Pandora’s Box: The Dark Reality of Offshore Tax Havens

Pandora’s Box: The Dark Reality of Offshore Tax Havens

Offshore accounts are not generally illegal.  For instance, companies “may legitimately move offshore for the purpose of tax avoidance or to enjoy relaxed regulations.  Offshore financial institutions can also be used for illicit purposes such as money laundering and tax evasion” (Hayes, 2023).  However, it strikes me as an injustice that tax havens allow tax avoidance by the wealthy and powerful while the rest of us pay taxes.  Offshore accounts, as we will see, have implications for keeping developing nations poor, and such tax havens are documented to facilitate criminal behavior, terrorism financing, and political corruption.

Let’s begin with a look at the Pandora Papers.

Pandora Papers

The Pandora Papers, published in 2021, revealed that many wealthy people, including celebrities and prime ministers, aren’t paying taxes like the rest of us: “The Pandora Papers is a leak of almost 12 million documents that reveal hidden wealth, tax avoidance and, in some cases, money laundering by some of the world’s rich and powerful” (P.  P.  Reporting Team, 2021, October 5).  Similarly:

The offshore fortunes of prime ministers, royalty, billionaires, athletes, and celebrities are being laid bare in a giant new leak of tax-haven financial records, even bigger than the Panama Papers, revealed today by a global consortium of media outlets.  (Dubinsky & the International Consortium of Investigative Journalists.  2021)

According to CBC, Canada has billions of dollars worth tucked away in offshore accounts:

Canadian individuals and corporations have $23 billion in declared, known funds held in or invested through the Bahamas — more than France, Spain and Portugal combined.  A 2018 CRA study suggested Canadians have another $76 billion to $241 billion in undeclared, hidden wealth stashed in all offshore jurisdictions combined, but it didn’t break it down by country.  (Dubinsky, 2022, August 3).

World leaders are participating in this tax-free structure, too:

The leaked files, dubbed the Pandora Papers, show 35 current or former world leaders and more than 300 other public officials around the globe who have held assets in or through tax havens.  (Dubinsky & the International Consortium of Investigative Journalists.  2021)

Also, the Pandora papers indicate that money laundering is likely occurring, given the presence of criminals holding offshore accounts.

Much like the Panama Papers leak in 2016 or the Paradise Papers the following year, the secret files provide a behind-the-scenes glimpse at how certain global elites — or in other cases, high-profile criminals — take advantage of financial wizardry or opaque corporate structures to either shield assets, wriggle out of their tax obligations, or hide wealth entirely.  (Dubinsky & the International Consortium of Investigative Journalists.  2021)

Some of us might shrug off the fact that we are paying a sizable percentage of our incomes on taxes while the wealthy and powerful are paying little to no taxes.  However, consider the following:

There is nothing inherently illegal about having an offshore bank account or company, as long as it is properly declared to tax authorities, and plenty of major businesses operate overtly and legally in and through tax havens.  However, the anonymity provided in offshore jurisdictions, coupled with their minimal or non-existent tax on income, also makes them a magnet for money launderers, tax evaders, corrupt politicians and other criminals.  (Dubinsky & the International Consortium of Investigative Journalists.  2021).

Monday laundering

Money laundering is hiding sources of ill-gotten gains and changing them into legitimate currency.  Criminals use dirty money—money gained from illegal activities—to buy houses in Vancouver.  For example, the “Commission of inquiry into Money Laundering in BC examined one instance in which a low-income man and his family bought $32 million worth of housing in Vancouver after transferring $114 million from largely obscure offshore accounts.” They may, hypothetically, sell the house three to five years later, and no one is the wiser.  Much Asian money laundering has been going into Casinos and housing in BC.  “British Columbia’s gaming regulator concluded Asian organized crime was becoming so powerful inside B.C. casinos after 2010 that it was too dangerous to investigate suspected drug-cash laundering, estimated to reach about $200 million per year” (Cooper, 2021).  If criminals were to deposit their money in the banks instead, the banks might take note of irregular deposits.

According to an interviewee in the documentary film, Behind Closed Doors: Corruption in High Places, money laundered out of developing countries is above and beyond half a trillion dollars:

The amount of money laundered every year is estimated at 2 to 5% of global GDP 2% of global GDP is roughly equal to the combined GDP of Turkey the Philippines Bangladesh Sri Lanka and Pakistan, over half a trillion dollar flows out of developing countries each year much of this money flows into Western economies via complex offshore [accounts].  (Oswald, & Mehdi [Producers], 2023)

To support this interviewee’s claim, look at what the ICIJ asks,

How much money is stashed offshore?  It’s impossible to know for sure (that’s part of the point: it’s secret.) French economist Gabriel Zucman estimates that the equivalent 10% of global GDP is held offshore – about $5.6 trillion, U.S.  economist James Henry estimates as much as $32 trillion” (Fitzgibbon, 2022).

That offshore stash is about 50% larger than the US annual economy, given that the Gross Domestic Product (GDP) of the United States in 2022 was about $25.46 trillion (U.S.  GDP 1960-2024.  MacroTrends, n.d.).

According to the ICIJ, the wealthy have used offshore funds to avoid paying taxes and engage in criminal activities and political corruption, which impacts poor and rich countries.

The leaked files provide facts and figures … that illustrate how offshore financial secrecy has spread aggressively around the globe, allowing the wealthy and well-connected to dodge taxes and fuelling corruption and economic woes in rich and poor nations alike ….  The documents also show how the mega-rich use complex offshore structures to own mansions, art, and other assets, gaining tax advantages and anonymity not available to average people … [C]ritics argue that offshore secrecy has a corrosive effect on governments and legal systems, allowing crooked officials to loot national treasuries and providing cover to human smugglers, mobsters, animal poachers and other exploiters.  (Ryle, Gyle, et.  Al, 2022, August 24)

Offshore accounts also have implications for funding terrorism, too:

A potential terrorist cannot take a flight to neighboring states without a passport or driver’s license, but they can form a shell company [which may be set up in offshore accounts for low to minimal taxes] without any information in a matter of minutes.

In a high-profile instance of this, for many years Russian arms dealer Viktor Bout used shell corporations to anonymously supply terrorist groups around the globe with major weaponry like tanks and shoulder-file missiles.  …

The life-blood of an effective terrorist network is financing.  And shell companies facilitate the easy distribution of money.  (Baughman, 2023, July 5)

According to CNN, examples of financial terrorist activity include the following:

ISIS makes between $1 million and $2 million each day from oil sales, numerous sources tell CNN.  The oil comes mostly from refineries and wells that ISIS controls in northern Iraq and northern Syria.  … The militants smuggle oil into southern Turkey, for example, and sell it to people who desperately need it just to carry on some semblance of everyday life.  A 2014 New York Times investigation found that since 2008, al Qaeda and its affiliates had received $125 million from ransoms, including $66 million in 2013.  (Fantz, 2014, February 20)

Canada’s International Crime Ring

According to a U.S.  report, Canada is a haven for money laundering, funds stolen from other countries and reinvested in Canadian real estate, energy mining, and other sectors:

“Canada has become a safe zone for the world’s most notorious crime groups and threat networks that are harming Canada’s national security and imperiling the security of other nations,” warns a report published in late November by the International Coalition Against Illicit Economies (ICAIE) ….

“Today, Canada is not merely a consumer of illicit goods and contraband, but increasingly serves as a hub of illicit trade, production and distribution of illicit goods, an exporter of such contraband, and a money laundering safe haven for a potpourri of criminal networks … “Canada remains a financial haven for kingpins, kleptocrats, oligarchs, and corrupt officials to reinvest stolen funds from their countries in real estate, energy, mining, and other sectors.”  .…

The report notes that tens of billions of dollars are laundered through Canada annually from the proceeds of crime such as human, drug and weapons trafficking.  (Nardi, 2024, January 19, National Post; Nardia, 2024, January 19, MSN)

Leaders Become Wealthy while Citizens are Impoverished

In developing countries, such as Kenya, the President and other leaders can have an excessive amount of wealth.  At the same time, the citizens exist in poverty, according to an interviewee in the documentary film Behind Closed Doors: Corruption in High Places:

In Kenya, the Kenyatta family have vast investments in land across the country, right down to the coast, all the way up to what was called the white Highlands.  They own the biggest milk company in in Kenya.  They own one of Kenya’s biggest banks.  They have a chain of hotels.  They’re building a sub city right now out just right outside the um the bounds of uh of Nairobi.  There’s always been an open question about how J Kenyatta  was able to become such a rich person, just, you know, one or two years after becoming president.  His salary at the time doesn’t match the kind of wealth that he had.  (Oswald, & Mehdi [Producers], 2023)

According to BBC, the family of the former President of Kenya, Uhuru Kenyatta, owns multiple offshore companies:

The family of Kenya’s President, Uhuru Kenyatta, secretly owned a network of offshore companies for decades, according to a huge leak of financial papers.  ….  The Kenyattas’ offshore investments, including a company with stocks and bonds worth $30m (£22m), were discovered among hundreds of thousands of pages of administrative paperwork from the archives of 14 law firms and service providers in Panama and the British Virgin Islands (BVI) and other tax havens.  … There’s no reliable estimate of the Kenyatta family’s net worth but its vast business interests span transport, insurance, hotels, farming, land ownership and the media industry in Kenya.  (Olewe & Adamou, 202, October 4).

If it seems reasonable that a leader should have this kind of wealth, consider what the rest of the population in Kenya has:

In Kenya, 2/3 of the population live in poverty on less than $3.20 per day.  70% of Kenyan families are chronically vulnerable due to poor nutrition food insecurity and preventable diseases (Oswald, & Mehdi [Producers], 2023).

Most Kenyans live in poverty relative to their leadership:

A survey conducted in 2018 showed that three-quarters of all Kenyans working in the formal sector were on a monthly salary of below Ksh. 50,000.  However, according to a recent survey, the average monthly income for Kenyans rose to Ksh. 20,123 following recovery from Covid-19 economic hardships.  (Ayub, 2023, June 12).

To interpret this data, Ksh. 20,123 per month is approximately equivalent to $123.84 US dollars, which, divided by 30, amounts to $4.13 per day.  That’s very removed from owning stocks and bonds worth $30 million.

According to the ICIJ, “Countries that need tax revenue the most lose more tax money, as a percentage of GDP, than wealthy countries.  As with other inequities, the poor get it the worst” (Fitzgibbon, 2022).

A documentary titled The Spider’s Web: Britain’s Second Empire: How Britain Transformed from an Imperial Power to a Financial Power, with the screenplay written by Michael Oswald, examines how Britain went from a colonial power into its present shape as a global financial power through the implementation of offshore accounts:

City of London financial interests created a web of offshore secrecy jurisdictions that captured wealth from across the globe and hid it behind obscure financial structures in a web of offshore islands.  Today, up to half of globally offshore wealth may be hidden in British offshore jurisdictions, and Britain and its offshore jurisdictions are the largest global players in the world of international finance.  (Retrieved from documentary description from YouTube Moconomy Channel on January 20, 2024)

Offshore accounts are permitted by our governments, despite the resulting decrease in tax revenue and the criminal and terrorist activities associated with them.  They allow dictators to siphon resources out of their countries and direct them to Western nations for laundering and use, benefiting Western economies as much as the initial wave of colonization did. And perhaps that’s the point.

Are we living in the second colonization?

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Cooper, S.  (2021, January 23).  Gangs made B.C.  Casinos too dangerous to investigate for money laundering, inquiry hears.  Global News.
Dixon, A.  (2023, April 20).  What is a Shell Company (shell corporation)? example and benefits.  SmartAsset.
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Olewe, D., & Adamou, L.  (2021, October 4).  Pandora papers: Uhuru Kenyatta family’s secret assets exposed by leak.  BBC News.
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Ryle, G., Ryle, G., Guevara, M.  W., Hudson, M., Hager, N., Campbell, D., Candea, S., Cabra, M., Porteous, K., Zalac, F., Shprintsen, A., Daorueng, P., Landingin, R., Pilet, F., Díaz-Struck, E., Shleynov, R., Karanikas, H., Mondial, S., Menkes, E., … Shprintsen, I.  P.  A.  (2022, August 24).  Secret files expose offshore’s global impact.  ICIJ.
MacroTends. (n.d.), U.S.  GDP 1960-2024.