Alison Taylor on the Paradise Papers: Reputation has become an ethical issue, not a legal one

Martin Kenney’s provocative post last week for the FCPA Blog suggests that the Paradise Papers, like the Panama Papers, is just a titillating non-story. He makes a number of interesting arguments. Here are the ones I disagree with.

Kenney rightly argues that many practices revealed by both of the large-scale data leaks are perfectly legal, and he says it is important not to confuse an ethical debate over tax policy and social responsibliity with an argument about legality. This is true, but I don’t think transparency campaigners are particularly confused about this issue.

He goes on to argue that it is in “everyone’s interest” to have offshore tax-efficient systems available to Big Business, because if specific countries try to crack down on tax avoidance, Big Business will simply move elsewhere. This confuses a collective action (or “tragedy of the commons”) argument with a utilitarian one. The same arguments were made regarding climate change for many years: If countries enacted too many enviromental protections, companies that wanted to pollute freely would go elsewhere.

Kenney’s contention is more an argument for a coordinated international response than a justification for inaction. It is hard to maintain that ordinary people in the vast majority of countries should have to pay their assessed taxes while Big Business is exempt. The job creation argument is also questionable in the context of automation and artificial intelligence, the growth of the gig economy, and a disrupted social contract.

Kenney contends that because some uses of offshore jurisdictions are perfectly legitimate, no action whatsoever should be taken on their use. This is a favorite argument of the NRA and others that lobby against gun control: Guns can be used for leisure and sport as well as mass murder, so it is unfair to try to regulate them at all. I think the pertinent question is the overall level of harm facilitated by these offshore vehicles in providing opportunities for politically exposed figures, money launderers, and criminals. It is surely an argument for nuanced, thoughtful policies, not inaction.

Kenney suggests that disclosure of beneficial ownership violates legitimate privacy rights, and says transparency campaigners would not wish to see their private banking records leaked into the public domain. He is falsely equating the confidentiality of financial information with disclosure of ownership. And though Kenney is right that criminals are going use proxies and give false information anyway, disclosure mandates surely make it much easier to separate the legitimate from the illegitimate through research and investigative work. If there is no ownership problem and nothing to hide, what is the issue with disclosure?

Perhaps the biggest problem with Kenney’s argument is that the cat is already out of the bag. Attempts to maintain the current structures of corporate confidentiality and legal protection are under sustained attack from professional, well-funded activists who are driven by ethical-transparency goals. Trying to maintain the traditional legal structures that corporate groups have used to protect themselves is growing irrelevant when reputation has become an ethical issue, not a legal one.

As legal and ethical arguments become disaggregated, the wise choice for today’s companies is to behave as if everything they say or do might become public. Failure to adapt to this new environment would suggest a lack of engagement with public sentiment that will serve business poorly in the long term.

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Alison Taylor, pictured above, is director of advisory services at BSR, a non-profit consultancy and company network focused on sustainability and CSR. She’s the author of the working paper, The Five Levels of an Ethical Culture. Her article, “We Shouldn’t Always Need a ‘Business Case’ to Do the Right Thing,” appeared in the September 19, 2017 edition of the Harvard Business Review. She can be contacted here.