealth and tax evasion.

Also, as long as countries such as the United States and the United Kingdom remain prime destinations for billions of dollars in hidden foreign money, the task of introducing a stricter global corporate tax regime will remain ineffective.

However, the Pandora Papers have now created momentum for a globally coordinated endeavor to end decades of abuse of financial secrecy by powerful public figures and billionaires using these offshore tax havens. At the same time, national governments must also rally their actions to seize the opportunity as the pressure is turned on politicians who attempt to maintain the status quo of wealth concealment and tax evasion.

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