Panama Papers highlight a tax challenge of global dimensions

The difficulty that governments face in tackling the issue is compounded by the fact that many political figures and officials – an influential elite – have had offshore holdings

Financial secrecy laws in many tax havens facilitate tax avoidance by companies and wealthy individuals while some offshore jurisdictions – including the British Virgin Islands (BVI) – do little to deter tax evasion and to detect money laundering. Tax avoidance to minimise a tax bill is legal but tax dodging and money laundering are not.

Evidence of both activities, legal and illegal, is set out in the Panama Papers, published over the past week by the International Consortium of Investigative Journalists (including The Irish Times) and based on leaked documents from Panamanian law firm Mossack Fonseca.

A veil of secrecy has long surrounded the opaque offshore structures available in tax havens. The ICIJ, in lifting that veil, has exposed a challenge on a global scale. The leaked papers show that shell companies and nominees have been used to hide the identity and assets of their real owners and to guarantee their anonymity.

The difficulty that governments face in tackling the issue is compounded by the fact that many political figures and officials – an influential elite – have had offshore holdings via Mossack Fonseca. One such is British prime minister David Cameron who was reluctantly forced to admit that he had benefited from his late father's offshore fund.

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Mr Cameron has been a strong critic of “the corrupt, criminals and money launderers” who take advantage of secret shell company structures. In June, the UK government will establish a public register of the details of company ownership designed, according to Mr Cameron, to produce “a new era of corporate transparency in Britain”.

That register, while a welcome advance and one that could be emulated in Ireland, has some clear limitations. The register will not apply to overseas companies that operate in the UK through a branch and the details supplied will not be independently checked.

Next month, the UK government will host G7 countries to discuss global anti-corruption measures which will include overseas territories and crown dependencies, such as the BVI, over which Britain has jurisdiction and which are an integral part of the offshore industry.

That may prove a measure of Mr Cameron's determination to ensure some of the many abuses outlined in the Panama papers are speedily investigated, not least the use of offshore companies by those suspected of corruption to buy property in London where prices have risen by 50 per cent since 2007.

That will mean scrutinising the role played by intermediaries in the city of London, in banks and in law firms and tightening their regulation and supervision. “Lux leaks” files in 2014 exposed tax avoidance deals involving Luxembourg’s government and multinational companies; the Panama papers go further in highlighting a tax challenge of global dimensions.