The Panama Papers – an itch which is finally scratched

The 11.5m files which collectively make up the so-called ‘Panama Papers’ are compelling reading, not – as is often the case – because they are telling us anything that is new or especially revelatory, but because they allow us to put our finger on something that we have long suspected but been unable to demonstrate. It is like finally scratching an itch.

Faced with documentation which appears to show that a $2bn fortune is held by close associates of Russian President Vladimir Putin – though his name does not appear on any documentation – or that close relatives of several senior Chinese officials, including President Xi Jinping (at least eight current or former members of the Politburo are apparently implicated, while Chinese news groups have been strictly ordered not to report on the leak) readers around the world may feel tempted to utter a collective: “I told you so”.

However, what is really shocking about the Panama Papers is not the extraordinary dealings of a few – “Assad’s fixer uses offshore firm to hold luxury London flats” – but the routine actions of a very large number of people.

For every company highlighted, for every “non-commercial transaction” exposed by the leak, there exists a small army of bankers, accountants and lawyers who may have suspected that some of what they were doing was not entirely above board but didn’t want to know the whole story – nor even a part of it. Mossack Fonesca may have led the way in facilitating these transactions, but how many more were instrumental? When major multinational banks and law firms accept to transact with nominee companies, apparently incurious about the ultimate beneficiary, how do we begin to understand corruption risk and liability?

At Livingstone & Company, we and our clients – who care very deeply about reputational concerns and what they might signal in business terms – grapple regularly with the question of how much suspicion surrounding an individual is too much, and what can be said to constitute a “good” reputation in a given context. There is, as many news outlets have felt compelled to note, nothing inherently illegal about establishing and working through an offshore company, and those who operate through them may have nothing to hide. However, unlike those who choose to operate openly in jurisdictions which require a high degree of transparency, neither is it clear that their closets are skeleton-free.

Whether or not you subscribe to the “broken windows” theory of crime prevention – famously, and controversially, popularised by Rudy Giuliani during his tenure as Mayor of New York City during the 1990s – there is something in the idea that resonates rhetorically: petty crime creates a climate in which more substantial crimes seem less audacious, less invasive and much more a part of the fabric of society. A sociologist might call this “norm-setting”.

With this in mind, the Panama Papers can be seen to raise a crucial question: why has this been the norm? Why have we as an international business community accept norms such as anonymity in corporate ownership or straw-man Directors appointed for tax purposes?

What has already happened – as revealed by the Panama Papers – is arguably less important than what will happen next. We and our clients will watch with interest the agenda for the Prime Ministers heavily promoted international tax and anti-corruption summit in London on 12 May.