The repercussions from the leak of 11.5 million documents from the secretive Panama law firm Mossack Fonseca, the biggest data leak in history, are still gathering momentum.
It has so far brought down one prime minister, Sigurdur David Gunnlaugsson of Iceland, and threatens another, David Cameron of Britain. The British chancellor, George Osborne, is under pressure to publish his tax returns, as Mr Cameron has already done, and future prime ministers, not just in Britain, will come under unprecedented disclosure pressure, which many fear may put talented young people off entering politics.
That’s just the tip of the iceberg. The Panama Papers, as they shall forever be known, unveiled a Russian offshore web of companies with Vladimir Putin at the centre of it. Ukraine’s president and senior Chinese officials are revealed to have offshore companies in Panama, including the brother-in-law of president Xi Jinping. Fifa’s newly elected top official is under fire and Swiss police also raided Uefa’s headquarters on Wednesday as part of an investigation into a TV deal. And so it goes on – prime ministers, drug lords, footballers (Lionel Messi), Oscar-winning film directors and even a former Miss World are all being dragged into the net.
The Panama Papers include emails, bank records and client information dating back decades, and provide an unprecedented insight into the use of offshore financial centres by the rich and powerful. Investigative journalists and civil rights groups across the world are having a field day.
The revelations have provided a huge bonus for officials who were already pushing for a worldwide clampdown on tax avoidance and can’t believe their luck. In Brussels, the EU will this week bring forward measures that will force companies to disclose their activities, including tax payments, profits made, and the number of employees, in 30 “uncooperative” havens. Panama and British overseas territories such as the Cayman Islands and British Virgin Islands, the mainstays of offshore activity, are top of the list. Britain had previously made a spirited defence of its overseas territories, but now it is far too embarrassed to continue.
It is the beginning of the end of tax havens and of smart tax schemes that even the most reputable companies – and individuals – have used to protect their earnings for decades.
It is a generally followed principle of life that no one need pay more tax than they have to. No self-respecting finance director could stay in his job if he or she did not explore every legitimate avenue to bring down the tax bill. Hugely successful companies such as Google, Facebook and Twitter have sited their operations in Ireland, which has the lowest taxes in the EU, which have actually made it one of the fastest-growing economies in the world (nearly 10 per cent a year – faster than China).
The Panama Papers have removed the moral defence for sheltering taxes and no one is going to be immune.
I have every sympathy for David Cameron, who actually did nothing wrong, and his friends over the weekend were quick to point out the hypocrisy of the tide of pseudo indignation in newspapers which are owned, as Bruce Anderson pointed out in the Financial Times, by proprietors “rich beyond the fantasies of avarice, with wealth protected by skilful lawyers and accountants”. No guessing as to who he is referring to there – Rupert Murdoch’s News International has paid little or no tax on its UK operations in more than 40 years.
In Mr Cameron’s case, he didn’t even have an offshore company. But his late father Ian, a perfectly respectable and well-liked stockbroker in the City of London, did, and his son got some – not a lot – of the benefit from his careful management of his tax affairs after he died a few years ago. In the early 1980s, when Cameron Senior set up the Blairmore investment company, Michael Foot was leading the Labour Party, Tony Benn and Jeremy Corbyn were threatening from the left, and the professional classes feared the onset of a penal tax regime. What was so morally wrong about protecting some of your wealth from that prospect? It was all perfectly legitimate under the law at the time.
Mr Cameron didn’t even know about it, and had actually done his best when he became prime minister in 2010 to put his financial affairs into a state where they could withstand the most rigorous of scrutiny. His tax returns, which he published on April 5, have excited more comment for their ordinariness than for the nuggets of new revelation they provide. But he reckoned without the activities of Mossack Fonseca in faraway Panama, which may come back to destroy not only his reputation but his career. He doesn’t deserve it.
Innocent or not, Mr Cameron’s authority has been weakened just as he needs it most, with the EU referendum looming and the split in his party widening. He has been particularly criticised for his clumsy handling of the whole affair, opening himself up to charges of lack of judgment, which had seemed to go away the longer he stayed in power. It was only on Monday that he finally hit back with a robust defence in the House of Commons of the right of parents to pass on money to their children.
But the precedent has been set and every leader in the free world from now will be thinking the same – how would it look if the full details of my financial affairs were published? How would any of us look?
Ivan Fallon is a former business editor of The Sunday Times.