The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

How the world really works

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Forget what you learned in school, the Panama Papers are your new curriculum on how the world works.

Since the release, I’ve been glued to the ICIJ’s Panama Papers. Like a great film, there’s intrigue, star players, and an unbelievable magnitude of malfeasance.

With a box of popcorn by my side, I’ve delved into the meticulous journalism that’s confirmed to the world what many already suspected.

The mega rich, political elites, and unsavory characters like human and drug traffickers get to play by different rules than the rest of us. 

Lesson one: Politics is a rigged game, everywhere.

Where countries fall on Transparency International’s corruption indices is irrelevant. As Charles S. Piece put it in Esquire, the Panama Papers reveal “that every political system in the world—even the nakedly authoritarian ones—is hopelessly rigged, and that the marvelous new world of the miraculous global economy is an even bigger thieves’ paradise than you, me, or even Jamie Dimon thought it was.”

Panama, along with at least 50 other countries, are tax havens (a concept you never learned in your freshman International Relations course). This means the governments of these jurisdictions turn a blind eye to the flows of money coming in and out of the banks on their sovereign soil. They also levy no, or very low taxes.

Both of these are ways of attracting customers, like wealthy folks and corporations seeking to hide their wealth from the authorities where they live or do business, or those engaged in explicitly illegal activities, like sex and drug traffickers, who also need to hide their money.

Governments are active conspirators in this elaborately rigged system. For instance, in the U.S., every state permits the creation of shell companies that do not require identifying the real owners of those entities. Shell companies are essentially empty vessels for holding financial assets anonymously. This is a key tool for avoiding taxes, and for criminals to launder illicit money and gain access to banks.

Embarrassingly, my home state Delaware is the global epicenter for shell companies. In fact, there are more shell companies incorporated in Delaware than Delawareans. An applicant has to give more personal information to get a library card in Delaware than to set up a shell company, and it only takes about an hour to be ‘in business.’

Governor Markell and the legislature stomach offering our state to tax dodgers and criminals because of the tax revenue it brings in for the state. This is a point of contention with other states who claim Delaware’s tax haven status robs them of revenues. For instance, the “Delaware loophole” enabled corporations to reduce the tax bill owed to other states by $9.5 billion over the last decade. How bad is it in Delaware? Get this, officials in the Cayman Islands – the world’s most emblematic tax haven – point to Delaware as playing faster and looser with the rules.

Delaware’s role as a tax haven is inexcusable. Not only does it permit corporations, wealthy foreigners, and criminals to hide their money, it facilitates the misery that results from tax avoidance. Your Comparative Politics course, or the one you took on African politics, likely never examined how tax havens are accessories to the robbery of developing countries’ tax revenues, stunting their ability to achieve poverty reduction and development progress. Without tax dollars, governments cannot build schools, hospitals, or the infrastructure to create dynamic and inclusive economies that bring jobs and fight poverty.

The lesson we should be learning from the release of the Panama papers is that today’s global inequality problem, along with other severe miseries, are linked.

They are symptoms of a failed system of global governance. There is essentially no global tax regime to mitigate the scourge of tax evasion and avoidance. This absence of international cooperation, and the ease in which it permits the movement of financial assets from where taxes are due to tax havens, drives the obscene levels of extreme wealth we see today. As my colleagues and I have pointed out, we live in a world where 62 people have the same wealth as the bottom half of humanity. And trust me, this isn’t because those 62 people work harder than the rest of us. They just have better accountants.

Lesson two: “All animals are equal, but some animals are more equal than others.”

Truer words have never been spoken, and the Panama Papers put that into stark relief.

When it comes to taxes, the mantra should be ‘we pay, they play;’ because for the ultra wealthy, corporations, and criminals, paying taxes is optional. Of course, you and I have no option.

UC Berkley professor Gabriel Zucman, whose book The Hidden Wealth of Nations: The Scourge of Tax Havens, calculates that government’s lose about $200 billion annually in revenue to tax havens. All together, he estimates nearly 8 percent of the world’s wealth – $7.6 trillion – sits in tax havens.

Of course, governments don’t do less because they can’t collect taxes from the rich. They simply increase the tax burden on the rest of us. As Zucman put it:

You know, if billionaires pay very little in taxes, it means that the rest of us – we have to pay more. So it means more taxes for the middle class, and so we all pay the cost of tax evasion by the wealthiest individuals.

Maybe we did learn this lesson in school? If you read Thucydides, you’ll recall his conclusion that “the strong do what they can and the weak suffer what they must.”

Of course, we’re not that weak!

A glimmer of how the world can work

The events surrounding the Panama papers aren’t all doom and gloom. I mean, it’s pretty bad, given that Mossack Fonseca is one firm in one tax haven, suggesting the magnitude of illicit financial flows and tax avoidance is massive beyond belief.

Still, the impressive coordination among hundreds of journalists, the release of the Papers and the excellent reporting, are extremely encouraging.

This experience demonstrates the power of whistle-blowers, dedicated journalists, and civil society activists to reveal the inner architecture of how wealth is hidden.

More than 7 percent of the people in Iceland came out to call for their Prime Minister to resign because of the revelations exposed in the Papers (and he did). That is a real testament to the power of information as a driver of social change and accountability. And we’re seeing similar outbursts across the world. In the UK, thousands are in the streets calling for PM David Cameron to resign and nearly 400 activists were arrested in front of the U.S. capitol on Monday protesting corruption.

The ICIJ should take a bow, and the hundreds of journalists who collaborated on this project deserve acknowledgement. As someone who works on the links between tax avoidance, global illicit flows and extreme economic inequality, this work is both validating and evidentially powerful. So, thank you profusely.

Putting an end to double standards

Oxfam calls on Congress and the President to pass the Stop Tax Haven Abuse Act and implement aggressive public Country by Country Reporting requirements for all multinational companies headquartered in the United States. Both of which will help address the secrecy surrounding shell companies.

We also urge the US to be a leader in creating a multilateral global rule system that emphasizes information sharing, transparency, and global accountability.

The Panama Papers reveals the extreme, yet largely legal, political rigging that let’s wealthy individuals, corporations and criminals play by different rules than you and me. They also offer a perfect opportunity for citizens to seize on the shock and outrage they are spurring to demand governments create a more level playing field.

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  1. crdelaware@yahoo.com'Ceaser

    Characterizing the State of Delaware a “tax haven” or using a gimmick such as registering a corporation for your cat that is then dubbed a “shell corporation” is irresponsible journalism. What exactly is the complaint here? That is it difficult to gain private, non-public information regarding beneficial owners of a Delaware corporation? While it is true that the Secretary of State’s office in Delaware does not collect, store or provide beneficial owner information (they are not in the data collection game), but so what?! A path to that information is available TODAY through our friends the US Treasury department. What’s that you say- there is a way to seek out beneficial owner information for the allegedly dark and mysterious Delaware Company? Yes. The IRS collects the name and SSN of the tax matter person for each entity when they apply for and receive an EIN number. This is a key requirement for any company- not only those formed in Delaware. After all, you cannot open a bank account for your corporation without an EIN- let alone meet your federal income tax filing responsibility. So you see my friends, do not be fooled by the so called learned men who push their own political agenda, the Stop Tax Haven Abuse Act is not the answer. And you, the tax payer has already been paying for an answer that is in place and has been your entire life. The IRS.

    Let’s be honest; what all of the pile on journalists, PHD holders, and misinformed or overreaching government legislators are really talking about here isn’t some altruistic or even self-righteous ideal like ‘beneficial ownership’. No, it’s much simpler than that. It’s about money. And specifically, it’s about the money that Delaware makes by providing flexible and contemporary business laws that meet the needs of the modern world and more specifically it’s about the money it takes away from its neighboring States in doing so. You see, Delaware has found that elusive a win-win. They both assist the small time entrepreneur as well as the big business out there and also found a way to boost the economy here as well as help fund the State government. On behalf of all of Delaware, as a citizen who benefits from the industry I invite any State/jurisdiction that has an issue with Delaware’s incorporation and corporate laws to pass your own legislation to help keep money in your States. And I’m not talking about the punitive kind of legislation either. That’s not the win-win that got Delaware to be the best, and it won’t help solve your money problems caused by irresponsible and sometimes corrupt state and local governments, not individuals.

    But no matter how much we can say it’s really about economics, there will always be some organization out there who says “it’s about getting the bad guys” and of course Delaware helps those bad guys get away.

    Let’s get one thing straight, as it inevitably comes up again because someone copied and pasted it from another website or report. There is no inherent secrecy when forming a corporation or limited liability company in the State of Delaware. Don’t call Delaware a haven for “shell” corporations or the place where anyone can be “anonymous”. There is a huge difference between what the media is calling an “anonymous corporation” and maintaining some level privacy for legitimate business pursuits- thought they are tried in the court of public opinion as if they were the same. Those who are educated about the subject know differently (shame on all you PHD’s out there trying to gather eyeballs to your political ends). The State of Delaware actually goes out of its way to ensure that any of the commercial registered agents listed on its website do no promote the kind of anonymous/shell corporations are all too often discussed in the news.

    Is that different that what other countries in the world do? Yes. Are there lots of things that make America great in the global society? Arguably, yes! Most people like freedom. Freedom to choose to be who you are; your religion, your career, all of that without fear of persecution for your and your family or friends. Yet that is different than many places in the world. Should we force our will on an values on either other or respect them? Just because it’s different doesn’t mean we should be quick to criticize and judge. After all, it when America actually had a true democratic society, it was in many ways the envy of and a model for the world. It inspired entire nations, and people all over the globe. At sometimes great personal peril to themselves or their loved ones.

    So why this ‘pressure’ to make Delaware enact laws that placate someone, somewhere else? It’s our differences as people and societies that make us great. And our freedoms as individuals to choose what we believe, what we value, Not to have that forced upon us as a society or as a people. So I live in a capitalist society and you live in a communist one. Can’t we get along and respect each other’s differences? What is this 1960? Those who have actually done some research know that Delaware, like many other states in the entire United States, actually has legal requirements that provide for specific information to be available regarding entities registered here via subpoena. That isn’t “anonymous”. It’s the opposite. It’s a level of privacy that requires legitimate purposes to gain access to it. Don’t like that it isn’t handed to you on a silver platter? Too bad. Go out and get it, just like any law enforcement or similar agency that has an actual reason and can get a court to sign off on their investigation. Can’t do that because no one will authorize a fishing expedition? Well, then maybe it’s you that we all need protection from then…

    That said, there are always bad actors and those that abuse the system (any system). I think we can all agree there is absolutely no place for hiding political contributions and skirting disclosure requirements. You can thank Citizens United for that, not the State of Delaware. So if the issue beneficial ownership info surrounding is political donations, then why not address the problem with political contributions instead of attacking what are some of the most well defined, and enforced requirements in the whole incorporation industry? Is it about assisting foreign law enforcement with obtaining information about companies formed in Delaware or other States? I don’t know why. At least not in Delaware- I noted previously there are pathways to all of that information. Did you know that The State of Delaware requires by law that commercial agents maintain the contact information for entities they represent? A fact all too often left out of all of the media coverage on this subject. Does that mean more investigative fortitude and hopefully responsible journalism is needed to run those leads down? You bet. And that’s the price you have to pay for living in a free, democratic society where the right to some privacy is not yet completely dead. Nothing is ‘hidden’, if there’s a legitimate reason to have access to it. I guess someone should be sorry for the inconvenience of having to get a court to sign off on getting access to the contact person for a company? Please. Sure, there will be those that say that the contact person is just another dead end. If that individual does not do their part (as required by statue), then by all means hold them accountable under the fullest extent of the law. But leave the State of Delaware alone already. They’ve done more to assist in providing avenues to beneficial owner information that all of the legislation and legislators in Washington DC combined. What they won’t do is agree to be deputized into collecting and maintaining information that the IRS already has in their databases.

    That just sounds efficient to me.

    And for those who just can’t give up on the “haven’ of one sort or another; can you be any more biased and irresponsible? We as a society can’t make anyone play by the rules after all. Just ask any of the half a dozen agencies out there now watching everything you do. There will always be bad actors. It’s by having those rules that sets us apart as a society. Delaware goes above and beyond when it comes to setting the bar in the entity formation industry. What any educated person can say is that, no matter how good, it still won’t stop the bad apples. They will always be there, grabbing headlines, giving us all something to read about and want someone to blame for. Here’s a novel idea- why not hold the actual criminals and not the entire State (yes, those 1 million people outnumbered by corporations all to often referenced negatively by the media)? So if you want more and don’t want to work for it the world has nothing for you. Is the complaint that bad actors will lie so having pathways to that information isn’t productive? No more so than on a Federal Income tax return or any other place where they have to report anything. Look- as a member of the human race I am sympathetic to the bad acts and misdeeds that occur at the expense of, well all of us. They way to do that is to fine and hold accountable the bad actors. Not attach the industry. You don’t close down the banking industry because some crook writes a bad check. Responsible journalists know and promote this concept. Stop trying to sell advertisements, and do what you went to school for.

    An American Patriot

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  2. mkreed39@gmail.com'melk39

    Delaware is essentially a fiefdom of the DuPont family. The DuPont’s have a long history of reactionary politics, including openly flirting with fascism in the 1930’s. The make the Koch’s look like the Rockefellers. Delaware’s political climate reflects their master’s view. Nothing more complicated than that to explain “Why Delaware.”

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