Post Pandora Papers call to name, shame tax evaders, end loopholes in anti-money laundering laws

In the movie Laundromat, Ellen Martin (Meryl Streep) investigates financial dealings in the Caribbean when a life insurance company will not pay out after her husband dies in a boat accident.

The movie includes a scene where the characters Ramon Fonseca (Antonio Banderas) and Jurgen Mossack (Gary Oldman) discuss the fine line between how the rich and famous use offshore tax havens and secret shell companies to hide their deals and assets.

That film has endless notable quotes, but one epitomises what lies at the heart of the Pandora Papers leaks, as well as the preceding Panama Papers revelations (which the movie was loosely based on).

Ramon Fonseca says: "Now, privacy and secrecy are two different things. Privacy is locking the bathroom door when you want to take a pee."

Jürgen Mossack replies: "Secrecy, on the other hand, is locking the door because what you are doing in a bathroom is not what people usually do."

For some time now, this line between what is private and secret has been blurred, and it has helped those who are immensely rich – and powerful – to hide their wealth from tax authorities.

Not every person named in the Pandora Papers is a tax fraudster nor a money launderer. As the tax office has stressed, there is nothing illegal with holding money offshore, provided it is declared to authorities.

The most recent avalanche of files — 11.9 million documents, 2.9 terabytes of data, leaked from 14 financial institutions to the International Consortium for Investigative Journalists (ICIJ) and then shared with 600 media outlets in 117 countries — shows that billionaires, celebrities, presidents and prime ministers use mostly legal means to hide their property and other assets.

From the real estate holdings of Jordan's King Abdullah II (who the documents show purchased about $100 million worth of mansion properties in Malibu, California, Washington D.C. and London) to Spanish singer Julio Iglesias (who has at least 20 companies in the British Virgin Islands, which were used to purchase luxury homes in Miami and a plane), the Pandora Papers bring to light the extent of the secrecy. 

This secrecy is not illegal and there is no suggestion either has engaged in any kind of wrongdoing. 

Tax minimisation is allowed, as opposed to tax evasion or avoidance, which is not.

However, the rich and powerful have long been able to hire top-notch legal and tax advisers who help them navigate the blurry waters of the secret versus the private. 

These advisers set up a shell company — a legal entity created in a tax haven — for the purpose of holding money, luxury homes, businesses and other assets.

But a shell company exists, legally, only on paper, with no full-time employees and no real office.

To borrow again from Laundromat: Ellen Martin (Meryl Streep): "As far as I can see, what they do is they set up companies. Not real companies like a hotel, or a hardware store. They set up what they call a shell, and they sell shells. Not actual shells."

Time to out people behind secret shell companies 

Investigations by journalists — including Lux Leaks, The Panama Papers, The Paradise Papers and the latest Pandora Papers — all have one ingredient in common: They out the people behind the secret shell companies.

This information then gets handed to tax authorities, which investigate it and, in some cases, launch criminal prosecutions.

About 1,400 Australians were named in the Panama Papers leak in April 2016, which included 11.5 million files from Panamanian law firm Mossack Fonseca.

By the end of last year, off the back of the data as well as its own intelligence, the Australian Taxation Office (ATO) completed more than 500 audits and reviews and had raised more than $143 million in additional tax liabilities and cash collections of more than $37 million.

The Panama Papers had renewed global efforts to lift transparency. 

There were calls for governments around the world, including Australia's, to introduce a register that gives the public free access to the names of people behind secret assets and bank accounts.

Known as a "beneficial ownership register", it would make it harder for criminals to hide who they are and what they get up to.

This register was also something that the Labor party supported in its election pitch and, in 2016, the then-minister for revenue and financial services, Kelly O'Dwyer, said the Government would look at introducing.

But, still, there is no sign of a register.

Now the Greens are calling for the federal government to legislate Ultimate Beneficial Ownership Register and to end any loopholes in the Anti-Money Laundering and Counter-Terrorism Financing (AML-CTF) Act (2006)

Australia is one of only six countries in the world where accountants, lawyers and real estate agents are not required to report under anti-money laundering and counter-terrorism financing laws.

Greens Treasury spokesman, Senator Nick McKim, says the Greens will table legislation requiring the government to, by July 1 next year, establish a register and to include accountants, lawyers and real estate agents as designated services under the Act.

"Put simply, we need to know who ultimately owns and profits from every company registered and owned in Australia.

"This would put a dent in the model of using shell companies to hide the ultimate ownership of other companies and assets."

NGOs around the world call for greater transparency

It is also a change that non-government organisations (NGOs) globally have also called for.

Transparency International's anti-money laundering expert, Maíra Martini, says no one should be able to hide behind companies that exist only on paper. She says a public, central register of company owners in all countries would help prevent that.

Gabriel Zucman — associate professor of economics at the University of California, Berkeley, and a member of the Independent Commission for the Reform of International Corporate Taxation (ICRICT) — also wants shell companies outlawed.

José Antonio Ocampo — Professor at Columbia University and ICRICT chairman — says the most effective way to put an end to tax havens would be to adopt what could be a "truly historic international agreement".

"In concrete terms, this means seeing all multinationals' worldwide profits taxed in line with their real activities in each country through formulary apportionment, and the world adopting an ambitious 25 per cent global effective minimum tax on multinationals," he said.

Alex Cobham — chief executive of the Tax Justice Network (TJN) — estimates that countries globally are losing a total of more than $US427 billion in tax each year to international corporate tax abuse and private tax evasion. 

A UN panel report — launched in February by a group of heads of state and ministers from around the world — backs TJN's calls for greater transparency. Mr Cobham calls it the "ABCs of tax transparency".

"A is for the automatic exchange of information, delivered through a multilateral instrument to ensure that tax authorities are aware of their tax residents' offshore financial accounts," he said.

This was adopted by the OECD in the Common Reporting Standard, which now covers all major financial centres except the United States but, as Mr Cobham points out, it excludes most lower-income countries from effective access to information.

Mr Cobham says that, while about 80 countries now have registers for companies, many still lack a comprehensive register.

"B is for beneficial ownership transparency and, specifically, the creation of public registers of the ultimate, warm-blooded human beings who own companies, trusts and foundations," he says.

"C is for country-by-country reporting by multinational companies, to show the extent and nature of profit-shifting."

Mr Cobham says while country-by-country reporting was an OECD plan, introduced in 2015, "under heavy lobbying [it] introduced various technical weaknesses and an extreme turnover threshold and, critically, did not allow for the data to be made public".

Data leaks have been crucial in raising public awareness of the scale of alleged tax abuse and that, in turn, has forced policy action.

The ICIJ reports that, since the launch of the Pandora Papers, government authorities in at least eight countries have announced investigations into the financial activities of some of their most high-profile citizens and institutions.

"Ultimately, politicians take steps not when they see the light, but when they feel the heat of public anger," Mr Cobham says.

"The public should not have to rely on leaks, though."

He is right. We know what to do to fix the problem. Governments just need to have the political will to take action.