“Now all countries within and outside Africa must follow suit and begin their own investigations. These investigations should not only be limited to the findings in the Panama Papers but should go further to uncover other possible destinations of the proceeds from tax evasion. The exposures contained in the Panama Papers is a massive blow to financial secrecy, which must be encouraged.”
(Thabo Mbeki – Chair of High Level Panel on Illicit Financial Flows)
Over the past few days, there has been a furor in the global community regarding reports on “the Panama Papers”, an enormous leak of more than 11 million documents which are said to date back up to four decades and are allegedly connected to a Panama law firm. According to the International Consortium of Investigative Journalists (ICIJ), this firm has, in all that time and possibly longer, helped establish secret shell companies and offshore accounts for the rich and the powerful globally. On an even graver note, data from these documents show that that the firm worked with more than 14,000 banks, law firms, company incorporators and other middlemen to set up companies, foundations and trusts for customers. In a time such as this when the issue of curbing Illicit Financial Flows, brought on by practices such as tax evasion and the use of Tax Havens, is one of Africa’s priorities, the release of these Panama Papers is most welcome.
The Panama Papers elaborately bring to light issues that the African Union (AU) / United Nations Economic Commission for Africa (ECA) High Level Panel (HLP) on Illicit Financial Flows (IFF) from Africa vigorously underscored in the Findings in its Report released and endorsed by African Heads of State and Government in January 2015. Not least significant in these Findings were matters relating to Tax Havens and/or Financial Secrecy Jurisdictions and the lack of transparency with regard to the Beneficial Ownership of firms.
The information released in the Panama Papers thus far strongly confirm the Findings in the HLP Report. More so, they confirm the existence of a network of offshore accounts and complex investment vehicles that drive tax avoidance and evasion. Until now warnings against such vehicles have been taken lightly. The staggering amount of illicit practices and the large number of global actors exposed by the Panama Papers demonstrate that Governments of Africa and the rest of the world cannot avoid firm action against the Tax Havens/Financial Secrecy Jurisdictions.
The undeniable fact is that the Illicit Financial Flows which derive from tax evasion deserve our full attention both continentally and globally. As revealed within the Panama Papers, the fourth most used Tax Haven by this firm is an African country. Worse still, the reports show that this firm only knew the identities of the real owners of just 204 of 14,086 companies it had incorporated in this very country. Indeed, we must not rest under the illusion that the issue of Tax Havens does not directly affect Africa and the world at large.
Several countries in the world including South Africa, Britain and France have vowed that any of their citizens mentioned in the Panama Papers will be investigated by the relevant agencies to ensure they comply with the laws regarding tax evasion. It is a decent start to the efforts required. Now all countries within and outside Africa must follow suit and begin their own investigations. These investigations should not only be limited to the findings in the Panama Papers but should go further to uncover other possible destinations of the proceeds from tax evasion. The exposures contained in the Panama Papers is a massive blow to financial secrecy, which must be encouraged.
Specific efforts must continue to put political pressure on the countries that enable a high level of financial opacity or that have laws enabling banking secrecy and the registration of shell companies. This is extremely important to all countries. Otherwise harmful tax practices and high levels of opacity in financial transactions as exposed by the Panama Papers will continue to be a scourge that we find ourselves discovering only when there are people bold enough to expose them.
As stressed in the AU/ECA HLP Report on IFFs, the global community in all of its institutions, including parliaments must take all necessary steps to eliminate secrecy jurisdictions, introduce transparency in financial transfers and crack down on money laundering. Until all countries begin to work together to combat IFFs in all its forms, including by closing down Tax Havens and combating the lack of transparency of ownership and control of companies that can hold assets and open bank accounts, there will always be a cavernous opportunity for the exploitation of tax laws at all levels and in all countries for negative purposes..
The Panama firm in question, which all would hope to see receive the deserved justice if found guilty, has responded to the exposures by stating that nothing in the documents released suggests that it has been involved in any illegal practices. Sadly, this may very well be the case legally given the current incomplete global architecture for tackling IFFs, which should include binding international Treaties.
We should not misconstrue the release of the Panama Papers as a time for celebration or an end in itself. To the contrary, it is rather a time for deep reflection and regret that we have allowed the practice to persist which is made possible among others by the existence of Tax Havens/Financial Secrecy Jurisdictions.
Now is the time for the global community to act in a firm and comprehensive manner to end the Illicit Financial Flows and close down the Tax Havens/Financial Secrecy Jurisdictions which serve as the domicile of these Illicit Financial Flows.