Panama Papers: cui bono?

When you visit the Offshore Leaks Database from The International Consortium of Investigative Journalists (ICIJ), you will find a legal disclaimer that reads as follows: “There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly.”

This begs the question, what is the scandal then? If the ICIJ recognizes that it cannot affirm that any person or company linked to the Panama Papers has committed a crime in any jurisdiction (much less meet the more appropriate standard of dual criminality), what was this about? The ICIJ did not just release the database to the public. This organization made a clear effort directed at achieving the highest media impact worldwide. The ICIJ wanted to create in the public mind the impression that offshore business providers, particularly the particular services provider whose documents were illegally retrieved (Panamanian Law Firm Mossack Fonseca & Co.), knowingly dealt with criminal organizations and actively helped customers commit crimes, launder money, and hide their trails.

We are talking about the biggest release of confidential information ever to take place. Indeed, the members of ICIJ and journalists covering the release of the documents, made a notable effort to emphasize that, in terms of data, the Panama Papers release was several orders of magnitude greater than any other in the past. Many articles were written just to stress the numbers comparing the 2.6 Terabytes of data of the Panama Papers to the now, in comparison, pale 1.7 Gigabytes of the 2010 Wikileaks release, or the 60 Gigabytes of materials leaked by Edward Snowden related to surveillance activities of the National Security Administration.

If the claims of the ICIJ and associated journalists are correct, and what the Panama Papers revealed is a systemic aiding and abetting from the offshore legal and financial services industry of criminals, tax evaders and corrupt politicians worldwide, one would expect that from such a great amount of data illegally extracted from Mossack Fonseca, prosecutors around the world would be busy for many years to come. In fact, a full year since the Panama Papers scandal was broken to the public, there have been no indictments for alleged crimes evidenced in the files. Both Mr. Mossack and Mr. Fonseca have been detained in Panama in February this year, but the prosecutors have been emphatic that their detention had nothing to do with the Panama Papers, and was for a different investigation related to the Lava Jato scandal in Brazil.

And this year must be added to the full year that ICIJ had access to the files before they announced it to the public.

This absence of any criminal indictments in the West and the rest of the world, against any major (or minor) criminal organizations or persons in relation to illicit activities of any substantial impact, is in and by itself fairly conclusive evidence that the whole affair was not much more than a gigantic release of hot air. And this raises a few questions: Why then the scandal? Who was behind the release and what was the real motive?

What is the connection of ICIJ with George Soros?

The International Consortium of Investigative Journalists lists on its website a number of donors, among which is mentioned the Open Society Foundations, founded by Hungarian-American billionaire investor George Soros. Soros is a philanthropist who tends to fund and donate to organizations that view capitalism as the cause, rather than the solution to the world’s problems.

The choice of name for his foundation, Open Society, comes from the term used by twentieth century philosopher Sir Karl Popper. The latter’s book, “The Open Society And Its Enemies” is a political science classic. The central argument of Popper in that book is that fundamentalism in any direction tends to lead to regression of society to either tribalism or tyranny, and that sustained societal improvement is possible only under a political and economic system that allows for diversity instead of aiming to impose one worldview. This requires a political system that ensures that political power is bound within very strict limits, with constitutional mechanisms for peaceful and non-traumatic change of power, very strong guarantees for individual liberty and human rights, and a firm respect for the Rule of Law. For those very same reasons, Popper tended to favor free market economies and political systems with strict constitutionalism and restricted powers, such as the United Kingdom and the United States of America.

The Open Society that Soros favors, however, is not quite the same as the one proposed by Popper. Although not totally hostile to capitalism, Soros is an ardent critic of it, or at least what he perceives as capitalism. In fact, he has argued that since the end of the Cold War and the demonstrated failure of Communism, the system of laissez-faire is the major threat to the open society. In other words, he thinks of capitalism as an extreme ideology, rooted in what he calls “excessive individualism.” As he penned in his opinion piece in The Atlantic in 1997 titled The Capitalist Threat: “Although I have made a fortune in the financial markets, I now fear that the untrammeled intensification of laissez-faire capitalism and the spread of market values into all areas of life is endangering our open and democratic society. The main enemy of the open society, I believe, is no longer the communist but the capitalist threat.”
He does not put capitalism on the same level of evil as communism or nazism.  However, he clearly believes that the economic system currently in place the United States of America is too much individualistic. In other words, he wants a turn left.

Unfortunately, his views are based on several errors. For example, he views free market as antagonistic to cooperation. In this he makes the common mistake of equating competition in the marketplace with competition in sports or in conflict.  Thus, he sees transactions between free individuals in the marketplace as a zero-sum game, a common fallacy that is at the heart of all hostility to the free market.  But competition in the marketplace is not a zero-sum game for one key reason, and that is the existence of property rights. With property rights, competition in the marketplace leads to cooperation.

How? When no individual is forced to work for others or to share his property with others (and his property rights naturally include his own time and energy), any person wishing to engage in a transaction must do so appealing at the other person’s interests. The freedom to choose that is the essence of the free market system is the reason why anybody wishing to sell his product or service to other persons, must offer something that other people are willing to buy paying with something that in turn is more valuable to the former, on the margin, than the product or service he sold to the latter. This leads to division of labor phenomenon that even Marx recognized is conducive for the improvement in the quality of life of all people in society. As Adam Smith famously put it: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self interest.”

It is no surprise that Soros holds these antagonistic views towards capitalism, given that Nobel Laureate economist Joseph Stiglitz, whose wife sits on the Advisory Board for The Open Society Foundations, advises him in economic matters. This can serve to explain Soros’ focus in wealth redistribution, as this is a major theme as well for Professor Stiglitz (though nothing explains the mysterious decision of the Panamanian government to appoint Stiglitz to serve on the High Level Presidential Commission for the Defense of International and Financial Services – CANDSIF) in the aftermath of the ICIJ leaks.

The statist idea of transparency

Why is this statist ideology relevant to the Panama Papers and the effort of the Organization for Economic Cooperation and Development (OECD)? For two reasons: the first, because by believing that today’s economic system is too individualistic, Soros favors empowering governments to more stringently regulate (i.e. restrict) people’s liberties, particularly in the economic field. In particular, he expresses the need for governments to force wealth redistribution. This requires high taxation. But high taxation, we all know, tends to make people want to invest their capital in other places with less taxation. That is where international tax competition helps deter governments from imposing tax rates that hinder growth and impede the improvement in the standard of living. Thus, whoever wants more wealth redistribution must aim to eliminate international tax competition.

The second reason is that one of the ideas that Soros promotes consistently through his Open Society Foundations is that we need more of a world government and international rules than we have at present. He believes, incorrectly, that laissez faire is conducive to international conflict. Here again, he confounds the word competition when referred to the marketplace, with competition in zero sum games such as the struggle for power between states.  But, typically, wars are waged precisely when at least one of the states refuses to recognize the property rights of the people of the other states. Wars and international conflict are not a feature of capitalism, quite the contrary, they almost always result from the insistence from at least one of the combatant governments in securing by force the valuable resources that pertain to other states or to nationals of those other states. To suggest that the use of force to take something that belongs to other persons is consistent with capitalism reveals that one does not know what capitalism is. The negation of the property rights of others is the negation of capitalism or free market system.

But when you take Soros’ animosity towards international tax competition and mix it with his avowed wish for more centralized world government, and you can only get a desire to expand the international bureaucracy towards an international system where taxes are more or less homogeneous across borders. And for many years, the enemies of international tax competition have understood that in order to achieve their objective of harmonizing world tax rates (something that inevitably would lead to much higher, instead of lower, rates of taxation), it is absolutely necessary to eliminate financial privacy. For the right of maintain one’s financial and legal affairs confidential and beyond the reach of taxing bureaucracies, it will never be possible to impose much higher tax rates in the rich countries without causing an exodus of capital to more attractive jurisdictions.

And so this is the reason why ICIJ, a consortium of investigative journalists, a specialty we traditionally associate with uncovering governments’ and public officials’ actions of abuse of power, based on the correct idea the in a republic whatever concerns the state and the administration of public funds is of interest to all citizens, has now with the Panama Papers reversed the standard and pretends to impose a new one, whereby instead of politicians being accountable to citizens, we citizens should be accountable to politicians, including in our own personal affairs.

That is what they mean with the so-called transparency they now push forward, which is nothing more than the Panopticon that can only serve to reduce freedom of the people and provide politicians with ever more power to abuse.

Ironically, that can only lead to closed societies, instead of the open ones Mr. Soros supposedly favors.