The ‘Panama Papers’ has become one of the largest information ‘spills’, in recent history. As names of major international corporations have been revealed to be involved in offshore business deals, questions associated with morality and financial responsibility come to the surface. For people on the ground, understanding this international incident can oftentimes me tricky.
The Panama Papers are documents which were leaked from Mossack Fonseca, a Panama-based law firm. 11.5 million confidential documents, of both financial and legal records have been made public.
Advocate Craig Renaud, of the Rhodes University Law Department, who is familiar with the legalities and workings of ‘offshore’ business shared his analysis of this international information crisis and what it means to South Africans and the global community with The Oppidan Press.
Renaud states that while the media have hailed this as a triumph against “cheating fat cats” there are other aspects to the incident that need to be considered.
The decriminalisation of offshore business
Renaud explained that it is not an outright crime to hold assets through a company or trust registered to another country or to have a bank account outside of your country of residence.
“The vast majority of entities set up by the Panamanian law firm which is the origin of the papers are likely to have been set up for legitimate reasons,” he said.
He goes on to explain a scenario where a wealthy elderly individual wishes to leave his assets to his four adult children who live in different countries. He decides to keep his assets legally in an offshore trust. He has done this to avoid the extensive and complex South African tax system, their own countries tax systems and the double tax treaties between SA and the children’s countries of residence. This results in the children being the beneficiaries of the trust, having legally avoided complicated tax laws and expensive professional advisers.
“This is a typical example (albeit a rather simple one) of the use of an offshore structure,” he explained, “I find it disturbing that these legitimate uses of offshore structures are now being characterised as somehow dishonest, and in the process tens of thousands of honest clients of a Panamanian law firm now risk having their private affairs splashed across the pages of the world’s newspapers.”
The criminal minority
The second issue that Renaud touches on is that those who use offshore structures to hide assets of criminals and corrupt politicians is a relatively small minority.
“No law firm – including the firm from which the current cache of documents has been stolen – knowingly and willingly takes on a criminal as a client.,” he said, “The reputational risk to the law firm of having criminals as clients is simply too great.”
He explained that this does not mean that criminals do not slip through.
“In the present case it seems that the directors of the Panamanian law firm have taken their eyes off the ball when it comes to screening prospective clients. That is now costing them dearly,” he said.
The real tax-evaders
Renaud explained that, in his opinion, the anger at those who hid their money in Panama is misplaced.
“The amount of taxes which they manage to evade is just a drop in a vast ocean of taxes which are completely legally avoided by the large corporations of the world as a result of tax loopholes built into the tax systems of the major industrialised countries, particularly the United States,” he said.
While hiding money offshore is still a crime, on the larger scale it is considered close to insignificant, in the eyes of Renaud, when compared to the crime of politicians who ensure that the tax system is rigged so that big businesses fail to pay their due taxes and the tax burden then falls disproportionately to the poor and middle class.
A privacy problem
Renaud closes in on another issue that the leak has brought to life: privacy.
According to Renaud the assumption that public good must take precedence over personal right to privacy and clear-cut opposition of these two options is incorrect.
“Privacy is not, I suggest, a personal right, but rather a collective right,” he explained, “The reason is that society has an interest in maintaining the privacy rights of its individual members, and the social fabric itself is degraded by the erosion of the privacy rights of individuals.”
As a result, the idea that overriding privacy in the interest of the public good becomes more complicated.
Is the cost of privacy worth the exposure of a minority?
“My own view – and I accept that it is a minority view – is that I would rather see a few criminals get away with their crimes than see the privacy of thousands of clients of a law firm being compromised. The wholesale erosion of our right to privacy is what we should be worried about in this affair,” he explained.
As names such as Zuma and Mugabe appear among others in the Panama Papers, many feel that this is a triumphant win for the 99%. As Adv. Renaud has now explained the interplay of privacy, public good, shady business transactions and legitimate banking make the need for understanding and analysis even more pressing,
*Let us know what you think! Responses to this article are welcomed by The Oppidan Press.
Words by: Kathryn Cleary