by Ashley Rogers
The International Consortium of Investigative Journalists (ICIJ) announced a bombshell financial leak on October 3rd, revealing a cache of almost 12 million documents – nicknamed the “Pandora Papers” – relating to the offshore finances of the world’s most powerful politicians, businessmen, and heads of state. The depths of these files reveal the corrupt tax-dodging and self-dealing practiced by the same politicians and corporations who left billions to suffer during the COVID pandemic.
The world of offshore tax havens runs through companies called “offshore service providers,” legal firms that specialize in registering corporations for foreign nationals in tax havens like Panama, Belize, and the Cayman Islands. The Pandora Papers are the largest ever leak of documents from these offshore providers, sourced from 14 providers operating in at least 38 jurisdictions, but it’s far from the first. The ICIJ has released a number of these leaks over the years, beginning with 2013’s Offshore Leaks, and continuing with 2014’s Luxembourg Leaks, 2015’s Swiss Leaks, 2016’s famous Panama Papers, and 2017’s Paradise Papers. Added to these documents are recent leaks of financial data from the American government; 2020 saw the release of the FinCEN Files, suspicious activity reports filed with the Department of the Treasury that revealed the degree to which huge global banks knowingly profited from money laundering and financial fraud, even after facing fines for doing so. Earlier this year, ProPublica leaked the federal income tax documents of the 25 richest Americans, adding to the wealth of data documenting the financial manipulations of the capitalist ruling class.
These leaks implicate politicians from all over the globe. The Pandora Papers revealed King Abdullah II of Jordan used shell corporations to buy 14 properties in the U.S. and U.K. for $106 million between 2003 and 2017. Jordan, one of the poorest countries in the middle east, is dependent on billions in foreign aid; ICIJ notes that “the timing of the purchases, if made public, would likely have alienated many Jordanians and the tribal leaders who help keep Abdullah in power.” Ilham Aliyev – who has served as president of Azerbaijan since 2003 through several suspect elections – was previously implicated in a corruption scandal in 2017, revealing a nearly $3 billion slush fund dubbed the “Azerbaijani laundromat” used to bribe European politicians. The Pandora Papers revealed a network of 84 offshore corporations used by Aliyev’s family to purchase nearly $700 million in London real estate, likely siphoned from the coffers of Azerbaijan’s state-owned industries. Former U.K. Prime Minister Tony Blair dodged $422,000 in taxes by purchasing London property through an offshore corporation. Similar stories play out across the financial documents covering over 300 politicians and public officials from more than 90 countries.
In the days following the release of this data, U.S. lawmakers proposed a bill called the “Enablers Act,” championed as the largest reform of anti-money laundering legislation since 9/11. However, much like the Patriot Act provisions on money laundering, this bill aims to prevent the flow of “dirty money,” primarily to enemies of U.S. interests. While these reforms may add a few additional barriers to criminals manipulating the financial system, it ignores the fact that much of the money in these shadowy accounts was obtained in ways that – while often corrupt and exploitative – are considered by the capitalist system to be legal. Tony Blair’s wealth comes from lucrative consultancy contracts with world leaders for his network of nonprofits – a path to wealth shared by Dominique Strauss-Kahn, former managing director of the International Monetary Fund and another Pandora Papers subject. Luis Abinader, president of the Dominican Republic, gained the offshore wealth documented in the leaks as general manager of his father’s company. Even where an obvious conflict of interest is present, the capitalist class often pays little attention. President Trump, of course, brazenly promoted his businesses during his time in office, with over 3,400 publicly documented instances of using his position for personal financial gain. Yet neither of his impeachment trials even touched on this abuse of power, with the silent understanding on both sides of the aisle that such an investigation would implicate not just Trump, but most of Congress and plenty of other politicians too.
The lack of American politicians documented in the Pandora Papers immediately raises suspicions; corruption is so commonplace in our system that most Americans don’t even bat an eye. While there are a few cases of congressmen caught for bribery in recent memory, most have figured out how to use their positions to make themselves rich without violating the anti-corruption laws Congress writes for themselves. Congressmen regularly trade stocks in industries they’re writing regulations for; in an effort to quash controversy, the practice was officially banned in 2012, but it’s still practiced by dozens behind closed doors. The “revolving door” between regulators and the industries they regulate gives politicians huge payouts to become lobbyists, raising their salary by nearly fifteen times on average when they become a private citizen, to incentivize following corporate marching orders while in office. Former Louisiana representative Billy Tauzin was one of the chief architects of the 2004 Medicare Prescription Drug Bill, a gift to the pharmaceutical industry that banned the federal government from negotiating lower drug prices, enabling America’s current prescription drug affordability crisis. Tauzin left office only a few months later, taking a job as the president of PhRMA, a powerful pharmaceutical industry lobbying group. The day after leaving office, he became the highest-paid healthcare lobbyist in the country. The same corruption documented in the Pandora Papers is regularly practiced by American politicians – so why are they absent from the leaks?
The Pandora Papers point to one possible explanation – American politicians may be missing from these documents, but American states are not. The leaks reveal that states like South Dakota, Nevada, Florida, and Delaware have permissive tax laws rivaling those of conventional offshore tax havens. In America’s patchwork of state and federal regulations, the wealthy have been able to carve out a financial niche in states desperate for their business – and if one state closes those loopholes, they move to another that hasn’t. Delaware has long been a destination for tax dodgers; nearly half of all public corporations in the U.S. are incorporated in the state, which has more registered corporate entities than it has citizens. Yet of the 206 U.S.-based trusts in the Pandora Papers, the majority – 81 trusts – are registered in South Dakota, which – along with several other states – has allowed the wealthy to create contracts that can last for hundreds of years after the creator has died, a practice banned in English common law since the 1600s. This has allowed the development of “dynasty trusts,” designed to hold vast amounts of wealth for centuries, or even indefinitely, to be passed from generation to generation tax-free. The prevalence of tax havens within the borders of the U.S. means American politicians have no need to use offshore service providers to hide their shady financial dealings.
America’s status as one of the world’s largest tax havens isn’t an accidental outcome – it’s a deliberate policy choice. In 2014, the Common Reporting Standard, intended to combat tax evasion by sharing financial information between nations, was agreed upon by international treaty. Its signatories included some of the most infamous tax havens around the world. However, the United States refuses to sign the agreement, while still benefiting from the data shared by other countries. Ironically, crackdowns following the Panama Papers and other notable leaks have made the U.S. one of the few safe places left to store hidden wealth. When Ecuador passed a law making it illegal for public officials to use offshore tax havens, Ecuadorian president Guillermo Lasso moved two offshore companies from Panama to South Dakota.
Following the leak of the tax documents of the 25 richest Americans earlier this year that showed many billionaires paid nothing on their taxes or even made money back, the IRS was concerned not with the tax evasion, but with the possibility that the documents could’ve been obtained illegally. Loopholes that allow the rich to dodge taxes and hide their money aren’t an oversight but are a deliberate feature of a system designed to protect and enable the concentration of wealth in the hands of a few individuals at the expense of the many. One-fifth of the income made by the top 1% isn’t reported on tax reports, compared to only 7% for the bottom 50%. Yet the IRS spends a full third of all audits it conducts investigating recipients of the Earned Income Tax Credit, who typically make only around $20,000 a year. Democrats, promising to put an end to tax evasion, added a provision to Biden’s $3.5 trillion budget requiring banks to send financial information for all accounts worth more than $600. While they claim it’s targeted at the 1%, billionaires have armies of lawyers, lobbyists, and accountants to hide their wealth in shell corporations and offshore accounts; working people living below the poverty line have nothing. Corporate politicians are overwhelmingly more concerned with a working person taking a fraction more than they are meant to than with the ultra-rich who cheat the government out of trillions.
The appropriate response to these leaks will come not from the public promises of regulators, but from pressure from below. Fearing the power of the mass working-class protests and strikes that have shaken Chilean capitalism over the last two years, the opposition in the Chilean congress moved to impeach right-wing billionaire president Sebastián Piñera after his corrupt dealings involving the sale of a mining company in 2010 were revealed in the Pandora Papers. These leaks serve as ammunition for the workers’ struggle in some of the most volatile and politically opportune moments in recent memory. A mass movement of the working class, with the right organization, demands, and tactics, can provide the pressure needed to bring the capitalist class to its knees.
While the specifics in each case are new, the Pandora Papers as a whole serve to confirm what most working people already knew, either from previous leaks or simply from the experience of living under capitalism. For some, this news can be demoralizing; confirmation that all of the laws and regulations of the capitalist system serve only to punish the poor, and that capitalism cannot hold the rich accountable. The lack of a clear alternative to the “solutions” provided by corporate politicians, one that accounts for the failures of capitalist governments to rein in the abuses of the rich, leaves many working people feeling like we’re backed into a corner with no way out. Even if effectively written and enforced regulations are passed, they’re still limited to individual countries or states, spurring “capital flight” as the wealthy seek out jurisdictions willing to bend to their influence. The international working class, the vast majority in every country on earth, is the only power capable of bringing an end to tax dodging and corruption on a global scale.
The Pandora Papers reveal clear contradictions of our system that have no solutions within the framework of capitalism. A workers’ movement can win major victories that erode the power and influence of the rich, but as long as our society is based on the exploitation of the many at the hands of a few wealthy individuals, these gains are temporary, and capitalists will eventually regain the upper hand. But though things can seem momentarily hopeless, the strength of the working class is growing by the day, and the possibility of throwing off capitalism for good, to build a socialist system that works for the needs of all, is on the horizon. Only a socialist transformation of society can take the vast, idle wealth of the rich into public ownership and use it to improve the lives of billions. Only a socialist transformation of society can hold public officials accountable to the people they serve, not the corporate donors who line their pockets. Only a socialist transformation of society can end the control of the rich over our governments, our laws, and our lives.
Image Credit: Presidential Press and Information Office via Wikimedia Commons // CC-BY 3.0