The trove of records known as the “Paradise Papers” unveiled this week by the International Consortium of Investigative Journalists (ICIJ) has exposed the financial hideaways of iconic brands and power brokers across the political spectrum. Among the revelations resulting from the leak have been ties between Russia and the United States commerce secretary, secret dealings of the chief fundraiser for Canadian Prime Minister Justin Trudeau, and the offshore interests of the queen of England and more than 120 politicians around the world. Brooke Harrington, a sociologist who trained as a wealth manager for the investigation that became her 2016 book Capital without Borders: Wealth Managers and the One Percent, served as a key analyst for the ICIJ in their work on the Paradise Papers, and has been an increasingly vital source for global media seeking to understand all that’s come to light. Below, Harrington explains why the ongoing exposure of the offshore financial system is about so much more than palace intrigue and political embarrassment.
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“So what?” This question keeps appearing in my Facebook feed, via friends of friends in America, in response to news of the Paradise Papers leak. Some are confused by the complexity of the revelations—what the heck is U.S. Secretary of Commerce Wilbur Ross doing with the Putin family?—and some are distracted by the bizarre array of household names coming together in the story. Fancy Her Majesty Queen Elizabeth II having something in common with Martha Stewart and Formula 1 race car driver Louis Hamilton!
What the Paradise Papers tell us, as the Panama Papers did earlier, is that above a certain level of wealth, everybody is using offshore. And they’re not just avoiding tax: lots of people put assets offshore even if they come from places that don’t tax income, inheritances, wealth, or capital gains. They’re putting assets in Bermuda, or Panama, or one of the dozens of other offshore financial centers because they don’t want to pay back their creditors, or submit to fines imposed by a judge, or split assets with a divorcing spouse. Tax avoidance, although it gets the bulk of the media coverage, is only part of that larger, and much more troubling picture.
Leaks like the Paradise Papers tell a story of rampant law avoidance. That’s what really makes the ultra-wealthy different from you and me: for them, the laws are mostly optional. Several of the wealth managers I interviewed for Capital without Borders—people who worked for firms very much like the ones exposed in the recent leaks—marvelled at the degree to which their clients’ wealth and power put them “above the law.” This creates a political problem, especially in democracies where legitimacy depends on all citizens being equal in their obligation to obey the laws of the land. When people see that whole groups of people simply escape that obligation, they get angry and start looking for scapegoats. Thus, Thomas Piketty has linked the use of offshore to the rise of right-wing ultra-nationalist movements, which misdirect that populist anger—encouraging people to blame the poor and marginalized, rather than the lawless ultra-rich.
Thus, my answer to the “so what?” question is political as well as economic. Certainly, the tax evasion part matters tremendously: the former US tax commissioner estimated that honest taxpayers bear an extra 15 percent tax burden to compensate for wealthy Americans’ failure to pay their fair share. And even with honest taxpayers taking up some of the slack, public services like transportation, health care and education still get cut, damaging chances for upward mobility so essential to a dynamic capitalist economy.
Inevitably, this economic stagnation intersects with the concentration of political power to produce conditions that look depressingly familiar to historians: feudal, in fact. When Oxfam reports that just eight people own as much wealth as the poorest 50% of humanity, comparisons to the Middle Ages don’t seem so far fetched. Indeed, this week the Guardian reported that a UK economist believes inequality has become so extreme that we should revisit a medieval document as a model for contemporary action. The Charter of the Forest, which turns 800 years old this year, asserted the right of ordinary people to food and shelter, and challenged that of nobles to monopolize all the resources. That 21st century conditions compel us to re-learn the lessons of medieval history suggests the formidable power of offshore. And that is why we should care.