If it feels as if the secrets revealed by the Pandora papers – the biggest ever leak of offshore data – are familiar, that’s because they are.
A Ukrainian president, a former British prime minister, a friend of Vladimir Putin, they all featured in the Panama papers – which uncovered the financial information of more than 200,000 offshore businesses – back in 2016. Here we are five years later, reading about them all over again.
The individuals may be different: it’s Tony Blair this time, not David Cameron; Ukraine has a new president; and the Putin friend is an oil trader, not a cellist. But the essential details are the same. Anyone able to afford the entry fee still has access to a financial network denied to the rest of us; and it follows that no one in power has done anything substantive about it in the past half-decade.
It shouldn’t need saying, but this is bad. Democracies only survive because the law applies equally to everyone. If a shadow system persists that allows the rich and powerful to avoid obeying the same rules as the rest of us, the trust that underpins our system will disappear. Without trust, democracy cannot survive.
At the core of the three great leaks – the Panama, Paradise and Pandora papers, as well as at the heart of many smaller ones – is one single tool: the shell company, which has been used time and again by powerful people to hide their activities from fellow citizens, tax authorities and law enforcement agencies. It is perhaps the most damaging thing ever invented, since it facilitates the theft of hundreds of billions of pounds a year, while defeating investigators – no matter how determined they are, or how powerful the country, cause or corporation they represent.
The ability to hide behind a shell company, and the knowledge that, unless there’s some giant data dump like this one, your activities will never be discovered, is an invitation to launder money, to dodge taxes and to accept bribes. And shell companies are not just a problem confined to tax havens – “sunny places for shady people”.
Britain’s corporate registry is a sink of unverified information, with loopholes so large that the largest money-laundering scandals of all time have passed through. Registries in the US are, if anything, worse. In many states, customers must present more information to obtain a library card than to create a corporate structure. Most EU countries are little better and, of course, the usual suspects – Britain’s overseas territories, Seychelles, the Marshall Islands, St Kitts and Nevis – remain deeply problematic.
So, if we know all this, why does nothing get done? The reason is that kleptocrats, tax avoiders and other criminals are not the main users of shell companies. The world’s richest corporations, investment funds and individuals also like to use cheap, efficient and opaque corporate structures to move their wealth seamlessly around the globe; and any attempts to rein in the fraudulent use of shell companies will inevitably cost them money.
It was opposition from fund managers that stopped substantive reforms to Scottish limited partnerships after they were misused in the Moldovan Laundromat; and it is opposition from wealthy Americans that prevents light being shone on the corporate registries in Delaware, Nevada and elsewhere.
If one jurisdiction imposes tougher regulations, these wealthy and well-networked customers can move to a different registry and take their money with them; and no government wants that. This gives these people and organisations an effective veto on anything being done to reform our broken system, which is not how things are supposed to work.
The reason that limited companies exist is to encourage entrepreneurial activity. If an investor is worried about losing everything, he or she may be overcautious. A limited company – in which that person risks only their investment, not their home – is an insurance policy. Society takes on some of the risk of a business idea, on the basis that if it succeeds we will all get richer. In return, the owners of the companies must publicly reveal who they are, and how much money they are making.
A shell company, however, has one key twist: it is anonymous. That means its owners retain all the benefits of limiting their liabilities, with none of the responsibilities. In effect a shell company is an anonymous insurance policy – which is an invitation to commit fraud.
After the Panama papers were published, Britain promised to take action to end this disastrous situation by – among other things – forcing the 100,000 shell companies that own property in England and Wales to reveal their true owners. It has not kept that promise, nor does it appear to intend to. Last year Boris Johnson’s government didn’t even put it in the Queen’s speech.
Politicians are perhaps counting on the fact that voters are no longer shocked by these kind of allegations (a friend texted after the Pandora papers stories dropped on Sunday to ask, “Should I care this time?”), and are counting on the complexity of the material to baffle us into silence.
As it stands, we have a choice. We can surrender to that bafflement and do nothing but await the next giant data leak, while trust in our democracy corrodes further. Or we can take the one simple step that would solve this problem once and for all: abolish anonymous companies.
The government does not need to wait for international agreement, it can simply pass legislation that the true owners of companies operating in the UK must declare themselves. This wouldn’t solve all the problems we face. It wouldn’t even solve all the problems highlighted by the Pandora papers. But it would be a very good start.
Oliver Bullough is the author of Moneyland: Why Thieves and Crooks Now Rule the World and How to Take It Back
The Pandora papers
Join Guardian head of investigations, Paul Lewis, and guests in this special live-streamed event looking in depth into the Pandora papers revelations. Monday 18 October, 8pm BST | 9pm CEST | 12am PDT | 3pm EDT. Book tickets here