The leak of 11.5 million confidential papers from the Mossack Fonseca consulting firm in Panama promises to be a major source of information on the tax avoiding shenanigans of the elites. Already, 800 Australians are reportedly under investigation, and dozens of heads of state around the world are having serious questions raised about their willingness to pay their fair share of taxes. At the minimum, the papers show how normal it has become for the elites of many countries to minimize their personal tax contributions to their own country. At worst, it shows the widespread betrayal of the elites of the ideals of patriotism and social conscience.
The last leak of this kind was the Falciani list, where Herve Falciani was an IT guy who disclosed the files of up to 130,000 tax evaders from Europe using the Swiss branch of HSBC. He tried to sell the data he stole from his employer around 2007, but in the end the French authorities simply raided his house and distributed the files amongst various governments in Europe.The Panama Papers too have now been shared with the authorities.
The lack of fallout from the Falciani list is instructive, despite coming during a financial crisis: to this day, Greek authorities have apparently done nothing with their portion of the list, except to try and persecute the Greek journalist who published the list (known as the Lagarde list given to Greek authorities in 2010, which one can find online).
We basically don’t know what most other governments did with their portion of the Falciani list, except for the UK, which openly decided not to prosecute anyone but to use the files to force 500 out of the 6000 people named to pay the taxes owed, presumably with a fine.
Based on this, we can give a reasonable guess as to what one can expect to happen next with the Panama Papers:
1. The list will be used by vigilant authorities to get more tax, but is unlikely to lead to many prosecution. If the same strike rate (1 out of 10) holds for this list as with the UK portion of the Falciani list, then this would mean around 80 rich Australians having to cough up some additional taxes. A good outcome, but less than what many commentators will be hoping for.
2. The list will be ignored in countries with weak institutions: the revelations are no worse than what is already in the open for a whole set of countries, including Russia, Turkey, Greece, and others. The elites in these countries have shown in the past that they can simply weather the storm, and one should expect the same to happen this time.
3. Unlike the Falciani list, this one is likely to become public at some stage because it was directly leaked to journalists who spread it around a network of journalists, meaning that there will be open attempts to name and shame tax dodgers. That might sound bad for the tax dodgers as such a thing has not happened before in ‘well-run’ countries, but I think they will manage to ride the storm. Here in Australia, for instance, previous scandals about the low tax payments of many of the biggest companies in Australia did not lead to large fall-outs, and tax reductions for big companies are currently on the political agenda despite such bad behaviour. We should expect the same this time round with these rich individuals and their companies: the real bite will probably come from the tax authorities, not from any outcry from the general public.