The fallout from the Panama leaks showed no sign of abating as U.K. Prime Minister David Cameron was forced to provide more transparency over his wealth and European officials pledged measures to require companies to report their offshore bank accounts.
Cameron will face lawmakers on Monday as he seeks to draw a line under the crisis stemming from information about the use of offshore tax havens leaked from Panama-based law firm Mossack Fonseca. Iceland’s prime minister has resigned, Malta’s government faces a confidence vote and Argentine President Mauricio Macri promised to put his assets in a blind trust after he was linked to two companies listed in Panama.
The revelations are undermining public trust in governments around the world, even on unrelated issues including Britain’s European Union membership and a Dutch referendum on a proposed trade pact with Ukraine that was defeated last week. The leaks come as politicians around the world find themselves on the defensive against populist groups angry at rising inequality.
“The Panama papers are yet another symptom, rather than root cause, of a growing disconnect between elites and their voters,” said Wolfango Piccoli, co-president of Teneo Intelligence in London. “Even if the Panama story were not to drag on for too long, the fundamental crisis of diminishing trust in the political establishment is likely to continue.”
As politicians feel the heat, banks, law firms and other companies that have facilitated access to offshore accounts are coming under greater scrutiny that could change how they do business.
More than 20 nations have announced probes into information contained in the leaks, and the Organization for Economic Cooperation and Development will host a meeting on April 13 to discuss cross-border tax issues. Global finance ministers are expected to discuss the issue when they gather this week in Washington for the International Monetary Fund’s spring meeting.
Stricter Measures
The European Commission will on Tuesday consider how to require large companies to make public what they pay in tax in each of the 28 EU countries, and possibly outside the bloc as well.
Though the Commission has been working for years on how to stop multinationals playing European countries’ tax codes off each other to minimize payments, the Panama papers may push it to expand the scope of its work, EU Financial Services Commissioner Jonathan Hill said in a statement on Saturday.
“There is an important connection between our continuing work on tax transparency and tax havens that we are building into the proposal,” Hill said in the statement.
Following a week of scrutiny into his financial affairs, Cameron published details of the taxes he’s paid since 2009, after acknowledging that he sold about 30,000 pounds ($42,000) of shares in an offshore fund set up by his late father shortly before he became prime minister. He said he had paid all tax due on the sale.
Crackdown
Cameron will tell the House of Commons on Monday that companies will be prosecuted if they fail to stop their employees assisting tax evaders. He also set up a task-force of tax and law enforcement officials to pursue leads contained in the leaked documents.
“The real direct political risk is that Cameron is undermined as a pro-EU spokesperson among swing Labour voters, who without a word from their own party leadership might just vote ‘no’ in protest,” said Jacob Kierkegaard of the Peterson Institute of International Economics in Washington. “So the risk of ‘Brexit’ has increased.”
The leak from Mossack Fonseca to an international consortium of investigative journalists consisted of more than 11.5 million documents detailing over 214,000 offshore companies, about half of which are domiciled in the Virgin Islands.
Jeremy Corbyn, leader of the U.K.’s opposition Labour Party, said on Sunday that Britain had a role to play in cracking down on tax havens because many are British dependent territories.
“What Panama has shown more than anything is there’s one rule for the rich and another for the rest,” Corbyn said in an interview with the BBC. “We need to be much more assertive on overseas arrangements in British dependent territories.”
Fueling Populism
Iceland’s government survived a no-confidence vote on Saturday following the resignation of former Prime Minister Sigmundur David Gunnlaugsson over his offshore bank accounts. Malta’s government faces a parliamentary vote on Friday after the country’s energy minister and Prime Minister Joseph Muscat’s chief of staff were found to have trust companies domiciled in Panama.
“I doubt there will be further leader resignations beyond Iceland and perhaps some corporate executives,” said Peterson’s Kierkegaard. “These events fuel populism and undermine support for traditional parties.”
In Norway, where the national wealth fund wasn’t named in the Panama papers, protesters held a rally outside its office anyway to call for an end of all tax havens.
The revelations also disrupted French Prime Minister Manuel Valls’s working trip to Algeria over the weekend. Reporters from two French media, newspaper Le Monde and broadcaster Canal+, were denied visas to accompany Valls because they reported on Algerian cabinet members caught up in the Panama affair. Other French media decided not to cover the trip in protest.
Some leaders have sought to put a positive spin. German Finance Minister Wolfgang Schaeuble said on ARD public television Sunday night that the divulgences are “helpful” in efforts against tax evasion and in spurring international efforts to create registers on international company ownership.
Societe Generale SA meanwhile confirmed that French police visited its offices last week to collect documents related to its offshore accounts revealed in the Panama Papers. In Paris, youths spray-painted a Societe Generale branch with slogans related to the revelations during a protest on Friday against a labor reform bill.
In Switzerland, prosecutors said the Mossack Fonseca documents contain new information relevant to their investigation into corruption at soccer’s world governing body FIFA. Also in Switzerland, police raided an art warehouse in Geneva after documents released as part of the Panama papers helped reveal the ownership of a disputed Amedeo Modigliani painting that had been stolen by the Nazis.
Former British Finance Minister Nigel Lawson said much of the public reaction has ignored the fact that offshore accounts are often not illegal and are useful in international trade, provided the correct taxes are paid.
“You wouldn’t have had the development of the so-called emerging world as rapidly as it has been if there had not been freedom of capital flows,” Lawson told the BBC on Sunday. “It’s done a great deal of good, and nobody in their right mind wants to unwind that. But there does need to be cooperation between tax authorities around the world.”
