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Offshore hypocrisy

By Hassan Javid:

Earlier this week, the leaked Panama Papers generated a storm of controversy around the world, providing evidence of how thousands of politicians, celebrities, and other public figures have made use of, and benefitted from, offshore companies and trusts based in tax havens like the British Virgin Islands and the Bahamas. While there are lawful uses for these financial arrangements, and while many of those implicated in the leaks have correctly argued that what they have done is not necessarily illegal in their respective jurisdictions, the incontrovertible fact is that offshore shell companies and trusts primarily exist for one purpose, namely tax avoidance and evasion. As repositories of wealth hidden from public scrutiny and audit, these instruments exploit loopholes in the law to render invisible both the legitimate and illegitimate accumulation of lucre by the global elite.
At one level, none of this should actually be news; offshore tax havens have existed for a long time, and it is no secret that they have routinely been used by the very wealthy for various ends. Indeed, the revelations made by the Panama Papers should actually be about as shocking as the discovery that ice is cold and grass is green. Yet, the apparent banality of the leaked information has nonetheless proven sufficient to force the resignation of at least one Prime Minister (Sigmundur Gaunnlaugsson of Iceland), and continues to be a source of considerable angst and awkwardness for leaders from Russia to Argentina and the United Kingdom to Saudi Arabia. In Pakistan, the Panama Papers have proved what many have long suspected; politicians from across the political spectrum, but particularly from the PPP and the PML-N, as well as their friends and relatives, have been heavily involved in making use of offshore financial arrangements.
When responding to the allegations made by the Panama Papers, the children of Nawaz Sharif, who are the highest profile Pakistani personalities named in the leaks, have claimed that nothing they have done is illegal, that none of the companies and entities named in the Papers implicated Nawaz or Shahbaz Sharif themselves, and that they have abided by all the relevant tax regulations in their countries of residence (a point that is pertinent for Hussein and Hasan Nawaz, both of whom are not resident in Pakistan). Put simply, this line of defence suggests that the Sharifs have done nothing that other successful business families do not also do, and that the members of the family directly involved in politics have no links to the financial side of things.
The problem with this argument, legally sound as it might be, is that it conflates what is permitted with what is right. In the United Kingdom, Prime Minister David Cameron has been criticized for his father’s use of tax havens not only because he himself has benefitted from these arrangements prior to assuming office, but also because it is hypocritical to speak of tax reform and economic justice while simultaneously participating in, and remaining silent about, a shadowy global network of tax evasion that provides the rich with the means to avoid contributing their fair share to the societies they live in. While no one has accused Mr. Cameron of any illegal behaviour, he is increasingly being taken to task for a stance that is unequivocally unethical and duplicitous.
A similar argument can be made about the Sharifs in Pakistan, as well as the other politicians named in the Panama Papers. While what they have done might not conflict with the letter of the law, it is difficult to defend opaque financial mechanisms that facilitate ‘legitimate’ tax evasion while, in the same breath, exhorting the people of Pakistan to pay their taxes. It is morally wrong to turn a blind eye to the ‘legal’ tax evasion of the rich while, for example, increasing the rate of GST as part of a punitive system of taxation that disproportionately hurts the poor and underprivileged. It beggars belief that those who exploit every possible legal loophole to hide their wealth should be tasked with the responsibility of ‘reforming’ Pakistan’s revenue system (as evinced by the case of PPP senator and member of the Tax Reform Commission Osman Saifullah who, with his family, has been linked to no less than 34 different offshore companies).
There is another dimension to this saga in the Pakistani context. The fact that tax evasion may sometimes be legal might sound like a good argument to make in defence of offshore financial shenanigans, but the argument itself is premised on the assumption that the wealth thus stashed away was acquired through legitimate means. While politicians in Pakistan have long taken refuge in the fact that many of the corruption cases lodged against them have never been proven in courts of law, the enduring whiff of venality that surrounds the mainstream parties and their most prominent partisans is one that throws the Panama Papers into stark relief. As various opposition parties and other observers have repeatedly been pointing out this past week, the inscrutable nature of offshore companies and trusts makes them attractive mechanisms through which to launder ill-gotten wealth. Again, while nothing has been proven thus far, it is not difficult to see why this entire sordid saga suggests more than a hint of wrongdoing on the part of those who have held, and now hold, power in this country.
In 1840, the anarchist Pierre-Joseph Proudhon famously declared that, ‘Property is Theft!’, referring to how the possession of private property by individuals necessarily limited the freedoms and opportunities of those who did not posses it. Writing at a similar time, Marx went further than Proudhon in his analysis of the social relations governing the use and ownership of property, demonstrating how the exploitation of the poor by the rich formed the basis for the accumulation of wealth and the persistence of ever-increasing inequality in society. In the past decade, economists like Joseph Stiglitz and Thomas Piketty have convincingly shown that the gap between the rich and the poor continues to increase in the contemporary world, and that the situation is likely to worsen in the years to come.
These arguments and ideas are important because they illustrate why it is so important to expose the financial arrangements of the rich, and their apparent ‘legality’, to greater scrutiny. While many may not endorse the communist belief that private property should be abolished in its entirety, there would undoubtedly be considerable widespread agreement with the notion that economic and social justice is at least partly predicated on a redistribution of wealth, through taxation, that ensures that those who have benefitted the most from society make a corresponding contribution to help those who are less fortunate than themselves. Tax havens are one of the primary means through which the rich perpetuate their financial dominance and shirk their responsibility to society. If the law permits these activities the law itself must be changed, and for Prime Ministers and other leaders to argue otherwise is both unconscionable and unacceptable.

The writer is an assistant professor of political science at LUMS.

hassan.javid@lums.edu.pk