[dropcap]W[/dropcap]hat the Paradise Papers will mean
The Paradise Papers is the name given to the leak of over 13 million documents from Appleby, a law firm and provider of corporate services headquarters. While not as large as the leak known as the Panama Papers that occurred in April of 2016, the Paradise Papers remains among the biggest leaks of its kind, with 1.4 terabytes of data released overall.
At the heart of these documents are details surrounding how some of the world’s most affluent investors and businesses have minimised their tax via offshore banking and other financial structures. In many cases, this has allowed these offshore account holders to avoid paying a ‘regular’ rate, if paying any tax at all.
The story has implications for nations and regions around the globe but has a special relevance to the Caribbean given Appleby’s offices “in the key offshore jurisdictions of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Mauritius and the Seychelles”.
It is important to underscore that tax minimization strategies are completely legal in many Caribbean nations, alongside other nations around the world. While the revelations in the Paradise Papers will have a significant impact in other areas, and have caused considerable outcry accordingly, there is no suggestion on the facts at hand that any of the clients named in the Paradise Papers have broken the law. Such offshore banking practices may be unsavoury but, at present, are legal.
MOVING FORWARD
Beyond the nuances of tax law, where the Paradise Papers will have the greatest impact is in the political arena. This will be seen generally across the world as pressure grows for a global response to tax minimization strategies that would diminish the ability for wealthy citizens and businesses to move profits offshore.
This effort was well underway after the Panama Papers leak in 2016, and momentum will now increase following the Paradise Papers leak. Nonetheless, while this leak has implications for nations around the globe, fallout from the leak will be particularly visible in a select number of countries, and add another issue to governments already embattled.
SPECIFIC NATIONS
Regardless of whether a reader is US President Donald Trump’s greatest fan or critic, two things can be agreed on by everyone: a) Donald Trump campaigned heavily on delivering a ‘fairer deal’ for ‘regular’ Americans; b) This message was popular with many Americans who felt they were left behind in America’s story
of economic growth.
News from the Paradise Papers revealed that former officials like Paul Manafort and current Trump Administration officials like Gary Cohn had links to offshore banking in the Caribbean. Beyond this, the Papers revealing key Trump insiders’ close ties to the Russian government not only risks Trump’s appeal to many who voted for him – the Washington Post going so far as to say the Paradise Papers “expose Trump’s fake populism” – but will also see the federal investigation into potential Russian interference with the 2016 presidential election gifted a trove of new evidence, and avenues for enquiry.
Trump was elected to serve for four years and, unless he resigns or is removed, he will be in office until January 20, 2021, and potentially longer if he runs for and wins re-election. The real risk for Trump and the US in his already unconventional presidency now has another scandal to distract from its focus on core national and foreign policy issues.
Ultimately the information revealed in the Paradise Papers has the potential to damage Trump’s popularity, but not his presidency itself. The same cannot be said for the United Kingdom as news of this story across the British Isles has the potential to wreak havoc on UK politics on a number of fronts.
The UK is a central player in this issue regionally, with the Cayman Islands‚ the British Virgin Islands and other territories retaining a link to London. Closer to home, it has ties with territories like Jersey and Guernsey in the Channel Islands.
These revelations come at a time when the UK and the EU are negotiating what a Brexit deal should look like. Having shown reluctance to move forward with reform following leaks of the Paradise Papers‚ London is on a ‘collision course’ with Brussels over this matter.
It adds another complication to Brexit negotiations that, at time of writing, are held to be in significant trouble‚ logistically and politically. Beyond this‚ London’s desire to largely maintain the status quo while also seeking to work with EU desires for reform appears another wedge issue for embattled UK prime minister Theresa May. With recent reports indicating key supporters have given her until Christmas to lift the government’s performance or face a challenge, it gives rise to the prospect that in 2018 the UK may end up having had three prime ministers in three years. The potential impact on UK business of any further instability such as a ‘revolving door’ leadership could be significant in a nation that previously saw 20 years shared between three prime ministers: John Major‚ Tony Blair and Gordon Brown between1990 and 2010.
The broader danger with the Paradise Papers is that they not only threaten the standing of particular world leaders of governments, but public confidence in the institutions themselves.
With the global rich-poor gap now at its biggest since the gilded era of magnates like J.P. Morgan, Vanderbilt and Carnegie in the early 20th century, the Paradise Papers undermine the arguments for ‘trickle down economics’ and tax breaks for wealthy citizens based on the proposal that money retained by wealthy entrepreneurs and businesses would then be reinvested into the economy elsewhere.
Many countries in the Caribbean and beyond have seen the diminishment of traditional industries like manufacturing, stalled wage growth, and the broader impacts of disruption and globalization in the online era. With tax, these paint a complex picture with no easy answers.
While it may be legal for the world’s wealthiest citizens and businesses to pay little to no tax in their native nations via offshore banking, it is surely unpalatable to those voters in those nations who are paying their share.
CONCLUSION
The true impact of the Paradise Papers will unfold over time. While offshore banking may be legal, in such a turbulent global economy, many customers, aggrieved to learn that a ‘proudly American’ or a ‘proudly British’ retailer in fact sends most of its profits offshore, may vote with their wallets and shop elsewhere.
Further‚ institutions like Oxford University and Cambridge University, revealed to have offshore trusts, will face difficult questions surrounding their capacity to be leaders of public advancement and community engagement if they are using tax minimization offshore to withhold as much profit as possible from reinvestment among the British Isles.
Attention will now turn to action on global tax structures. Right now the dynamic between Europe and the UK is the one to watch, as a strong result here with reform could be a foundation for further changes elsewhere.
With these latest leaks having raised the ire of many ‘regular’ taxpayers around the world – as the Panama Papers did last year – this ongoing story will remain a political issue for some time. We’ll continue to cover this story and its developments as they arise.
