A bombshell has been dropped on the world’s political and economic elite in the form of the Panama Papers. The leak of 11.5 million files of a single firm that helps the ultra-rich set up offshore companies could lead to the discovery of a viper’s nest of corruption. The sheer amount of information, released simultaneously by over a hundred newspapers around the world under the auspices of the International Consortium of Investigative Journalists, can be intimidating but it is worth trying to understand the purpose of setting up offshore companies. Their use can be perfectly legitimate, such as when a public figure wants to buy property without anyone knowing he or she is behind it. But they are far more commonly used to reduce taxes which is legal yet murky, or to dodge them, which is criminal. Some or all of the persons named may or may not have ‘broken the law’ but what they are all undeniably guilty of is benefiting from a system that caters only to the one percent – to the exclusion of everyone else. What is becoming clear is that the global elite are using secretive tax regimes which are not available to ordinary citizens and pushing wider the gap between the rich and the poor. The fact that billions of dollars continue to flow into small islands along the Caribbean Sea has been a matter of much public anger and acrimony. The consequence of this is the transfer of wealth from already poor countries into offshore banks, the downside of which is felt by the populations of these countries in the form of declining health and social services as well as rising prices. With governments around the world, including Pakistan’s, looking to increase the tax burden after the 2008 financial crash and debt crisis, global elites have moved their wealth into untaxable regimes. The cost of illicit financial outflows from developing countries is estimated to be a whopping $1 trillion a year. This is why there is a need to clamp down on offshore banks and secretive tax regimes which benefit only the rich. If the leaders and rich businessmen are using offshore accounts to avoid taxation, then why must ordinary citizens be obliged to pay taxes?
With the prime minister of Iceland having being pressured into resigning, the Panama Papers may claim other casualties. Right now, in the context of the Panama Papers there is not enough evidence to suggest that any illegal wealth transfers have been conducted by any of those identified. We will have to wait for further reporting as well as for relevant inquiries by anti-corruption bodies in each of these countries, including the National Accountability Bureau in Pakistan. But important questions need to be asked. Do political elites trust their own states? Do business elites actively avoid taxation in the countries they operate? The trail of offshore money from Pakistan implicates various political, business and bureaucratic elites. The Sharifs, the Saifullahs, the Bhuttos and the Chaudhrys are among the headline-grabbing political families involved. A number of industrial and business tycoons and media magnates are among those named. The names of the children of Prime Minister Nawaz Sharif appear directly while relatives of his brother, Shahbaz Sharif, have also been identified. The furore will be concentrated on Nawaz Sharif, whose children set up offshore companies to get loans against the mortgage of several properties in London. The focus has inevitably turned political, with Imran Khan demanding investigations. Yet it is our entire political and financial class that is implicated. NAB has said that it can open investigations on the basis of the Panama Papers. But it must do so in a methodical and intelligent way. The first thing the Sharif family, which has said its offshore companies were perfectly legitimate since Nawaz’s sons are not living in or liable to pay taxes in Pakistan, will have to prove is the source of that money and whether it has been taxed. During an address to the nation on Tuesday, Nawaz announced the formation of a judicial commission to be headed by a retired Supreme Court judge to investigate the allegations. This investigation must not be an eyewash and its findings, including the financial assets of the extended Sharif family, must be made public. The same applies to every other Pakistani on the list. That our elite dodge taxes by moving their money offshore is not exactly a revelation. Intuitively we already knew that we live in a world where the rules are bent in favour of the elite. Now we have the proof.