What do the Panama Papers Really Mean?

Ashby Henningsen, UMBC:

Although only about a week old, the so-called Panama Papers have already raised public scrutiny on how global elites store and hide their finances. The more-than-11 million leaked documents that comprise the Papers unveil the methods utilized by criminals, corporate elites, and state leaders to evade tax systems and other financial regulations and circumvent certain rules of the international economic and legal systems. So far, the Papers have at least channeled popular discontent towards a few particular leaders and raised awareness on the need to stem transnational corruption. Yet the Papers detail a more fundamental problem: the perceived decline in legitimacy, accountability, and popular ownership within the political and economic institutions that are meant to protect the most vulnerable and wronged members of global society. Even as the short-term impact of the Panama Papers continues to unfold, the Papers may need to direct broader questions of how political and economic systems unfairly advantage their most powerful members at the expense of the rest of the population.

The Panama Papers have had at least an immediate palpable impact on public perception towards international leaders. Some of the most prominent names revealed in the leaked documents now find themselves subject to public outcry and scrutiny regarding their alleged offshore finances. After avoiding questions regarding his personal stake in offshore bank accounts, British Prime Minister David Cameron  succumbed to pressure to disclose his personal ties to an offshore trust fund established by his late father [1]. On Sunday, he further conceded to mounting demands and released information on his tax returns [2]. In Brazil, several national politicians face similar popular outcry and demands for transparency after the data-leak indicted them of tax evasion. The media and political backlash in Brazil is all the more searing given that many of those figures mentioned in the leak are already under scrutiny for accusations of corporate bribery [3]. Even Russian leader Vladimir Putin [4] and Chinese President Xi Jinping [5] have been forced to deflect questions regarding their indirect ties to activities described in the leaked documents. The public  reaction to the errant elitism displayed thus far shows how furor will only grow as more public figures are named.

Events also suggest that the fallout from the Panama Papers could entail more widespread consequences for those allegedly involved. One can see how the data leak can virtually end political careers, as is the case of the ongoing scandal in Iceland. Iceland’s Prime Minister Sigmundur David Gunnlaugsson was publicly tied to the data leak due to revelations about his wife’s offshore holdings. Despite his earlier denial of wrongdoing and insistence that he would remain in office [6], Gunnlaugsson has already changed course and announced his resignation. Not even Gunnlaugsson’s efforts to buy time by calling for an early dissolution of the parliament could delay or mitigate the impact of public uproar, which included the largest protests in Iceland’s history [7]. While Gunnlaugsson’s remains the only state resignation to result from the Panama Papers, it remains possible that other international politicians could face both formal and informal repercussions from being tied to the documents.

Yet for all of the immediate impact that the Panama Papers might have on international political and economic leadership, their contents catalyze furor over fundamental societal issues that lack clarity, let alone solutions. Regarding global income and wealth inequality, for instance, the Papers’ contents lead to two disconcerting implications. The first and most obvious relates to how great the disparity in income and wealth between global elites and ordinary citizens has become. The second is how contemporary institutions proactively facilitate inequality, impacting communities on a global scale. As some observers argue, the tolerance of offshore tax havens may represent one of the primary factors in income inequality’s continued expansion [8]. The loss of potential tax revenue that these activities comprise specifically mires underdeveloped countries and communities deeper into poverty [9]. This will exacerbate other dilemmas facing the international community in regards to protecting its most vulnerable members. Continual poverty will lead to chronic problems like violent internal conflict, environmental degradation, and deficits in democracy and civil society.

Besides economic inequality, the Panama Papers raise troubling questions over the lack of political and institutional access for the average citizen at the expense of the overrepresented and privileged elite. The kinds of tax-evading tactics detailed in the Papers point to how effectively elites can safeguard their own interests. Besides politicians, the offshore tactics detailed in the Panama Papers benefit business-people, celebrities, and even organized crime leaders. The activities themselves extend beyond tax evasion; they include money-laundering and even the supply of material for violent conflicts such as that in Syria [10]. Even if most of the activities revealed by the Papers are not illegal, they still indicate how little transparency actually exists within international financial and legal systems. This in turn paints a sobering image for just how slanted the world’s various power-structures–financial, political, etc.–actually are in favor of those who already yield the most power therein.

This leads to perhaps the most critical and difficult implication raised by the Panama Papers: the slow-yet-mounting crisis of legitimacy facing the world’s leading political and civil systems. Even in the developed world, the Panama Papers have intensified ongoing public debate about how much faith ordinary citizens have in the institutions that are meant to protect them. The revelations within the Papers have only confirmed many people’s suspicions that global elites are manipulating the world’s leading political and economic systems to put their interests above collective needs. Grassroots protests in Paris [11] and online commentators in the U.K. [12] express a shared cynicism that their politics, financial systems, and civil structures are broken and that the leaders who are supposed to serve the common interest do anything but. Worse yet, there is little indication that the upheaval from the Papers will facilitate any substantial progress towards rectifying the perceived flaws and addressing popular discontent.

The question, then, becomes what sort of impact the Panama Papers should have moving forward. As stated before, there are no definitive or simple answers to the questions that the Papers raise. Furthermore, world leaders are unlikely to repair the crisis of public faith to which the Papers point. Even so, leaders can take some steps to ensure that the Papers will have at least some lasting legacy. Policymakers and financial institutions should use the aftermath of the revelations as an opportunity to press for greater oversight and accountability regarding financial flows and tax activities. Public frustration, if sustained and harnessed constructively, might also raise the pressure on wealthy elites to commit to greater transparency [13]. In the long run, these may seem like marginal reactions with little substance or power. Yet they may at least lead to more constructive public discourse on an array of underlying issues such as: global inequality, the role of global governance institutions and civil leadership, and the need to restore popular confidence and trust in global society’s most powerful members.

Although the public aftermath continues to unfold, the Panama Papers are inciting discontent beyond the tax evasion practices of a few international figures. The contents of the Papers have already struck at the heart of such fundamental challenges as universal inequality and the legitimacy of political institutions. Even in the case of the developed world, the Panama Papers put a new angle on the public’s declining sense of trust and ownership in their political and economic systems. It remains to be seen whether the Panama Papers will become a jumping-point for a more nuanced public discussion and structural changes. At the very least, one can hope that it will prompt immediate changes in the way global elites regard transparency and accountability. Such results may not by themselves cut deeply to the heart of the problem, but it may be a start.

Sources:

[1]http://www.nytimes.com/2016/04/09/world/europe/panama-papers-prime-minister-david-cameron-of-britain-on-tax-avoidance.html?smid=tw-nytimesworld&smtyp=cur

[2]http://www.nytimes.com/2016/04/11/world/europe/david-cameron-panama-papers-tax-return.html?smid=tw-nytimesworld&smtyp=cur

[3]http://www.ibtimes.co.uk/panama-papers-57-people-linked-brazils-petrobras-scandal-also-feature-mossack-fonseca-leak-1553347

[4]https://www.washingtonpost.com/world/putin-denounces-panama-papers-leaks-as-attempt-to-weaken-russia/2016/04/07/d69473e6-fcbf-11e5-9140-e61d062438bb_story.html

[5]https://www.washingtonpost.com/news/worldviews/wp/2016/04/05/china-moves-to-sidestep-panama-papers-story/

[6]http://www.reuters.com/article/us-panama-tax-iceland-idUSKCN0X11DG

[7]http://www.telegraph.co.uk/news/2016/04/05/panama-papers-claim-first-victim-as-icelands-prime-minister-resi/

[8]http://www.csmonitor.com/World/Americas/2016/0405/What-do-the-Panama-Papers-have-to-do-with-inequality-A-whole-lot?cmpid=TW

[9]https://www.washingtonpost.com/news/worldviews/wp/2016/04/08/how-global-tax-evasion-keeps-poor-countries-poor/

[10]http://www.aljazeera.com/news/2016/04/data-leak-reveals-world-wealthy-hide-money-160403192018665.htm

[11]http://www.theguardian.com/world/2016/apr/08/nuit-debout-protesters-occupy-french-cities-in-a-revolutionary-call-for-change

[12]http://www.theguardian.com/politics/2016/apr/13/the-game-is-rigged-by-those-who-write-the-rules-british-readers-on-the-panama-papers

[13]https://theconversation.com/panama-papers-this-is-a-chance-to-fix-a-long-broken-system-57198

 

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