I have a great deal of respect for Martin Kenney’s efforts in taking fraudsters to task and recovering funds on behalf of their victims. However, I found his recent post for the FCPA Blog about the so-called Paradise Papers to be deeply misguided.
Alison Taylor articulated several shared points of disagreement with Mr. Kenney in her post on Monday, some of which I would like to expand upon.
Mr. Kenney labors the point that no unlawful activity has been uncovered in the 1.4 terabytes of data that comprise the Paradise Papers. Reporting on the leak so far suggests that this is the case. While it is important to distinguish between unlawful and unethical activity, this is a discussion about what is and should be legal, and the ethics on which the intent of the law are based.
Laws evolve, and at times can be unjust. Not long ago, legal structures permitted the ownership of human beings as property, and more recently denied women the right to vote. Simply because an activity is legal in a certain place and time should not render it immune from criticism.
While the Paradise Papers have not exposed any unlawful activity (though several tax authorities are now investigating cases of potential wrongdoing), previous leaks such as the Panama Papers and Lux Leaks demonstrate that opacity enables criminal activity such as tax evasion, money laundering and corruption. Law firms, financial institutions and company service providers have repeatedly been caught facilitating the abuse of legal entities and arrangements, demonstrating the ineffectiveness of current regulatory safeguards.
The present legal framework has been shaped in part by lobbyists for offshore centers, who have influenced policy in the countries from which capital is fleeing. As these leaks show, some key policymakers are personal beneficiaries of the status quo, which could conceivably impede their willingness to enact reforms in the public interest. Indeed, the prospect of reform has only come about as secret/confidential data detailing the scale of the problem has escaped into the public domain. It is regrettable that leaks, and not leaders, must serve as the catalyst for sound policy.
As Mr. Kenney points out, changes in regulations can lead to disparities between jurisdictions, which can attract economic activity or drive it elsewhere. The recent evolution of offshore centers is a clear example of lawmakers creating such incentives to their country’s individual advantage at the expense of the greater good.
This “race to the bottom” (a term to which Mr. Kenney will no doubt object) has facilitated an unprecedented drain of wealth from productive economies to offshore centers where that capital benefits a dwindling few. The economic losses to countries where wealth is generated surely outweigh the gains for sparsely populated jurisdictions such as Mr. Kenney’s British Virgin Islands, where they disproportionately benefit expatriate service providers.
Mr. Kenney derides those who wish to see transparent and accessible registers of companies and trusts as naïve, and inaccurately suggests that anti-corruption and tax justice campaigners believe these registers are a cure to white collar crime. Open registers are not a panacea, and no transparency advocates I know are under that illusion. Potential wrongdoing still needs to be investigated, and laws still need to be enforced. These registers are, however, crucial to deterring abuses of legal entities and arrangements both on and offshore.
Adam Ross, pictured above, is the managing director of White Label Insights. The firm provides intelligence and investigations support to many of the world’s leading risk management consultancies. He’s a member of Transparency International’s Canadian chapter and the author of its report on beneficial ownership reform. He can be contacted here.