The Pandora Papers

Everything you need to know about the “biggest ever” leak of off-shore data

Making headlines earlier this fall, the Pandora Papers are a leak of nearly 12 million documents which implicate world leaders in legal and illegal tax evasion, hidden wealth, and even cases of money laundering. Despite the massive breadth of the leak, which exposed 330 politicians and indicated over 10 trillion USD in offshore investments and accounts, the Pandora Papers have received little coverage. This article will cover the most important details of the leak, and feature an interview with Thinking Like a Lawyer professor and legal scholar Daniel Traficonte.

What exactly are the Pandora Papers?

The Pandora Papers are a leak of documents that have been thoroughly investigated by 600 journalists from 117 sources for several months. In the United States, the International Consortium of Investigative Journalists (ICIJ) was heading the investigation. In the United Kingdom, the initiative was spearheaded by BBC Panorama and the Guardian. The leak included documents, photographs, emails, and spreadsheets amounting to a grand total of 12 million objects. The most significant components of the leak concerned offshore wealth, including offshore investments of 330 politicians.

What does offshore wealth consist of?

Offshore wealth has provided a means for the world’s most affluent people to conceal their assets and minimize taxes. Wealth can be legally concealed when spent or saved in “tax havens,” or nations with low taxation, such as Panama, Dubai, Monaco, Switzerland, the Cayman Islands, and a number of American states.

Investments such as home ownership may be conducted through anonymous companies that conceal their owner’s identity. Some countries do not require the identity of “beneficial owners” of property. In these cases, the beneficial ownership loophole allows owners to legally hide behind false company names. “I think global tax-dodging is a classic case of ‘legalized corruption,’” said Traficonte. He believes that the legality of this kind of tax evasion may be one of the reasons why public reaction following the leak has been low. “But of course what is ‘legal’ can still be extremely corrupt and harmful to society, and people shouldn't lose sight of this distinction,” he said.

What are the implications of the leak?

With such wide wealth disparity in the status quo, the implications of the leak could have been massive. The leak revealed that many political leaders who claim to support the common people are, in fact, hiding extreme amounts of wealth. This could also have created a public resentment against leaders for their lack of transparency.

Russian president Vladimir Putin was implicated by his associates’ assets in Monaco, including that of a woman with whom he is suspected of having a child. The king of Jordan was found to have used anonymous companies, known as shell companies, to acquire a large number of properties in the United States and abroad.

While there may not be direct repercussions for this hidden use of extravagant wealth, political leaders may face a reputational slap in the face. “Of course, in authoritarian regimes, high profile corruption is nothing new. But the example of Czech prime minister shows that the differentiation between [authoritarian regimes] and modern, ‘good’ liberal democracies is rather illusory,” said Political Humanities major Stanislaw Naklicki.

Traficonte also pointed to the fact that “global wealth inequality is probably much worse than the official numbers would suggest, since the global ultra-rich are so easily able to hide the true extent of their wealth from official data.” Traficonte also suggested that world leaders may face more pressure to conceal their wealth as this form of private power is becoming “obviously excessive and undemocratic” in the public eye. Traficonte used the king of Jordan as an example: “[he] doesn't have to hide the fact that he owns all this luxury real estate in California. The fact that he feels he now has to is pretty interesting.”

The economic implications of the storage of 10 trillion USD in offshore assets is worth considering, as well. “The macroeconomic implication is that so much… global capital that could be used to generate growth, particularly in the sectors that we might think are important (i.e. green and sustainable technologies), is basically sitting idle and collecting rents,” said Traficonte.

He also pointed to a theory which suggests that, in the past 40 years, or since the rise of ‘neoliberalism’ in Western states, the economic elite have stopped investing in productive activities (e.g. buying companies or investing in new products). These classic ‘capital’ investments, it seems, have stopped being profitable — or so the elite believes, according to this theory. “These leaks I think could be some confirmation of that view, since what we see here is the ultra-rich just parking their money into real estate, for the most part,” said Traficonte.

What now?

The European Union and the United States, among other governing bodies, have both said that they will respond to the Pandora Papers with new legislation to crack down on methods of tax avoidance. At a glance, legal repercussions and changes in legislation would seem like practical solutions — if they actually happen, that is.

“The ideal solution,” said Traficonte, “would be an international treaty with real "teeth" –– real enforcement mechanisms that force governments to crack down on this kind of activity. The problem is that, if you have any holdouts, those are going to become the new tax havens.” In other words, without a “totally comprehensive international regime,” there will always be other options and methods for people to move and disguise their wealth. For that reason, Traficonte concluded that this solution seems unlikely.

However, “there is plenty that national governments could do to control capital outflows, if they chose to.” Yet, he believes that more attention and political mobilization on this topic would be needed before serious solutions can be considered. Given the amount of political leaders who were directly involved, it is hard to imagine that such a solution could realistically take place in most states.

What are some long-term consequences of the Pandora Papers leak?

Considering its size, this leak has received relatively little coverage and attention. The Panama Papers, a similar leak in 2016 of a much smaller size, received a lot more public attention, for instance.

“The Panama Papers were ‘the revelation,’ the first hint which stimulated the instinct that the global financial/political system may be more rotten than previously thought,” said Naklicki. “Every next leak was… nothing new. I think there is no way the leak will actually change something substantially.”

Traficonte believes that people fail to draw the connection between global stashing of wealth and domestic issues in their everyday lives, and this could be a reason for the low public backlash. However, he told us “the connection is real: this is all money that should be taxed and used for social and public services. I think the media needs to do a better job at pointing out these connections, otherwise people will continue to see this as a distant problem and it'll just keep blowing over.”

Though there might be some resignations following the leak, Naklicki stipulated that as long as the system remains, such an abuse of power is sure to continue. “History taught us on the example of the Panama Papers that nothing is bound to change… we have gone ‘too deep’ into late capitalism to actually see an alternative.”

- Celeste Abourjeili