This article presents a possible common thread among leaks of data from tax havens: a power struggle among main financial powers regarding the share of resources administered by tax havens that they can control.
The recent publication in various world media of the so-called “Paradise Papers,”a new leak of data regarding accounts and operations done in Tax Havens, has focused once again on a theme of central geopolitical relevance. This happens when the media and public interest on this issue was in sharp decline as more than a year and a half had passed since the publication of “Panama Papers.”
This article presents a possible common thread between several leaks of data related with tax havens—crucial actors in facilitating and articulating at global scale the tax evasion and elusion, asset laundering, and capital flight—and many severely injured countries and populations and a few benefitted people and enterprises.
The author presents a somewhat skeptic vision regarding the existence of a flesh-and-blood data leaker in these last two mentioned leaks and that his/her identity is held in anonymity in part to preserve his/her personal security. We believe that an underlying strategy can be safely argued without appealing to conspiracy theories, thus focusing on the real object of discussion and struggle for the billionaire funds that tax havens manage. Because when we talk about levels or magnitude of wealth and sensitive information we are not just talking about money but rather about something much more relevant: power. Therefore, believing that anonymous leaks related with tax havens and disseminated by the ICIJ (International Consortium of Investigative Journalists), are originated by disgruntled employees, conscience remorse, or vulture funds seeking front-man accounts for presidents or politicians seems naïve, to say the least. That is why the author will try to present an explanation that includes many data and some speculative component but that focuses on the power factor and not on human weakness, corruption or repentance, which are no minor forces but not always as relevant as such factor.
Paradise Papers and its differences with previous leaks
In the interests of keeping this article short, we can only review the last leaks of information related with tax havens, highlighting the most relevant ones and those that have some link with the presented hypotheses and data.
Leaks have different origins and typology of affected subjects according to who is the service provider enterprise whose information was the object of robbery and later leak. Thus, for example, we have the “Falciani List” that was information from HSBC branch in Switzerland obtained by an IT employee of that branch called Hervé Falciani with support of secret service of an undisclosed country and that Falciani himself handed over to French authorities in 2009 and then to the Spaniards. For a long time, US tax authorities have been unsuccessfully pressuring Switzerland to surrender data of American citizens with bank accounts in that country within the framework of an investigation on the giant Swiss UBS as facilitator of capital flight from US towards undeclared secret accounts. After “Falciani List” leak, negotiations suffered a radical change in favor of obtaining consent by Swiss government so that Swiss banks could send data on secret accounts upon the request of the US Department of Justice.
Later, in November 2014, we have the case of the so-called “Lux Leaks,” a leak based on stealing data from Price Waterhouse & Coopers (PWC) one of the so-called Big Four, one of the most important accounting audit firms of the world. The data were misappropriated by two employees and disseminated by the ICIJ consortium. This leak hit at the core of multinationals as it basically showed how they managed to avoid paying taxes in any country through maneuvers with secret agreements with Luxemburg and other European governments as well as tax havens. The two PWC employees were sentenced to prison for 9 and 12 months by Luxemburg justice in 2016. This leak did not have as much public dissemination as those of “Panama” and “Paradise” even though the sums at stake and the main characters had much more scope as they involved the largest multinationals of the world and not just an evader group of corrupted politicians or famous sportspeople and stars. International organizations such as Global Financial Integrity (GFI) estimate that just 3 to 5% of the funds managed by tax havens come from political corruption, 30% from criminal activity (drug and people trafficking, arms smuggling, etc.) and the remaining two thirds are multinationals’ funds from capital flight and tax evasion/elusion.
Then, we finally arrive to “Panama Papers” with a massive leak of data by attorneys’ firm “Mossack Fonseca” with headquarters in Panama and operations in large part of tax havens’ jurisdictions. Dissemination of this leak was done through ICIJ and in this case the provider remained in anonymity. Data focused mainly on low-cost startup and management companies; let’s say it was about the “McDonalds” of firms in tax havens not only in terms of the speed, easiness, and freedom of access to their services but also because Panama is an operation center for tax havens linked with US zone of influence. However, in the “Panama Papers” there were two great differences with the previously mentioned leaks: there were no large multinationals as they demand much more sophisticated services than those provided by Mossack Fonseca and, also, because they use law firms, banks, and audit firms with much more restricted access. Thus, we will like to point out that, following the gastronomic parallelism, the “Paradise Papers” are the blatantly exposure of clients from an exclusive and very rich sophisticated restaurant chain with very strict right of admission, not just in terms of costs. This part of the tax havens network exposed in the “Paradise Papers” is called the “Magic Circle” and, unlike the US zone of influence over the Panamanian McDonalds, the “Magic Circle” represents the core of the City of London and, thus, the Crown’s zone of influence. This is such the case that, in this leak, we can find data on the administration of funds from the own British Crown royal family.
It is worth pointing out a striking fact regarding the dissemination of “Panama Papers” in terms of the role of the ICIJ. The acting ICIJ CEO at the time of the massive leak of November 2014 was fired less than a month after (after being in that position for seven years) and replaced by a new CEO whose career has developed at CNN International and Reuters.
Apple-Ireland case, struggle between European Union and the US Treasury Department. The peculiar “Bahamas Papers” and the holding of Treasury bonds in tax havens
As a derivation from the investigations of the European Commission on maneuvers of tax evasion and elusion by multinationals, and having crucial data thanks to “Lux Leaks” at the end of 2014, the European Commission for Competition (ECC) conducted several legal proceedings against multinationals. One of them determined that Ireland had exceeded in terms of tax advantages granted to the multinational Apple and that the disproportionate benefits were not acceptable under the legislation of the European Union. Thus, as it went public on August 30th, 2016, it pressed Irish government to collect 13 billion Euros plus interests from Apple as there were excesses derived from tax benefits granted between 2003 and 2014. The excesses were so disproportionate that the effective tax rates paid by the multinational were equivalent to 1% in 2003 and 0.005% in 2014, given that corporate income tax in Ireland is 12.5% for 2014 and even higher for previous years.
The US Treasury issued an official statement on August 24th, 2016, six days prior to the ECC making public their aforementioned decision. In this official statement related with tax struggles between multinationals, the Treasury already expressed its disagreement with the ECC actions, suggesting that it was exceeding its attributions trying to turn itself into a “supranational tax authority.”
In those exchanges between the European Union ECC and the US Treasury, it is clear that they were a struggle on resources and in defense of rights; however, there are two additional components that I will like to point out and that could be related with this struggle. First, one that seems minor but that denotes a rare coincidence. In September 2016, a few months after the global release of “Panama Papers,” another leak emerged, derived from this one, the “Bahamas Papers.” However, barely a month after the struggle described in the previous paragraph, this leak turned the spotlight on an European Commission officer who coincidentally had been the previous ECC Commissioner and had had a position at an enterprise from a tax haven without disclosing such information to the authorities. Such leak was also disseminated by the ICIJ consortium.
The other relevant question that the author has discovered and that has not seen it mentioned in any article related with tax havens or Ireland sheds additional light on the interests of the US Treasury regarding the Apple and Ireland case. Given that multinationals that use the services of tax havens networks avoid paying taxes worldwide including US, how can we understand that Treasury from that country promotes with such zeal the application of European Union norms to sanction those abuses? Since there is a country where enterprises with declared legal address have accumulated 300 billion dollars in Treasury bonds from 2002 to 2017; such country is Ireland and is placed just below China and Japan in this ranking, going from 7 billion dollars in 2002 to 310 billion in 2007. But if we look at the rest of largest addresses of the ranking, we see other places from the network of tax havens that are also the destiny for US Treasury bonds: Cayman Islands are in fifth place, Switzerland in the sixth, and Luxemburg is number eight—incidentally, the leading country in the “Lux Leaks” that it was a “non-anonymous” leak related with the most powerful multinationals of the world. It is worth mentioning that in December 2002 the total holdings of US Treasury bonds in foreign hands added up to 1.2 trillion dollars and for September 2017 that figure had multiplied by five reaching 6.3 trillions.
For this author, “Paradise Papers,” “Panama Papers,” and “Bahamas Papers” seem to be part of a power struggle that materializes in the share of the pie administered by tax havens that is given to each of the main global financial powers. Certainly, tax havens not only still enjoy good health but also OECD and G20 have imposed measures that grant them a window-dressing to let them function as main gear in the global financialization of the economy. Specifically, this network of tax havens has historically been developed and managed by United Kingdom and in particular international banks and institutions of the City of London, with a strong expansion since WWII and an explosive one since the financial liberalization imposed by the Washington consensus in the 80s and 90s.US banks and institutions have been sharing the starlight in the network of tax havens and US Treasury has largely been issuing debt among declared holders in those jurisdictions. Since 2008, it seems the time has come for defining a new share distribution among these two members of the “Anglo Saxon Brotherhood” and surely China is claiming its share according to its military and industrial power. Considering tax havens as mistakes, accidents, or failures of the global financial system can only be an act of innocence, shortsightedness, or complicity; not considering the power factor by restricting the analysis to normative questions, declarations of intention, or expressions of impotence and lack of coordination is a similar posture. But so is waiting or suggesting that the “problem” of tax havens will be “solved” by institutions such as OECD and G20 that are dominated by the main beneficiaries of the funds administered by havens. Anonymous leaks seem to represent more artillery movements among applicants that want to obtain a larger share of resources than eventual hits on the network of tax havens; and it is likely that they continue being part of the news people are getting accustomed to and thus pay them less and less attention.
 The so-called Paradise Papers were disseminated worldwide at the beginning of November 2017.
 . The so-called Panama Papers were disseminated worldwide at the beginning of April 2016.
 . That is how Falciani himself tells the story in his book “The safedeposit of evaders,” by Hervé Falciani and Angelo Mincuzzi (May 2015).
 . Falciani is, with a Swiss warrant for his arrest, exiled in Spain, after having collaborated with French judicial and tax authorities and currently helping Spaniard authorities.
 . The Big Four of accounting and audit firms are the four international leading firms: KPMG, Deloitte, PWC and Ernest & Young.
 . Sentences were minimal thanks to strong pressures done by international NGOs related with tax equity.
 . See GFI president Raymond Baker’s article: http://www.gfintegrity.org/press-release/fix-global-shadow-financial-system/
 . See the article regarding the appointment of Peter Bale as CEO of ICIJ in December 2nd, 2014 as replacement of William Buzemberg: https://www.publicintegrity.org/2014/12/02/16342/peter-bale-named-new-head-center-public-integrity
 . See the press release: http://europa.eu/rapid/press-release_IP-16-2923_en.htm
 See page nine of the US Trassury official document: https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/White-Paper-State-Aid.pdf
 . Holdings of US Treasury bonds declared in foreign jurisdictions can be consulted in the official publication: http://ticdata.treasury.gov/Publish/mfh.txt for the years 2016-2017 and in http://ticdata.treasury.gov/Publish/mfhhis01.txt for the years 2000-2016.
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