AFTERTHOUGHT

Adam Smith in Panama

Adam Smith in Panama
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Legal or illegal, wealth cannot stay hidden for long

MOSSACK FONSECA IS now a byword for the evasion of taxes and parking of wealth abroad by the world’s rich and powerful. From top politicians in Western countries to shady businessmen in the South, the Panama Papers offer a who’s who of those who shifted money away from their countries of residence. What made this possible? The year 2015 marked the bicentenary of a now forgotten episode: The Congress of Vienna that ended one of the bloodiest wars in European history. It also put a stamp on Switzerland’s neutrality, letting it turn into a country where money could be parked from elsewhere. In 1776, Adam Smith had demolished the ideas behind mercantilism, but it was not until 1815 that taking wealth away from one country to another ceased to be considered a ‘drain’. That event opened the floodgates for the flow of money across the globe. British bonds ended up funding the Indian railway network; European money could freely flow across borders in search of investment opportunity. But what began as a movement of money dictated by profit potential ended up as a means of concealing wealth from the prying eyes of tax authorities. In the 20th century, innovations such as double tax avoidance treaties; agreements between governments and banks allowed the latter to do as they pleased. By 2013, nearly 30 per cent of the world’s 200 wealthiest persons, who had a collective net worth of $2.9 trillion, according to Bloomberg, operated their personal fortunes through offshore companies or by other indirect means.

If offshore havens have been in existence for 200 years, why is so much noise being made now? One, noise against wealth usually rises in times of distress. Since 2008, the world has become an economically insecure place. In the West, jobs have evaporated. Knowledge that ‘ill-gotten’ (read untaxed) wealth is parked abroad raises hackles. The second, more practical, issue is that dodgers are generally two steps ahead of taxmen.

While there is unprecedented cooperation between governments in sharing information, banks have worked hard to make it difficult to uncover their secrets. It takes hackers and whistleblowers to steal confidential data. There are plenty of them around.