The recent leak of files from a Panama law firm that helped wealthy individuals shows why cracking down on tax havens needs to be a priority. As the International Consortium of Investigative Journalists (ICIJI) discovered in its investigation, over the last 40 years, the Panama-based law firm Mossack Fonseca has helped set up over 210,000 companies in 21 jurisdictions to help the wealthy avoid paying their share in taxes.
And that’s just one law firm.
Canadians among those caught using Mossack Fonseca
While Mossack Fonsesa doesn’t have an office in Canada, 350 Canadians are still among those using its services. The Royal Bank of Canada helped set up 370 different offshore companies through Mossack Fonseca.
Money funneled through those companies is part of the estimated $6 billion to $7.5 billion a year Canada loses because of tax havens.
Tax havens assist criminals and terrorists
CBC News reported that among the Canadians using Mossack Fonseca there are “known fraudsters." And, that is just the tip of the iceberg.
The ICIJ reports that other clients include criminals laundering money and terrorists. The Guardian newspaper says that another client was a company helped North Korea expand its nuclear weapons program and sell arms.
“The Panama Papers are yet another reminder that governments that fail to prevent the wealthy from using tax havens are providing huge opportunities for organized crime and terrorist groups,” said James Clancy, National President of the National Union of Public and General Employees Union (NUPGE).
Who’s who of tax evaders shows international agreements
The Guardian also has found that among those revealed to be using tax havens, or who had close family connections to tax havens, were the heads of state or heads of government in 12 countries. This includes Iceland’s Prime Minister, who owns an offshore company, and British Prime Minister David Cameron, whose father ran one.
The Icelandic Prime Minister Sigmundur David Gunnlaugsson has since resigned (or stepped aside) from his position as a result of the public and political outrage to the financial revelations.
“The list of powerful figures shown to have been using tax havens makes it clear we need to look at what politicians are doing about tax havens, not what they say,” said Clancy.
Dennis Howlett, executive direction for the Canadians for Tax Fairness said in a press release, "This shows the scourge of the tax haven problem and the global financial industry that feeds on it, Elected officials, celebrities, and the rich and famous are involved— we are starting to get a better idea of why there is so much pushback to change things."
Solution to the tax evasion lies in countries like Canada
While the shell companies used to dodge taxes may be registered in the Caribbean islands, the solution to the problem lies in Canada. Tax havens exist because of weak laws in countries like Canada, the United States, and Britain that make them possible.
As coverage of the Panama Papers points out, many Canadians using tax havens to avoid paying their share are not breaking Canadian laws. Even when people are breaking the law, the ease with which Canadians can set up shell companies, where the identity of the real owners is hidden, means the chances of being caught are relatively low.