Offshore financial secrecy succumbs to diminishing returns
Milan: Offshore financial secrecy is succumbing to the law of diminishing returns. A new dump of leaked documents, dubbed the Paradise Papers, shows the enduring popularity of opaque structures in low-tax centres such as Bermuda. But regulation that sheds light on such deals is getting tighter, while technology makes leaks more likely.
Last year’s Panama Papers helped to topple elected leaders. Now an investigation by the International Consortium of Investigative Journalists into 13.4 million financial statements, emails, loan agreements and other paperwork has uncovered politicians, financiers and companies using secrecy to hide transactions.
U.S. Commerce Secretary Wilbur Ross had an investment in a shipping firm with significant ties to associates of Russian President Vladimir Putin, the ICIJ says. Even Queen Elizabeth invested through offshore companies.
There can be legitimate reasons for wanting to hide business interests offshore, especially for those living in turbulent countries. But getting away from tax and law-enforcement authorities is getting more complicated, and therefore dearer.
More than 100 jurisdictions – including several offshore financial centres – have committed to automatically exchange tax information with foreign governments. About 50 started sharing data in September, making it harder for individuals and companies to hide their financial dealings. Meanwhile, countries including Britain and Sweden have passed legislation that forces foreign companies and legal entities operating within their borders to disclose their ultimate owner – bypassing the often complex chain of offshore vehicles and trusts. Others, including the United States, are also introducing or tightening beneficial ownership rules.
Regulation will not stop the global flow of illicit money. Loopholes can always be found, and there are enough dark spots on the planet. But technology which makes it easier to download, distribute and organise massive volumes of data also facilitates leaks. For legitimate investors and corporations, secrecy may end up becoming too much of a costly liability.