Paradise Papers Shed Light on Offshore Tax Havens

A treasure trove of 13.4 million financial documents dating to the 1950s from private financial firms is revealing fascinating information about how the global wealthy stay rich, oftentimes by suspect or at least questionable means.

This much-needed followup to 2016’s Panama Papers is known as the Paradise Papers, reflecting the bucolic settings of many tax havens. The documents implicate the rich and famous from all over the world, and account for about $10 trillion in financial transactions.

The Paradise Papers originated with a leak to a German publication, Süddeutsche Zeitung. Journalists there brought the documents to the International Consortium of Investigative Journalists (ICIJ), which worked with numerous partners to explore, verify, and validate the documents. The Consortium took those documents to the companies affected and asked for comment. Those companies claimed the documents were the result of an information security compromise. The ICIJ then went public, and now we’re getting an intimate look at how the wealthy hide their wealth in order to avoid tax liability.

The most interesting thing about the Paradise Papers may not necessarily be further evidence that rich people use tax havens and shady financial services firms to protect their assets. Instead, it’s who’s involved, because some of them are big names: Queen Elizabeth II through to big companies like Apple and Nike.

They’re not the only ones taking advantage of offshore havens, though. Numerous Trump influencers also appear in the Paradise Papers, including Rex Tillerson and Robert Mercer — so much for draining the swamp! In fact, nearly $60 million in funds used to prop up the Trump campaign were funneled through offshore accounts. Don’t think that the Democrats aren’t getting their hands dirty, though. Prominent Democratic donors were also implicated, as were key party players. Penny Pritzker, who served as Commerce Secretary under President Barack Obama, may have violated ethics rules with offshore banking activities.

Private citizens like Bono, Madonna, Keira Knightly, and Lewis Hamilton also appear in these documents. Notably, many celebrities engage in charity work as part of their public persona and for the purpose of developing positive relations. It’s striking, then, that they’re so protective of their own wealth, going to elaborate lengths to avoid paying their fare share in taxes, while putting on a public face of charitable engagement.

The documents also show heavy Russian investment in US social media companies Twitter and Facebook. Commerce Secretary Wilbur Ross has also benefited from Russian investments in his shipping companies. The tangle of relationships between people, corporations, and offshore interests revealed by these documents is immense, and highlights the results of a poorly regulated financial landscape.

The ICIJ notes another issue with offshore tax havens that sometimes doesn’t get very much press: While the rich and powerful benefit from hiding their funds overseas, this often comes at a cost to ordinary citizens in those countries, as well as neighboring nations.

The ability to easily dodge tax liability by moving funds elsewhere may be legal or quasi-legal, depending on where the money is coming from and how it’s handled, but it can result in a net transfer of wealth away from developing nations, money that could be going to public services, infrastructure, and other government activities in nations that can’t enforce their tax laws.

With such a large volume of documents to go through, there’s likely much more to learn from the Paradise Papers. This includes understanding the numerous mechanisms used to avoid tax liability, gleaning more about the people and companies involved, and finding out more about the web of connections that spans powerful individuals, private companies, and the banks that serve them.