Moral Inversion of the Panamanian Tax Scandal

In the 1980s I worked for a private bank in London that specialised in helping wealthy offshore clients manage their investments outside their home countries. Typically these clients were successful businessmen who wanted to secure at least some of their wealth from rapacious tax authorities. We were careful with who we took on as clients, requiring every prospective customer to be introduced by someone we already knew, and we were not prepared to take on anyone whom we suspected might have obtained their wealth through criminal activities.

One of the aspects of our bank that appealed to offshore clients was that being London-based, we tended to attract less attention from foreign governments than, say, Swiss banks. Our job was to act in our clients' interests to the letter of the law and we worked on the principle that if any of the information we held to was disclosed to the UK authorities, there would be no risk of incriminating (or even embarrassing) our clients or ourselves.

So it was with great interest that I read about the hacking of the Panamanian legal firm, Mossack-Fonesca. Leaving aside the obvious incompetence that the firm exhibited in allowing their client records to be hacked (even before the advent of the Internet with its risk of hacking, we never stored real client names with their numbered account records on our computer systems), I have difficulty equating what has been revealed with the outrage from the world's media. There is nothing in the revelations to suggest that Mossack-Fonesca did anything illegal, but the outrage is not about illegality, it's about preserving the inherently corrupt system of taxation and welfare spending.

Governments all over the world have bribed their electorates with money they do not have. They have funded their bribes from borrowings and from printing money, both of which have the effect of deferring the true cost of the bribes. But we know from the recent experiences of many European nations and increasingly the United States that the borrow and spend policies cannot continue indefinitely. There has to be a reckoning - either the state cuts spending hugely or it raises taxes significantly. The problem with doing the latter is competition from low-tax jurisdictions. In a world where money and skilled workers can easily migrate, high-tax governments know they won't keep either when lower tax alternatives are available. The response of high-tax governments is to wage an economic and propaganda war on low tax countries.

The United States has been particularly ruthless in its strong-arming of low-tax nations, for example forcing Switzerland and Liechtenstein to abandon their banking secrecy laws in respect of US taxpayers under threat of seizure of their banks' assets in the United States. It has also forced countries including New Zealand to implement its FATCA regime, in which foreign governments pass laws that put anyone with the vaguest connection to the United States under scrutiny for the rest of their lives in order that the US Government can extract taxes from them (see my blog post about this here). Meanwhile, the Western mainstream media act as cheerleaders to this extrajudicial abuse of power.

There is a moral inversion to all of this - bribery and extortion by governments are considered just, while protecting what is yours is considered immoral - but that is the world we live in and I suspect its going to get worse before it gets better.