Three years ago, thieves stole a bunch of information from “offshore” service providers in the Cook Islands and British Virgin Islands. This was supposed to be a ground-breaking exposé with huge ramifications, but it turned out to be a tempest in a teapot. As I pointed out at the time, all that we really learned is that people who use offshore services are generally honest and law-abiding. And they definitely had far more integrity than the politicians who routinely attack the offshore world.
Well, here we go again. We’ve learned that thieves have now obtained client data from a global law firm based in Panama, and leftists once again are making this seem like a giant story.
But here’s what you really need to know. This is simply another chapter in the never-ending war by high-tax governments against tax competition, fiscal sovereignty, and financial privacy.
Here’s some of what I wrote for Caribbean News on the issue, starting with the big picture.
Many nations in Western Europe can no longer afford their big welfare states. Countries such as Greece, Spain, and Italy already have needed bailouts, while it’s just a matter of time before several other European nations face a fiscal day of reckoning. …rather than fix their own fiscal problems, many of these nations are working through international bureaucracies such as the G-20 and the Organization for Economic Cooperation and Development to rewrite the rules and traditions of global commerce in an attempt to extract more tax revenue. This is why there’s been a major attack against so-called tax havens as part of a coordinated campaign to undermine fiscal sovereignty and restrict the human right of financial privacy.
In other words, welfare states are going bankrupt and they hope to somehow prop up their unaffordable entitlements with a money grab.
And they’re more than happy to rely on stolen data.
One of the more bizarre chapters in this story is the way the pro-welfare state crowd is now trying to demonize financial service providers such as law firms that are hired to fill out paperwork by investors and entrepreneurs who are setting up trusts, companies, and other entities. Consider, for instance, the plight of Mossack Fonseca, a professional services firm based in Panama. …this collection of legal practitioners and egghead trust advisors is suddenly being portrayed as an international crime syndicate that’s corrupting Western civilization one business incorporation at a time.
But it makes no sense to attack service providers.
The controversy, in large part, derives from a basic and arguably willful misunderstanding of what firms like Mossack Fonseca do – and don’t do – for their clients. In basic terms, these firms help people create new businesses and trusts. …unlike banks, these law firms don’t take possession of their clients’ money. So the notion that they are involved in “money laundering” is laughable. Once incorporation papers are filed, the law firms don’t direct in any way the operation of the businesses.
Besides, the real target isn’t the Panamanian law firm. Activists on the left, working in concert with international bureaucracies and uncompetitive governments, want to create a global tax cartel (sort of an “OPEC for politicians“) in hopes of enabling higher tax burdens.
Firms like Mossack Fonseca are merely just the latest stand-ins and proxies for a much wider campaign being waged by left-wing governments and their various allies and interest groups. This campaign is built around aggressive attacks on anyone who, for any reason, seeks to legally protect their hard-earned assets from confiscatory tax policies. …a cabal of governments…has decided not to compete…instead simply seeking to malign and destroy any entity, individual or jurisdiction that exists that deprives them of tax revenue to which politicians greedily believe they are entitled. As usual, the media outlets running these perennial “exposés,” usually at the bidding of OECD bureaucrats (who ironically get tax-free salaries).
Let’s close with a couple of points about the broader issue.
- It is hardly a surprise that wealthy people with cross-border investments use instruments (such as foundations, trusts, and companies) designed for such purposes.
- Like everyone, wealthy people value privacy (even more so because they have to worry more about kidnapping and other crimes), so these structures are designed to protect their confidentiality.
- Some of these clients may not have complied with the tax laws of their countries. That is generally a function of excessive tax rates and home-country corruption.
- A few end-user clients may be unsavory (Putin’s cronies, for instance), but should businesses be prohibited from dealing with people who are viewed as sketchy (but otherwise are not under investigation and haven’t been convicted of crimes)?
- Cross-border economic activity and structures play a valuable role in the global economy and should not be demonized, just as GM shouldn’t be demonized if some crooks use a Chevy as their getaway vehicle.
- Low-tax jurisdictions have stronger laws against dirty money than high-tax nations.
So at the risk of stating the obvious, I’m on the side of low-tax jurisdictions and the service providers in those jurisdictions. And I’ll defend them (here, here, here, here, and here) even if it means a bunch of international bureaucrats threaten to toss me in a Mexican jail or a Treasury Department official says I’m being disloyal to America.
Or, in this case, if it simply means I’m explaining why it’s a non-story that internationally active investors use international structures.
P.S. Why is it okay for rich leftists to utilize “tax havens” but not okay for people in the economy’s productive sector?
P.P.S. We should be very thankful that Senator Rand Paul is standing tall in the fight against nosy and destructive governments on this issue.
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I just read your Mexican jail story at the link. Did not discern any threat; just good descriptions of very caddish behavior of those lame tax-exempt-salary, salary-tax-funded people at the OECD (get a real job, people!). Can’t say you’re not skilled with hyperbole when warranted, and that it might resemble a fish story, now.
Great takedown of the Guardian and those that feed this predatory meme and manipulation. Why do these western regime media organs and their enablers so often use the Russians to try to screw us over? Force of habit? Ask the Cypriots, you say? They suffered the bail “in” (woof, what a term) while, during the run-up, we were repeatedly reading that the money being confiscated was of outside “Russian” interests. Sure. Not Russian oligarchs or politicians; just Russians. Nice appeal to xenophobia, European bankers and media people. Are so many of us so stupid as to believe these bankrupt, spendthrift, western governments are protecting us or even trying to protect us from, or to prey on or behalf on, Russians, when they take (yet more) of our own money because of (yet more of) their own failures?
Federal “law enforcement” stole outright from US citizens far more last year using civil forfeiture laws than anything approaching what Mr. Putin here stands (without proof) in this poorly drafted article accused of.
I’d be interested to know how many pro-tax politicians, personalities & pundits were avoiding the same high taxes they impose on the ‘commoners’!
[…] Source: Another Attack on Tax Competition: “Panama Papers” Is a Non-Controversy Controversy | Internatio… […]
The 20% of most prosperous citizens of the world organized their states in an attempt to milk the most productive members of their societies as much as they could.
In that effort they created crony systems where wealth increasingly correlates with political ability rather than competence, depressed the motivation of their most creative compatriots to the point where their economies are on slow growth deterministic decline trajectories, unable to grow even half as fast as the world average.
This top 20% of the world is now mad as their countries are losing their once worldwide top prosperity rankings and are predictably reaching out in desperation, trying to grab whatever they can, because they foolishly believe that somehow this will stave off their inevitable decline long enough to pass the problem to the next generations.
It won’t work. The 21st century world is already moving too fast to pass problems on to the next generations. As the world’s top 20% further flattens their societies’ effort-reward curves, their already dismal growth rates (yes a 2% growth rate is dismal in a world that is growing by 4% on average) will slow even further and thus hasten their decline even further.
At some point voter-lemmings depress incentives to growth so much that odious regimes start becoming competitive. It won’t end well.
But they will do it. Why? Because “They Can!”