Muddying the waters on Panama

Intermediaries opening offshore companies in secretive locations have to answer for their role in an immoral global economy.  But that does not absolve Mizzi and Schembri of their gargantuan act of political impropriety
 

Nexia BT was clearly not the only company offering these services, but faces a justified increased amount of scrutiny and criticism for offering its services to two highly influential PEPs immediately after these were elected to office.
Nexia BT was clearly not the only company offering these services, but faces a justified increased amount of scrutiny and criticism for offering its services to two highly influential PEPs immediately after these were elected to office.

The Panama Papers are about a global system that siphons money from the public common good, represented by redistributive taxation systems, to a global elite that skirts around the rules by putting money in offshore locations. 

The Panama Papers simply exposed a parallel, reverse Robin Hood system which steals from the poor to feed the greed of the rich. 

But the Labour Party is being deceitful in trying to absolve Mizzi and Schembri by lashing at the involvement of PN-linked lawyers and auditors as intermediaries in the financial industry, not because the latter are blameless but because this spin only serves to muddy the waters to create a false equivalence of guilt. while leaving everything unchanged.

We are talking about two different issues: the obvious untenable political position of a Minister and the PM’s Chief of Staff who formed companies in Panama while in office; and the role of Malta’s financial services infrastructure and individual Maltese operators in this immoral global economy.

Konrad Mizzi and Keith Schembri have to resign not because they form part of an immoral economic system, but because they formed a Panama company while in office, casting a dark shadow on their responsibilities as servants of the republic. They have been surely diminished in stature when it emerged that they had embarked on global saga to find a bank which accepts PEPs to deposit earnings made by their Panama companies. Ninu Zammit clearly belongs to this category but has already been suspended by the Nationalist Party. Repatriating his assets through the 2014 amnesty surely does not absolve government from seeking answers from Zammit on where the money deposited in secretive locations came from. 

There is also another reason which makes Mizzi and Schembri’s resignation imperative. If the government really intends to investigate their actions, they should be able to defend themselves as common mortals and not as residents of Castille. Nexia BT was clearly not the only company offering these services, but faces a justified increased amount of scrutiny and criticism for offering its services to two highly influential PEPs immediately after these were elected to office. In this case the company was not just offering assistance to Maltese citizens to open a company in a secretive location (which is bad) but also offering its service to two high-ranking government officials (which is worse).

The other party of the story is the host of Maltese intermediary companies mentioned in the Panama Papers, a clear indication that we need an overhaul of the system on a European and global level. Malta should collaborate instead of putting spokes in the wheel in this process to defend its turf. Surely the financial services sector is seen as a pillar of the Maltese economy but in reality we also offer fiscal incentives to companies here to avoid paying taxes in other countries, even if our refined legislation is nowhere near Panama’s or the BVI’s, which lack any transparency.

So Malta does play a part in the global tax avoidance game even though it does not fall in this category of secretive jurisdictions. The Panama Papers show Maltese companies and law firms have assisted individuals to set companies in secretive locations. This on its own raises ethical issues and those involved cannot hide behind the excuse that they are simply doing their job. People make choices in life. Advising people to open shell companies in secretive locations is not an ethical choice. For one may ask, why don’t such intermediaries exclude secretive locations like the British Virgin Islands and Panama? This aspect should be addressed through legislation. I subscribe to the proposal made by Education Minister Evarist Bartolo to change legislation to ensure that all Maltese citizens can only open companies and accounts in countries which fully share information with local tax authorities. It would be interesting to assess the impact of such a legal change on prospective applicants in Malta’s Individual Investor’s Programme, which is ironically run by a company mentioned in the Panama Papers.

Perhaps it would also be wise for politicians to keep a distance from a line of business which raises ethical issues and surely to distance themselves from offering services to people who want to set up companies in secretive locations. Obviously this is even more the case with companies like Nexia BT who offered their services to a minister and top government aide.

But there is also a basic immorality is assisting any private citizens in opening companies in secretive locations. Politicians must wake up to the reality that after the financial crisis, globally there is justified opprobrium against tax havens.

Even Pope Benedict XVI, felt the need to condemn ‘offshore centres’: “They have given support to imprudent economic and financial practices and have also played a significant role in the imbalances of development, allowing a gigantic flight of capital linked to tax evasion.”

So I find it immensely problematic for Labour to lash out at intermediaries in a desperate bid to defend Schembri and Mizzi. If intermediaries are in the wrong, it only makes the position of Mizzi and Schembri as beneficial owners of companies even more untenable. Labour’s narrative ignores the fact that Mizzi and Schembri formed their companies while holding political office (which distinguishes them from businessmen who formed similar companies) and they were assisted by a company that was fully aware of their political status.

Labour’s narrative may well end up bolstering the status quo.

If Mizzi and Schembri did nothing wrong because there is no proof that they broke the law, the same may be said of operators in the financial sector who offer assistance to clients. How could one have the legitimacy to rein in the financial sector when your government includes two key beneficiaries of tax haven secrecy?

I also find the argument used by the Nationalist opposition that Mizzi and Schembri have thrown a bad light on the local financial industry problematic. It is true that by not resigning Mizzi and Schembri have thrown Malta under the spotlight. But we can no longer ignore the growing demand for tax justice on a global level.

We can’t escape the fact that the European Union will have to respond to its citizens’ restlessness on seeing rich individuals and companies seeking tax avoidance mechanisms while public services in their countries are dismantled. How can we justify austerity when the rich are simply shifting their money to locations where it is not taxed?

While millions are escaping poverty by leaving their homeland, the Tax justice Network conservatively estimates $21 to $32 trillion has been invested virtually tax-free through 80 offshore secrecy jurisdictions. As whistleblower John Doe has pointed out, the Panama Papers show beyond a shadow of a doubt “that although shell companies are not illegal, by definition they are used to carry out a wide array of serious crimes,” and that while “the prevailing media narrative thus far has focused on the scandal of what is allowed and legal in this system. What is allowed is indeed scandalous and must be changed.” 

Those involved in Malta’s financial sector should also wake up to the reality that their role in providing advice to people siphoning money in secretive locations raises global ethical issues.

Ultimately we need to further regulate our financial sector to bring it in line with global demands for tax justice. We do not live in a bubble. We have to act before the bubble bursts.

But the first one who is expected to act in this case is the Prime Minister. His half-baked reshuffle to keep Mizzi as minister sent the wrong message; that you can still be trusted with a cabinet post even if you are outed for forming a secret company in Panama while in office. By that reasoning, one may well ask what is so wrong with providing advice to private citizens on how to minimise their tax exposure?

That is why retaining Mizzi and Schembri is so bad. It kills any rational debate on the role of the financial industry in the Maltese economy and its place in the ethical order of things.

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