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The Panama Papers: why should we care?

3 April 2016, when the Panama Papers story exploded across the world’s media, was a red letter day for tax justice campaigners. Schadenfreude aside, the revelations have been a vindication of so many things that the tax justice movement has warned about for years.

3 April 2016, when the Panama Papers story exploded across the world’s media, was a red letter day for tax justice campaigners. Schadenfreude aside, the revelations have been a vindication of so many things that the tax justice movement has warned about for years.

But does the leak really matter for the rest of the development sector? I believe that it does, profoundly and for several reasons. Not least because we cannot allow corruption, tax evasion and tax avoidance to undermine the effectiveness of aid, or reduce public support for it.

There are many ways to explain what the Panama Papers mean for development. But they are all linked by the headline story of the sheer scale, breadth and nature of the rotten global system revealed by 11.5 million leaked documents. It is a system that facilitates crime and corruption. A system that enables the rich and powerful to sidestep laws and duck responsibilities, by taking advantage of the secrecy and low levels of tax and regulation offered by tax havens.

As long as this system continues, development will be compromised and severe inequality and poverty will persist.

It is scandalous that this offshore system still exists, and as development organisations we must be united in our condemnation.

Poor countries are the worst hit. When we analysed a previous leak of more than 100,000 bank accounts in HSBC Switzerland, we found that poor countries were more exposed to potential losses, relative to the size of their economies.

The British public are on our side. Awareness and outrage have built steadily over the last few years. Our recent poll with Global Witness, conducted just before the Panama Papers story broke, revealed that over three quarters of British adults want David Cameron to act to reduce secrecy in UK-controlled tax havens.

So, what is the real impact of the offshore system on poor countries?

First, and most obviously, the system contributes to a massive and ongoing loss of resources for poor countries. More than a trillion dollars a year, illegally earned, transferred, or used, is estimated to flow out of developing countries each year. Just under half of that money ends up offshore. At least US$7tn of individual wealth has been accumulated offshore, resulting in some US$70bn losses in tax revenues to developing countries. These numbers are all estimates, but the Panama Papers do help to confirm the significant scale of the problem.

And at this scale we are talking about money that, if used well, could have a significant impact on poverty. According to Oxfam, every US$1bn draining out of developing countries via tax evasion could fund 400,000 midwives or 200 million mosquito nets.

These are resources that should be complementing official development assistance (ODA). Aid is critical but cannot, on its own, solve all the problems that concern us. Improving governments’ ability to raise and spend money for development equitably, effectively and efficiently is acknowledged as absolutely vital to the achievement of the SDGs.

But this is not just about lost resources. The offshore system also plays a leading role in the creation and maintenance of ever-deepening inequality. It is estimated that the system only really benefits those whose annual earnings exceed US$3-5m. Only the very rich are able to play the game.

Ultimately though, like so much else in the work we do, the Panama Papers tell a story about the distribution and abuse of power. Those with the power to change the system are often those perceived to have the greatest stake in it.

If we want to make the case for aid, then it is critical that we do not lose the trust of those we seek to empower, and those that we ask for support. We need to demand that the UK and other governments both meet their commitments on aid and do all they can to tackle the offshore system that enables tax avoidance and evasion, and corruption.

Since much of the system is controlled by the UK, we are calling on David Cameron to put an end to UK tax havens’ selling secrecy. With delegates coming to London to attend the prime minister’s Anti-Corruption Summit on 12 May, we hope it will be difficult for him to ignore us.

Author: Toby Quantrill, Christian Aid

Source: Bond