A massive leak of financial records is just beginning to hit tax-avoiders where it hurts

May 10, 2013
May 10, 2013

The rich, the powerful and the merely famous should be very afraid. First the journalists started going after their offshore accounts and tax havens, thanks to an unprecedented leak of millions of secret banking documents. Now the authorities are piling on.

The leaked files obtained by the International Consortium of Investigative Journalists (ICIJ) document—with impressive precision and colorful anecdotes—how wealthy tax cheats, their lawyers and friendly governments manipulate offshore holdings, front companies, complicated cash transfers and shadowy shell companies. Those activities, in turn, have fueled corruption and sucked profits out of the coffers of as many as 170 developing and rich nations.

Starting last month, the stories started coming out. The tax-avoiders “include American doctors and dentists and middle-class Greek villagers as well as families and associates of long-time despots, Wall Street swindlers, Eastern European and Indonesian billionaires, Russian corporate executives, international arms dealers and a sham-director-fronted company that the European Union has labeled as a cog in Iran’s nuclear-development program,” the ICIJ reports.

At least two alleged culprits have lost their jobs, at least temporarily—Mongolian parliamentarian Bayartsogt Sangajav and Santosh Kedia, a member of the board of directors for the Antwerp World Diamond Centre.

And over just the past few days, authorities in the US, Britain, and Australia have announced they are launching massive tax investigations. Canada deployed an international tax “SWAT team,” and European finance ministers are scrambling to eradicate havens. Even Greece and the Philippines are demanding answers.

Most likely, those investigations will be slow and, often, unrewarding. Authorities who lack the expertise and laws to really nail global tax cheats will butt heads with high-priced lawyers who know how to manipulate the spotty patchwork of international laws.

But the ICIJ has only just gotten started. The consortium claims to possess 2.5 million leaked files. (For comparison, the State Department data trove that Wikileaks released in 2010, and which is still occasionally embarrassing governments, consisted of 250,000 diplomatic cables.) That’s a lot of ammunition for a bunch of relatively impecunious, self-righteous and very motivated investigative reporters.

Their findings, in turn, will pressure law enforcement and financial intelligence agencies to launch investigations and question people. “There will be snitching by people to protect themselves, and when that starts happening, none of them are safe and neither are the participating governments,” says Jonathan Winer, who spent several decades at the US State Department on financial crime investigations. “The first shoes are dropping,” he said. “There will be many more.”

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