In October, the Pandora Papers revealed the lengths politicians, business leaders, and celebrities have gone to in their quest to conceal their wealth. Here, we discuss the Papers’ revelations in four countries.
In October 2021, the International Consortium of Investigative Journalists (ICIJ) released approximately 12 million documents leaked from 14 law firms and offshore trust companies. Known as the Pandora Papers, these documents revealed the financial dealings of hundreds of high-profile politicians, business leaders, and celebrities worldwide, including prominent politicians such as President Uhuru Kenyatta of Kenya, Prime Minister Andrej Babiš of Czechia, and Abdullah II, King of Jordan. The documents exposed secretive purchases of real estate, artwork, and other items acquired with the help of trust companies in offshore tax havens. While politicians from 90 countries were implicated in the Papers, here, four of our contributors analyze the findings relevant to their own countries (the United Kingdom, the Netherlands, and the United States), as well as Czechia, where they have all studied.
Greta, 21 — The UK: a long line of corruption scandals
In a rather embarrassing turn of events, the UK is at “the heart of the scandal” revealed by the Pandora Papers, and even has the honour of being in Transparency International’s list of ten countries which urgently need to act in light of recent revelations.
The UK’s implication in the Pandora Papers is three-fold. First, London has been shown to be a hub for tax avoidance. The Pandora Papers have revealed that many London properties have been purchased by foreign companies using offshore accounts which hide the owners’ identities. Although such purchases are legal under British law, they highlight the financial practices of the wealthy, which are far-removed from those of the average Brit. Individuals implicated include the Jordanian King Abdullah II, Azerbaijan’s President Ilham Aliyev and associates of Pakistani Prime Minister Imran Khan. Russian and Ukrainian oligarchs have also become common buyers on the London property market. This is not the first time the London property market has been called out for its lack of transparency. A 2019 report by Global Witness showed that around 87,000 properties in England and Wales were owned by anonymous companies registered in tax havens. Among the buyers are several Conservative Party donors, including Lubov Chernukhin, who has donated £1.8 million to the party since 2012.
This leads us to the second revelation: some Conservative Party donors are extremely corrupt. Russian tycoon Viktor Fedotov, whose company has donated over £1.1 million to the Conservatives, has been found to secretly co-own a company accused of serious corruption. Meanwhile, the Papers show that donor Mohamed Amersi advised on the structure of a telecoms deal which has since been found to be a £162 million bribe for the then Uzbek president’s daughter.
Thirdly, corruption in the British high street is rampant. £7.5 million in earnings from Unaoil has been funnelled offshore. This company was already disgraced back in 2016, when it was exposed for bribing officials in order to secure oil contracts. Meanwhile, retail tycoon Sir Philip Green (who is infamous in the UK for selling his department store BHS for £1 to a group of bankrupt investors with no retail experience, at the expense of 11,000 jobs and £571 million in pensions) bought a £15 million flat in London and a new £10.6 million home for his daughter as BHS collapsed around him.
To combat this long-standing corruption, the government published draft legislation in 2018 which would ensure the transparency of the owners of UK properties. However, this has yet to be presented before Parliament. This year the government reiterated their commitment to create a register of overseas owners of UK properties. None of this, however, was listed as a legislative priority in the Queen’s Speech. Ministers promise to introduce a new law when there is time to table it in Parliament. The government has also recently raised the risk of money laundering to “high”.
Health Secretary Sajid Javid has praised UK newspapers for bringing these stories to light (the irony being that he himself has been accused of tax evasion). Chancellor Rishi Sunak has defended the UK’s track record on tackling corruption, brushing it off as a global problem, not unique to the UK. However, the UK has long been accused of being a magnet for “dirty money”, and little has been done to stop it. Known-kleptocrats are kept in the government’s circle, as ultimately they are seen as “too big to jail”. The UK’s political and regulatory system is ineffective, and an inquiry is long overdue.
The Pandora Papers are just the latest in a series of corruption scandals, at the centre of which is the government.
The Pandora Papers are just the latest in a series of corruption scandals, at the centre of which is the government. Robert Jenrick was in trouble in 2019 for helping a Tory donor avoid paying tax. During the pandemic, the government fast-tracked suppliers of personal protective equipment with political connections. Rishi Sunak and Matt Hancock were accused of corruption over the Greensill Scandal this year. Meanwhile, this government is raising taxes and cutting benefits for the poorest people.
The issue is that nothing sticks. Even the Pandora Papers seem practically forgotten in the UK within a matter of weeks. The latest scandal has seen Tory Members of Parliament voting to protect “one of their own”, Owen Paterson MP, from punishment for breaking lobbying rules. After uproar, Owen Paterson was pushed into resignation, but the government has yet to be held to account for the scandal. This Teflon government has learnt that they will not be held accountable for their actions. Therefore, while the Pandora Papers might uncover a broader pattern of corruption in the UK, it is unlikely that the findings will lead the government to finally take action.
Ruben, 23 – The Czech Republic: Villa revelations prove costly as Andrej Babiš loses election by 0.6% of the vote
For Andrej Babiš, controversy concerning his personal finances is nothing new. The Czech Prime Minister is well known to be one of the richest people in the country. He accumulated most of this wealth as head of Agrofert, a conglomerate of companies, mostly in the agriculture, food processing, and chemical sectors. The company has received significant amounts of EU funding, and Babis has already been under investigation over claims of conflict of interest and improper receipt.
So far, Babiš had always been able to weather the storm. This time, however, he was less lucky. The Pandora Papers revelations came just several days before the Czech general elections on the 9th of October 2021. The Papers alleged that Babiš had used a shell company in the British Virgin islands to transfer $22 million to buy a villa near Cannes. Doing so enabled him to purchase the villa anonymously as well as avoiding taxes.
It is likely that Babiš’ inclusion in the Pandora Papers was what made the difference in the end, as more voters were convinced to latch onto SPOLU’s momentum in an attempt to oust Babiš. Although ANO is still technically the largest single party, it will be difficult for Babiš to form a coalition, since the current coalition partners – the Social Democrats and the Communists – did not reach the 5% threshold to enter Parliament.
Babiš attempted to frame the allegations as an attempt of local journalists to derail his re-election. He had many skirmishes with Czech media outlets in the past, but was ultimately unsuccessful in convincing Czech voters that this was what he regarded as just another smear campaign.
Babiš’’ party ANO had been steadily falling in the polls for most of the year, but had managed something of a revival in the summer. Just a month before the elections, ANO was still predicted to win 27% of the vote, with closest challengers SPOLU back on 20%. A week ahead of the elections, the centre-right SPOLU coalition had more than halved the gap by climbing to 24%, with ANO still on 27%. In a neck-and-neck race on election day, SPOLU just managed to edge ahead, eventually winning 27.7% of votes compared to ANO’s 27.1%.
It is likely that Babiš’ inclusion in the Pandora Papers was what made the difference in the end, as more voters were convinced to latch onto SPOLU’s momentum in an attempt to oust Babiš. Although ANO is still technically the largest single party, it will be difficult for Babiš to form a coalition, since the current coalition partners – the Social Democrats and the Communists – did not reach the 5% threshold to enter Parliament. Due to President Zeman’s recent hospital emergency, Babis himself has been handed the presidential power of setting in motion the government formation process. However, he is expected to ask SPOLU to form a government, having indicated that ANO is preparing to continue in the opposition.
Ruben, 23 – The Netherlands: Finance Minister’s inclusion – sensationalist accusations or a crucial indication of the true scope of tax evasion?
The main Dutch figure to be mentioned in the Pandora Papers was Finance Minister Wopke Hoekstra. In 2009, he invested €26.500 through a shell company – Candace Management Ltd. – based in the British Virgin Islands. The money was directed to a friend’s company which funded safari parks in Kenya and Tanzania.
Hoekstra himself was quick to point out that he sold his share in 2017, before becoming Minister of Finance, and that he donated his €4.800 profit to a cancer research foundation. He argued not to have known that the money was invested through a company located in a tax haven, as he did not make the investment with a view to making a profit and therefore did not pay much attention to the annual reports.
While Hoekstra faced criticism from opposition parties and many of their supporters, a significant part of the Dutch public sided with the CDA politician. Trouw, one of the newspapers which had access to the Pandora Papers and reported on Hoekstra’s inclusion, was accused of sensationalism by many of its readers. Many pointed out that Hoekstra’s investment was legal and that he had never hidden it from Dutch tax authorities. Particularly at a time when the Dutch government formation finally appeared to be moving forward, the extensive media attention for Hoekstra’s investment was argued by some to be an unnecessary attack on Hoekstra and his party. The CDA had already been involved in several scandals, which had disrupted the formation process so far.
Although the investment was only a small one which Hoekstra did not necessarily benefit from financially, it highlights the extent of the problem which Hoekstra has committed himself to tackling as Finance Minister. Executives of HEMA and Jumbo, as well as of banks FMO and ABN-AMRO, are also included in the Pandora Papers. It is clear that even following the aftermath of the Panama Papers, the tax haven industry is alive and kicking.
If Hoekstra truly did not know his investment was directed through a shell company in a tax haven, that is but further evidence of how widespread the practice of tax evasion is. This is not about Hoekstra as an individual, but about how commonplace an immoral and harmful financial procedure has become.
Catherine, 26 – The United States: “Offshore” tax havens on the mainland
Perhaps the most notable revelation in the Pandora Papers regarding the United States is the absence of the names of American public figures with the same level of prominence as those mentioned from the countries above. While the Washington Post reported various American criminals who hid their assets offshore in places such as Belize, there were no surprising disclosures related to the finances of high-profile U.S. figures. This could be due to both the low tax rates in the U.S. and the possibility that ultra-rich Americans use different tax havens and companies than those mentioned in the Pandora Papers.
On the other hand, the Pandora Papers did reveal that several U.S. states have joined the likes of traditional offshore tax havens such as Panama and the Cayman Islands, and have become a refuge for the finances of many of the world’s elite. South Dakota, Delaware, and Nevada, among others, have attracted the business of trust companies and their clients from around the world as their state legislatures have passed laws increasing customers’ protections and safeguarding their privacy. While the actions of some of these clients is not strictly criminal, many have been accused of unethical practices.
The Pandora Papers, despite not revealing the finances of many high-profile U.S. individuals, have brought attention to a phenomenon of prominent politicians and businesspeople from around the world using U.S. states as tax havens.
Take for instance Carlos Morales Troncoso, former CEO of Central Romana sugar, as well as former foreign minister and vice president of the Dominican Republic: Central Romana has been accused of labor and human rights violations. Mr. Morales, who died in 2014, established a trust benefiting his daughters that included shares of the company worth approximately $14 million. In 2019, these assets were transferred from The Bahamas to a South Dakota trust company. U.S. states will need to decide if they would like to continue protecting the wealth of individuals who acquired that wealth through unethical means.
Long before these states became “offshore” tax havens, though, U.S. policies have allowed the country’s ultra-rich to find loopholes in the tax code that enable them to pay less in taxes. By creating family foundations, the wealthy are able to avoid paying capital gains taxes on any assets they donate to the foundation. In recent years, wealthy Americans have also turned to donor-advised funds. These funds allow donors to give their assets to an organization such as Fidelity Charitable, and decide at their discretion when and to where those assets are donated. Because there is no required minimum distribution and no reporting requirements, donors can reap an immediate tax benefit long before any charities receive the donation, and they are not required to disclose how much has been distributed.
While using foundations and donor-advised funds as a means to avoid certain taxes is arguably more ethical than using shell companies and trusts to conceal assets acquired through dubious business practices, both are the result of poor U.S. federal and state policies. The Pandora Papers, despite not revealing the finances of many high-profile U.S. individuals, have brought attention to a phenomenon of prominent politicians and businesspeople from around the world using U.S. states as tax havens. The policies that enable this practice are a symptom of a wider issue in U.S. policy, whereby laws and tax codes protect the wealth and secrecy of the most elite, rather than existing to protect the greater public interest.
To conclude, the Pandora Papers exposed the morally questionable, if technically legal, actions of many of the world’s most prominent individuals undertaken to protect their wealth. From a pattern of corruption and influence from Russian oligarchs in the British government to revelations that may have influenced the Czech elections, to wider patterns of tax evasion and encouragement of tax havens, the findings discussed here are only the tip of the iceberg of the Pandora Papers. Though the particulars of the details revealed in the Papers differ in the UK, Czechia, the Netherlands, and the U.S., the pattern is the same — the ultra-wealthy and ultra-powerful have created and upheld policies that continue to benefit them far more than anyone else.