The Paradise Papers Show Us Another Dark Side Of Britain’s Democracy

13th November 2017 / United Kingdom
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The Paradise Papers Show Us Another Dark Side Of Britain's Democracy

By George TurnerTax Justice Network: As the revelations from the Paradise Papers hit the news stands many journalists are asserting as fact that nothing illegal has taken place. The BBC in the UK are the most aggressive proponents of this line, but the issue has been raised in other countries too. On several interviews I have done today I have been told by the interviewer that nothing illegal has taken place, then asked why should anyone care.

Leaving aside the moral arguments about tax avoidance often raised, I want to gently suggest to colleagues in the media that this kind of reporting is misleading, unethical, and needs to stop.

 

Fear and legality

It is easy to understand why journalists are using this line, libel laws, particularly in the UK, mean that journalists live under the fear of being pursued by an oligarch or company through the courts for writing anything that might harm their reputation. This can result in years of anxiety. If a mistake has been made, the journalist can have their home taken away from them and be financially ruined.

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It is sad fact that the UK, which prides itself on its liberalism, has become one of the most repressive places for journalists to work. Journalists may not labour under the threat of physical harm, but they do very much fear financial harm.

 

In order to protect themselves from the libel courts, journalists will add a rider to each article that nothing illegal has taken place. This turns the issue into a moral one, and anyone is free to have an opinion on morality.

To protect themselves from making a mistake, journalists are often told by lawyers that they must tell a lie. That lie may paint the people and companies uncovered in such leaks in a more favourable light, but it also means that policy makers, who rely on journalists more than many people might think for their information, are distracted from dealing with some of the real issues that emerge from such stories. In the end, the public is given a misleading picture of what leaks like the Paradise papers are really about, which defeats the entire point of the leak. By making the argument about morality, they themselves are engaged in a practice which is in itself deeply unethical.

A murky world

Companies like Appleby and Mossack Fonseca operate in a murky world. To put it bluntly, no one would go offshore if they could do whatever they wanted to do onshore. People and companies use offshore financial jurisdictions precisely because they allow them to do things they can’t do at home.

Often what they are seeking is secrecy. Hiding money from relatives perhaps, something which is not illegal – but offshore jurisdictions are also frequently used to hide money from tax authorities, or from creditors, or to hide the proceeds of crime or corruption.

The fact that offshore jurisdictions are set up to provide secrecy to their clients means that companies like Appleby, by their very nature, sail close to the wind. And in doing so will make mistakes.

 

This is something that the company themselves admit internally. Will Fitzgibbon of the ICIJ, has reported on the history of compliance failures at Appleby, including taking money from corrupt politicians.

 

Appleby’s own director of compliance apparently told staff in a presentation – “Some of the crap we accept is amazing, totally amazing,” Not exactly the words of a company that never puts a foot wrong.

 

Journalists are not judges

After the Panama Papers 79 countries opened over 150 inquiries. As of December 2016 authorities had put 6,500 taxpayers under investigation and recouped $110m in unpaid taxes and asset seizures. Just recently, in July, the Pakistani Supreme Court removed Nawaz Sharif, the Prime Minister of the country from power following an investigation that came off the back of the Panama Papers

We have due process and that process starts with the leak, it doesn’t end with the leak. We simply can’t say that there has been no illegal activity revealed by the Paradise Papers until appropriate authorities have investigated the documents and brought prosecutions. For now the best we can say is that we are all innocent until proven guilty.

From what we know so far, it appears to be a mixed bag, there is some activity which has been published which really is normal run of the mill stuff where there is not a hint of illegality (for example the offshore investments of the Queen’s investment funds). On the other hand, although Appleby claim that they have investigated every allegation put to them by the ICIJ, and concluded that there was no wrongdoing, there is activity contained in the leaks that quite clearly warrants investigation.

 

Just because no one is put in jail, doesn’t mean no one has committed a crime

All that said, just because a prosecuting authority doesn’t bring charges, it doesn’t mean that no crime has taken place. Financial crime is incredibly complex. It can take years to investigate and prosecute, and the complexity means that the right decision isn’t easy to come by.

At the same time, investigating authorities around the world have had their budgets slashed. In the UK for example, the tax authority has seen the number of staff they employ halved over the last ten years. It is therefore little wonder that they do not prosecute every case of wrongdoing they come across. Tax authorities have also increasingly used amnesties as a way of dealing with suspected criminal behaviour, which means that people suspected of tax evasion will never see the courtroom.

 

Tax Avoidance vs Evasion

Finally, it isn’t just as simple as saying tax avoidance is legal. Repeating the endless glib statements of compromised tax lawyers and financial professionals searching for a justification for their behaviour suggests that people are engaging in activity that is sanctioned by the government. It isnt, in fact many governments are introducing more and more legislation to combat tax avoidance. That is because tax avoidance is not the innocent activity of simply paying no more than the amount of tax that is legally required, as is commonly portrayed.

HMRC, the UK tax authority has set out a definition of tax avoidance which is copied below. It is a pretty clear statement of tax avoidance is:

Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended.

It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.

Most tax avoidance schemes simply do not work, and those who engage in them can find they pay more than the tax they attempted to save, once HM Revenue and Customs has successfully challenged them.

 

What is described above is clearly very different from simply paying taxes that are due.

 

Responsible reporting

So that leaves the question, how should journalists report on stories like the Paradise Papers?

Well, having just said it is wrong to say that there definitely has not been any illegal activity until law enforcement has investigated, it would also be equally wrong to say the opposite, that illegality definitely had taken place. So why not just leave it at that?

Saying that nothing illegal has taken place undermines the correct operation of government. If crimes have been committed they must be investigated and prosecuted. They are less likely to be prosecuted if there is a general perception that there is nothing illegal going on. Yes, prosecutors should also make their own minds up about whether they need to investigate cases, but in a world of constrained resources public perception is a factor in setting the priorities of investigators. Policy makers need to know the correct target of policy change. Are more resources required for enforcement, or is it a case of changing the law?

The best thing that journalists can all do is as ever, focus on reporting on the facts, which the ICIJ has been doing admirably.

If there are questions that need to be raised, raise them. If there are questions that can’t be answered be honest with the reader and tell them that. If research needs to be done, or investigations need to be carried out then say that, and allow them to take place, then follow up on them when they do. Hold governments to account when they don’t investigate what should be investigated. All of this provides good material for further stories down the line.

Not being able to come to a definitive answer about what the subject of an article is doing is not a failing of the journalist. It is simply the reality of life in the complex world where whole industries are employed to obfuscate the financial lives of others. It is better to accept that, and deal with the opportunities that presents for further reporting, and keeping on the story, rather than to pretend we have the answer.

Because at the end of the day, our understanding of these complex issues is not enhanced by adding untruths to articles or broadcasts, no matter how well intentioned those untruths are, or how innocent they may seem.

 

 

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