By Alexandra Wrage
wrage@TRACEinternational.org
The 11.5 million “Panama Papers” constitute the largest electronic information leak to date. The scope is breathtaking and the detail is fascinating. But what has the leak really exposed? Not much that is truly surprising. We have long known, generally, about offshore and anonymous shell corporations and how they can be used to hide assets and avoid taxes, legally or otherwise. We have known of their use not only by those who have earned or inherited great wealth, but also by money launderers, drug kingpins, and kleptocrats. Meticulous examination may reveal that Mossack Fonseca offered something startlingly creative and new in the devices they created, but so far it appears they were just willing to do what their clients wanted. It seems that it wasn’t their originality so much as their complacency that recommended them.
The novelty here is in the details of the revelations. We now know a great deal more about just how these companies function and who exactly has been using them. The revelation of specific arrangements has already brought political and reputational repercussions to the individuals and companies involved. This is true even though the establishment of offshore entities is currently legal, and the use of such entities to obscure the beneficial ownership and control of assets is still a permissible means to secure financial privacy. It shouldn’t be, but it is.
Offshore entities are fairly thoroughly discredited, but before we cast financial privacy away entirely, we should at least pause to consider the legitimate functions it can serve. Offshore companies have been used by political dissidents to shield assets from corrupt rulers. They have protected those with legitimately accumulated wealth from extortionate demands and threats. The same arrangements that a kleptocrat employs to divert his nation’s wealth can allow a business enterprise to keep sensitive financial information away from the eyes of competitors. These more sympathetic reasons for establishing and maintaining offshore companies are likely at play in a tiny minority of cases and are not worth the cost of propping up a substantially corrupt system, but we should acknowledge that they will be a casualty of mandating more transparency.
At the same time, we must not forget the other privacy interests that are also at stake in this disclosure. As lawyers, should we be celebrating the loss of attorney-client confidentiality in the Panama Papers’ release? (Mossack Fonseca is a law firm, after all, with legitimate clients alongside criminals.) At some level, this may appear similar to the Ashley Madison hacking scandal—just a matter of dodgy actors getting what they deserve. But there can be an ominous aspect to such breaches as well—more akin to the publication of private celebrity photographs lifted from iCloud. We certainly welcome having a light shone on criminal financial practices, and investigative journalism plays a singular and critical role in exposing corruption and insisting on transparency. But surely publishing the communications of criminals is qualitatively different than hacking the emails of those acting legally. At a minimum, if these tactics are to become standard practice for exposing and cleaning up international financial markets, it would be good to see an international consensus develop around some ground rules.
We must always make institutional and regulatory decisions in the face of competing interests. On balance, the public interest in transparency far outweighs the rights of those hiding, for whatever reasons, behind secret or shell companies. Heads of state shouldn’t need financial privacy and drug lords certainly don’t deserve it. The well-documented cost of financial secrecy outweighs its benefits, and serious efforts to combat money laundering, kleptocracy, and other major financial misconduct cannot bear fruit until we abolish this tool of the international financial sector and the secrecy it provides.
But let’s end this secrecy in a manner consistent with our own commitments and values. Let’s lead thoughtfully on this issue and not simply rush to respond in our justified, collective outrage. Let’s explore the public interest comprehensively, change the financial secrecy laws deliberatively, and then condemn misconduct publicly—without cutting any of the corners.
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