The new leak is upon us. 13,4 million new documents from Appleby, an upscale offshore service provider headquartered in Bermuda, as well as 19 company registries have provided fodder for politicians, professionals and the public since the stories began to flood in late Sunday night.
Inevitably, the headlines will tell tales of the various offshore activities of the rich and famous, with extensive detail provided by corporate ownership documents, contracts, internal communications, and so forth.
However, the leaks illustrate a range of different activities which might usefully be segmented in terms of both law and broader societal concerns.
At the “very bad” end of the law spectrum, there is likely some outright evasion of taxation or regulation, corruption, and some highly dubious and opaque dealings involving problematic individuals and corporations. Although many more stories are to come, the lack of adequate anti-money laundering management on the part of Appleby points in this direction, as does the secret loans of Glencore, and the case of Mrs Brown’s Boys.
At the other end of the law spectrum, there will be relatively innocuous investments, holdings, etc. Queen Elizabeth’s offshore investment vehicle, for instance, appears in line with common investment practice. (I realise many will say these are not innocuous whatsoever – I’ll pick this up below).
And in between, in the “grey zone”, there will be instances of tax avoidance, structures established in unusual and unexpected locations and manners, secretive ownership set-ups that do not pass the sniff test, etc.
While these different issues vary in terms of their relation to the law, they are bound to be bundled together in stories from and in reactions to the Paradise Papers.
And the reason for that is broader societal concerns. From the perspective of many people, the mere association with “the offshore world” and with Appleby implies guilt in some sense, morally if not legally. No doubt this is partly caused by recent years’ rise in media stories and political rhetoric on “cracking down on tax havens”, which leaves little room for nuance.
But the broader societal perspective is no less important to take into account than strictly legal questions. Here we need to understand the association with Appleby and offshore in the context of the implicit or explicit support granted to “the offshore system” and the large system issues in the international order by such association.
The use of offshore structures bring with them increased risk – reputational risk certainly (as the leaks firmly illustrate), but also risk of exacerbating the problems of the international system (both in terms of tax, economy, investments, etc.) through financial and normative support to those profiting from these problems and/or to the offshore system as a whole, and even to the issues of the global economy as a whole, such as inequality. I stress risk here because offshore structures may well not lead to such a result but nonetheless they maintain the potential for it, even if that is not the intention.
Increased risk implies increased responsibility. In the same way that the corporate tax mantra may not suffice for the public when corporations are explaining their tax affairs, the reference to purely legal compliance (which in itself is difficult to impossible for journalists and others to challenge without detailed insight) may not be sufficient to really address broader societal concerns. There is a responsibility, whether you think it is fair or not, to address the broader societal concerns, to take them into account, not just in communicating actions but also in assessing those actions in the first place.
This responsibility to address claims of “guilt by association” simply comes with the territory of offshore investments. Some may not like it, but that’s reality.
And this responsibility is especially incumbent on high-profile individuals and corporations, who are figures of society, and who play a heightened role in shaping society-wide norms, e.g. the trust and belief in the tax system and the willingness of ordinary people to pay the correct amount of taxes.
And it is also especially incumbent in an era where there is widespread polarisation of debates on tax and the offshore, as well as widespread problems with the international tax system.
The answer to this responsibility, I hope, should not be to avoid entirely engaging with cross-border investment involving “offshore” sites, or to shy away from the discussions entirely in order to shield one self. Encouraging a total shutdown of the Bermudan economy, or a total shutdown of discussions on the offshore, is clearly not advisable. In order to fix the underlying structural issues, we need to continue working towards a better offshore system, better global cooperation, a better international tax system, a better global economy. This may sound like platitudes but really the root cause of many of the issues we are faced with, and the issues people perceive today, run deep.
In the short term, we should be able to move discussions and policy forward by paying attention to and responding to both legal concerns and the concerns of a wider societal nature. We should not accept outright claims of “guilt by association”. But we should also not accept outright claims that this boils down exclusively to an issue of legal compliance.