How do we make sure the Panama Papers lead to lasting reforms on tax evasion?

Scandals like the Panama Papers are a massive potential driver of policy change. In normal times, the sources of Panama Papersinertia are great and politicians wishing to make change happen face an array of vested interests and fixed ideas telling them what they want is either insane or impossible. It takes a scandal to shake things up, delegitimize the status quo, and persuade decision makers that they really need new answers.

But the political and media spotlight will move on. Some crises leave a legacy of change, in others, the waters merely close over the wreckage and life and politics go on as normal. So my exam question for you, dear readers, is ‘how can campaigning organizations ensure that in a couple of years’ time we will look back and be able to say that the current scandal triggered serious reform of tax havens?’

In the case of Oxfam, the timing couldn’t have been better: we launched a campaign on the evils of tax havens at the Davos meeting this year. We showed how they deprive poor countries of $170bn a year, exacerbate inequality etc. Our messages were perfect for this week’s hullabaloo: David Cameron needs to step up at next month’s anti-corruption summit, and do something about the role of Britain’s own Overseas Territories and Crown Dependencies – places like the British Virgin Islands that have featured prominently in the Mossack Fonseca paper trail.

Mossack FonsecaWe got in early once the story broke, with an initial reaction on Sunday night followed up by a press release setting out ‘5 steps for Prime Minister to put UK’s house in order before tax and corruption summit’. That ensured we got our share of media coverage and were able to stress Britain’s role both in the problem and potential solution. That’s important because the danger is that the summit will present corruption as purely a developing country problem – that will be a lot harder now.

Fine, but what else? Apart from enjoying the adrenalin of the moment, what (if anything) can we do to strengthen the long term impact of the current scandal? I’d love to hear people’s thoughts on this. A couple of suggestions from me:

  • Voices of the Global South. We need to establish the idea that tax havens are a development issue – much as we worked for years to reframe climate change as being about people as well as polar bears. The $170bn number is useful, and much quoted, but it would help to have some real people saying the same thing. I’m not sure it’s credible to find someone to say ‘my kids can’t go to school because of tax havens’, but at least get some developing country finance ministers up there saying the same thing on a national level.
  • Those voices also need to be at the table on any negotiations, to ensure developing country interests are represented in any big overhaul of the system. Let’s hope we hear more on that at the IMF/World Bank Spring Meetings next week.
  • Commitments that provide real levers for future advocacy. Politicians saying ‘we must do something’ can all too easily turn into not very much. A commitment to change the law, the acceptance of a principle (e.g. ‘OTs and CDs should be subject to the same laws as the rest of us’) even to start a review process, is preferable.
  • New sources of money: The Robin Hood Tax could prove to be one of the big legacies of the 2008 crisis – 10 EU countries are currently introducing it (though not the UK, sadly), with potential big wins for climate change and aid funding. The fines on BP after Deepwater Horizon paved the way for some important change in the US Gulf states. What’s the equivalent here? Some kind of withholding tax, with a portion allocated to developing countries?
  • New Players: The Robin Hood Tax campaign pulled in unusual suspects such as faith organizations (the Salvation Army) and mainstream civil society players like the Women’s Institute. Widening the coalition around tax haven reform could have a lasting impact. Floods helped get insurance companies much more vocal on the economic risks of climate change – are any private sector allies coming out of the woodwork over Panama?.

Any other suggestions?

And in case you were on some other planet this week, here’s the two minute animated explanation of what this is all about

[And thanks to Nick Bryer, Luke Gibson, Oli Pearce, Max Lawson and Jon Slater for their suggestions]

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13 Responses to “How do we make sure the Panama Papers lead to lasting reforms on tax evasion?”
  1. Great thoughts. One bit I’d emphasize, in learning from the failed experience of prior efforts to leverage scandals towards reforms, is to make the case for why these violations of law and public trust matter for ordinary people’s lives, particularly around service delivery and government performance. I really do think we need to draw the links btw tax evasion and crumbling schools…and with some additional applied research and quick investigative work I don’t necessarily think that’s too far a stretch. Linked with ordinary voices (whether Northern or Southern) telling those stories, that combination becomes a powerful narrative for reform. Absent those links, I worry that we’re quickly back to a technocratic debate about illicit flows and budget figures that loses most audiences.

    Related: it’d be fascinating to quickly learn from campaigners involved in previous failed efforts to cement reforms *despite* the presence of scandals of a similar magnitude. Two that come to mind are the Jack Abramoff lobbying/money-in-politics scandal a decade back in the US, and the more recent Snowden leaks. For very different reasons, both failed to cement the sorts of meaningful, structural changes that campaigners were after. Why was that? Was it a lack of “thinking politically” in their campaigning? Failure to “vertically integrate” their campaigns and collaborate with government champions inside the public sector? Unwillingness to take a “systems” and/or “complexity” approach to the problem? Just bad luck? We may have less insight here than we think, and thus risk making the same mistakes again in 2016 and beyond.

    • Nathaniel,
      I can see that linking tax haven scandals to crumbling schools etc..can be compelling. But it is hard to make this link, in practice, as simply and robustly as people have come to expect.
      I am not sure if this is what you had in mind, but narratives linking various broad estimates of tax avoidance/evasion/illicit flows with apparently equivalent numbers of nurses/doctors/teachers or even with numbers of infant deaths are already common currency (particularly in UK campaigns). So are ordinary voices of Malawian midwives and Zambian teachers being used to tell the story.
      The trouble (as I keep banging on about) is that the numbers don’t add up. The link between corruption, tax evasion etc… and public services is not a direct chain (and even less so when the issue is about the effective level of tax on foreign investment profits) but is more roundabout via the quality of institutions, the performance incentives on politicians and public servants, the effectiveness of procurement processes, patron-client relationships in politics etc….Proceeds of corruption or tax evasion in a Swiss bank account are an outcome of all of this, but do not reflect the damage done in the process (just as the cash that a mugger gets away with is not the same as the harm inflicted on the person who is mugged, or the cost to society of living with crime).
      Available rough estimates of the revenue losses to cross border tax evasion & corruption (hundreds of billions) work out to sums like $20 per person per year across developing countries i.e. not huge amounts for schools/ hospitals / roads etc.. The demand for a compelling & simple story, then leads to the figures being presented in ways that confuse and manipulate readers- for example comparing a revenue loss number for Africa with the healthcare costs of Ebola effected countries, or comparing a revenue loss estimated over six years with the ‘equivalent number of nurses’ based on annual salary….This distorts public understanding, undermines learning within campaigning orgs themselves and reduces their credibility and ability to work with the technocratic side of the debate.
      Your question about how to bridge between popular anger and sustained change is the right one. I don’t know the answer, but my defining experience (with Duncan) was working on supply chain labour standards and the development of the Ethical Trading Initiative in the 1990s which saw smaller scale private sector scandals (Katy Lee Gifford in tears when she found out their were child labourers involved in making her clothing line) into a long, slow process of collaboration, There was shift from an entrenched antagonistic relationship between campaigners and industry to a more complex one, with a more nuanced shared understanding of the problem. I think its time for the tax havens debate to make a similar gear change.

  2. David Newman

    Any suggestions? How about an assumption of corruption bill. As both money and power corrupt, the rich and powerful should be assumed to be corrupt until they prove otherwise. Once a year, every head of state or government, every minister, every permanent secretary and every millionaire should be sent to prison, and not let out until they have proved beyond reasonable doubt that they have not done anything corrupt in the past year.

  3. Jess Drury

    One reason why there haven’t been many Global South voices in international discussions on the subject of tax evasion, I would suggest, is the generally weak tax paying culture prevalent throughout the region. If a large proportion of citizens in a country don’t pay taxes in the first place (for a very complex set of reasons), then it makes it difficult to make a compelling case for that country to insist on individuals and businesses paying their dues – especially when these bodies can argue that the business, employment opportunities (and whatever other benefits) they bring are worth more than the tax they owe.

    I think there’s a very real need for a mass education campaign – in developed and developing countries – around civil duty and why it’s good and right to pay taxes. My parents taught me that but I certainly never talked about it at school.

    From a Global South perspective, perhaps leaders also need to consider adapting existing tax structures to better suit the reality of their situations – what is the point of a regular (ie. western world) revenue structure that a) citizens don’t trust anyway because they cannot see their taxes being used to benefit them in a tangible way and b) where 80-90% of the population make a living outside of the formal sector? How could corporate investment fit into alternative structures?

  4. Robin Ford

    As the Economist has pointed out, these are complex issues and there is no one size fits all. The UK and US are themselves very significant “offshore” jurisdictions. While I support continuing the pressure on all jurisdictions to enable and enforce full transparency among tax authorities, I also support the right of each jurisdiction to decide on its own tax regime. I am glad to see that some jurisdictions are now fighting back. See for example this statement from BVI – file:///C:/Users/fordr/AppData/Local/Microsoft/Windows/INetCache/IE/Y6E2AB4Y/STATEMENT%20BY%20GOVERNMENT%20OF%20THE%20%20BRITISH%20VIRGIN%20ISLANDS%20ON%20ICIJ%20LEAK%20OF%20PA….pdf

  5. Daniela Niculescu

    In Romania, the general public and small business are paying a large number of taxes (see EUROSTAT) while Goverments notoriously misspend. Scandal after scandal after scandal, the media daily exposure of all those illegal or “ill” spending has left us with the “entertainment” satisfaction (we see on TV for a while handcuffed politicians marching passed between police arrests, court, house arrest and back). Very few where proved guilty and the state recovered nearly 5% of the stolen money.
    Back to the tax payers, we never know where our tax money goes. During a demonstration, a banner stated “Sorry we can’t produce as much as you can steal”.
    Of course we are developing ways of avoiding paying taxes. Otherwise we will starve, businesses will die. There is a saying “Mean masters, make servants cheat” or “the fish start to stink from the head”.
    We are living in a vicious circle:- “they steal to make fat bank accounts, we cheat so that we survive”

    • Duncan Green

      So is answer stop paying taxes or try and make government spend them better? Tricky, because one is a lot easier/quicker than the other, but self-defeating in the long run

  6. In the short term national politicians will only do anything after continuous sustained pressure. We will need to find ways of keeping the issue of tax havens in the news, and build a broad campaign base :

    Need journalists to continue to feed stories on tax havens linked to corruption and inequality. South Sudan was a good example of a population starving because of corruption, quoted in The Independent:

    Engage more NGOs in planned campaigning (conference to co-ordinate ideas?). Letters to MPs and demonstrations outside the May corruption summit (When and where is it being held? Can we demonstrate outside to delegates and press, with NGOs giving press releases?)

    Try to include religious groups to build the moral case against the rich “robbing” from the World’s poorest. Anglican church could be influential with David Cameron, and clear statements from the Pope would be very helpful.

    Get politicians to justify decisions that prevent progress. In 2015 the US and UK government representatives blocked proposals made at the UN summit in Addis Ababa for a Global tax body. Why?

    Form a link establishing the end of tax havens as key to implementation of the UN Global Goals. A recent blog claimed that 3 key goals for poverty, health and education in low income countries would cost $148 billion per annum. So this could be fully funded if we ended tax havens around the World which cost developing nations over $170 billion every year.

    Longer term there is an inherent problem with national regulation. Only Global action can finally end this corruption, since financial operators will always make money by operating in the gaps between national regulators. The wealth of the top 1% and major corporations is like water – it will seek out the leaky holes in the system. Plug one outlet, and it will simply find another. The UK government will be lobbied by city banks who say if we stop tax havens linked to London, the business will only go elsewhere. The UK will lose out and the poor will be no better off. ( Consider when France discussed raising marginal tax rates in 2012 and Bernard Arnault, it’s wealthiest citizen immediately applied for Belgian citizenship ).

    The ultimate answer, put forward in my book “The Global Race” is to form a Global Economic Community that can agree principles of a regulated single Global market. Any bank or country that wants to trade in the single market, will need to agree to full transparency via a Global wealth register, and levy a minimum rate of corporation tax (say 25% ) which will apply wherever a company chooses to incorporate. The new GEC can be based on learning from the original EEC, and should initially be formed through the G20 nations. Because they represent over 85% of Global GDP any bank or country that refuses to trade by the rules will effectively be frozen out of the Global economy.

    At least three urgent Global problems can only be addressed by such a body :

    Global tax havens and corruption
    Universal carbon pricing (tax on fossil fuels)
    Global banking regulation

    To see more on the future of “The Global Race” watch

    Robert P Bruce – author of “The Global Race”

  7. John Saunders

    Enforcement mechanisms and coercion can be effective, but they’re not the only means to change behaviour. Think of wearing seatbelts and drink driving – tricky to monitor and enforce, but most people wear seatbelts and refrain from drink driving now.

    In The Honor Code, Kwame Anthony Appiah identifies the key role played by shame in moral revolutions. Of course individuals have been publicly shamed since the papers leaked, but do people who haven’t been outed feel ashamed of themselves? Or do they pat themselves on the back for cleverly squirrelling their money away? The flip side is rich individuals who pay their fair share of tax – are they proud of their contribution, or do they feel like they’re missing a trick? The emotional calculus has to change.

    Much as companies now proudly profess their ethical credentials, and wealthy individuals make a show of their charitable efforts, tax payment needs to be something to be proud of. The perception now is that all rich corporations and individuals hide their money from tax authorities – as a descriptive norm, this simply incentivises the status quo (since, as Robert Cialdini has shown, emphasising the prevalence of bad behaviour can encourage it further). Where are the proud voices of potential tax avoiders who pay their fair share (individuals and corporations)?

    If I’m avoiding tax now, and think ‘I’d better come clean before I’m outed…’ – what does that mean for me? What’s my incentive to change? Is my fear of retribution justified? Or is there a pain-free way to avoid the shame, begin paying tax and feel proud of myself (perhaps even be hailed as an example to others)? Voluntary decisions can get us a long way – which has largely been the case with drink-driving and seatbelts.

    It would be nice to create a water-tight system to enforce tax payment, but in the meanwhile we can do a lot to encourage individuals and corporations to contribute more under the current system.

  8. Hi Duncan – We are looking at these issues at the ODI. Can you send me details of the $170 billion figure quoted here (and elsewhere)? We were not sure if this is generated by Oxfam or another source and would like to see the methodology behind it. We looked a the UNCATD 2015 WDR and they estimate $90 billion. Thanks Judith.

  9. Oliver Pearce

    Hi Judith, The $170bn figure is a combination of estimates of tax avoidance by MNCs using tax havens ($100bn) and rich individuals using tax havens ($70bn) to deprive developing countries of that revenue. Oxfam estimated how much multinational companies and wealthy individuals dodge taxes by using tax havens as a base or storing wealth in offshore accounts. The secrecy that tax havens facilitate stop us knowing the full extent of the problem, but in the World Investment Report 2015, UNCTAD estimates corporate tax dodging costs developing countries at least $100bn a year (see discussion around page 200: “An estimated $100 billion annual tax revenue loss for developing countries is related to inward investment stocks directly linked to offshore investment hubs.”), while economist Gabriel Zucman calculates that 30 percent of Africa’s financial wealth is held by rich individuals offshore in tax havens (see The Hidden Wealth of Nations: ). We use these data because we are particularly interested in the role of tax havens in helping to facilitate tax losses in developing countries. Thanks, Oliver (policy adviser, Oxfam).

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