When offshore banking goes public

For a short distance while walking toward Covent Garden in London yesterday, I found myself behind the marching protesters calling for Prime Minister David Cameron’s ouster over recent news of his one-time Panamanian nest egg. It was a jovial bunch, and the people they passed generally seemed either supportive or at least entertained, but when I reached my turn-off, I turned off.

The things that have interested me throughout last week’s Panama Papers imbroglio seem to have little in common with what’s bothered most folks about it. This is not an unusual phenomenon, per se. Let’s get to that later on, though.

The details are new, but the news is not. Sort of like the NSA leaks (of still not that long ago) this should be shocking to no one. Or remember how there was demonstrative evidence that the case to invade Iraq was largely based on fiction, and then a subsequent inquiry showed that it was fiction, and then we had all these elected officials who voted to authorize it suddenly claiming they were somehow conned? This scandal runs along a similar theme.

Yes, offices are being raided. Some millionaires are temporarily embarrassed. No, I don’t expect anyone to learn from it or much to change. Neither should you.

It’s not like anyone wasn’t aware that rich people were hording cash in places out of the relevant tax man’s jurisdiction, it’s just that there wasn’t (previous to now) spicy details about exactly who was getting away with it. Most people know they’re getting the short end of the stick on taxes, but they don’t like having the fact rubbed in their faces.  When it is, though, they appreciate having some names involved that they can take it out on.

Both those things happened with The International Consortium of Investigative Journalists’ (ICIJ) The Panama Papers investigation. It’s all about the offshore legal structures and financial dealings of the rich and powerful who were unlucky enough to have done business with Mossack Fonseca, the “fourth largest” provider of offshore legal and trust fund services… one without a reasonably corresponding data security regime it would appear. I’m assuming that the other three bigger ones are presently in a quiet frenzy over their own procedures.

As a result, we have Iceland’s prime minister and the UK’s own Mr. Cameron taking the heat. And you know, that’s fine. The scandal puts the Icelandic version of my party in pole position in Reykjavik. Here in the UK, Labour should be pleased it has a leader as far from Tony Blair’s political/economic spectrum as could be possible right about now. This is a scandal about as tailor made for Jeremy Corbyn as the Savile Row suit he’ll never own. It will be fascinating to see how the rest of Labour fucks this one up for him.

Now, here’s what’s boring, what’s outrageous, and what’s kind of interesting.

Big yawns…

What is of fairly little interest to me is that Cameron’s dad once set up a trust fund in a tax haven. It’s ridiculous that Dave tried to skirt the issue as long as he did, and hypocritical, as he’s criticized others for the same practice. I’d rather he resign over a lot of other things before this one, but some people will take what they can get, I guess. I’m also not that interested in the names of celebrities setting up trusts or companies to handle there cash. Not new.

And I’m bored with the mainstream reaction to it all. It’s similar to the last scandal around companies like Google, Facebook and other firms working every loophole around paying corporate taxes in UK they could. There was much brow-beating and pooh-poohs and complaints that they should pay more. Google tossed in a little extra and got criticized for not paying still more, as if this was some kind of barter system instead of tax law discussion. What went missing then, and now, is substantial talk of changing laws and (more importantly) reporting methods to something approaching reasonable. Government can’t guilt people paying more, that’s a patented Catholic church trick.

Like in that corporate tax situation, people seem mostly outraged by the actions of others who haven’t actually broken the law. From a legal perspective, what they did was find out how much they really had to pay, and paid no more. In this perspective, it’s actually the rest of us who are paying too much because we don’t have the understanding, resources or capacity to pay the right amount. We’re not rich enough to pay our (lower) fair share. I didn’t say it was the moral or ethical way to look at it, just the legal one.

We all want to pay less. If you have a pension, investments, or any of the other mundane financial things that millions of people have, you’re likely involved in some small tax avoidance. The banks or investment companies you’re going through are undoubtedly using your money for even greater schemes, and a sliver of that gets passed on to you. You may wish they’d stop doing that, but you also wouldn’t reject that sliver getting a little bigger. The issue is about scale and human behavior. We all will pay less for things given the chance, particularly taxes. No one completes a tax return and tops it up with extra cash and a note reading, “get yourself a little something nice.”

There’s a mutual fear of the foreign running through to fairly opposite groups of people these days:

  1. You have real xenophobic people, the kind who want to get out of the EU as of yesterday, close down the borders, require everyone to love the queen, maintain a healthy diet of pie and mash and turn Britain back to what they think it was like in 1952, or earlier. They don’t mind the finances moving around too much, but want people (foreign ones) buttoned down.
  2. Then there’s the group who are generally for open borders and the movement of people, but when you start talking about money, it should be locked down and state regulated. Moving money is suspicious stuff.

The problem is that everything is now international, and neither of those world views work. Resources move. People move. Nationalist border restrictions on transactions and people — stemming from the long-wilting concept of Westphalian sovereignty — no longer function. Both groups need to accept that and move on. It would be more useful to acknowledge the complexity of international finances, and the taxation of them, and set about creating more transparent and reliable ways for wealth to be assessed and taxed on the fly. That’s the technical answer. No one wants that, though; it would essentially end cheating. We all like wiggle room.

Instead of looking at it from a moral issue, I see this is a fairly technical one. There shouldn’t be such a thing as being able to pay more or less tax, but just a correct tax for your income level. That’s achievable through algorithms, not badgering. But people should be careful what they wish for: it’s quite easy to imagine dystopian realities emerging from single, all-powerful international tax oversight. In many ways, for most of us without the resources to be financially nimble, it’s happening already in the form of your debit/credit card and current account.

Oh, the outrage…

There’s been a strange, inverted outrage. Unlike Wikileaks, the ICIJ isn’t just releasing a giant data dump. It’s being drip fed. This seems far more fair. Should everyone who happened to have contacted the company about something be put in public? Really?

Initially, the outrage from the easily outraged was that it looked like the focus was on Putin and others currently on the wrong side of the West, as if it were some conspiracy. Now that we see quite a number of Western names in the Panama Papers articles, the loudest condemnation seems to be over the people who haven’t actually done the worst. Within these Mossack Fonseca files are details on how arms move, wars thrive and real abuse persists. Yet there’s less anger about the use of these services by war criminals than about some of the more mild individuals taking advantage of them for their spoiled kids’ inheritance.

Rich western leaders and, less interestingly, celebrities, are using the same firms that terrorists and despots they’ve either issued sanctions against or claim to loathe. They’re all entries in the same spreadsheets. That’s far more interesting than whatever date it was Cameron sold his shares and paid the taxes on them. Some people are using these mechanisms to save a lot of dosh, sure. Others are using them to kill scores of people and move barrel bombs. It’s fairly depressing which of these two groups seems to dominate people’s attention.

The interesting bits…

What’s fascinating about the whole Panama Papers debacle is that it shows how we still have a large analog population trying to do things in a digital realm and many are getting it horribly wrong. The response by Ramón Fonseca, one of the founders of the firm, wasn’t one of  outrage at the security lapse, but a sort of bizarre statement on how little privacy there is left in the world, as if he’d just discovered this now. He’s from a group of people who think status is some sort of firewall against the hoi polloi. A hacking is, in its truest form, is a painful lesson in what you haven’t been paying attention to.

More frequently, we’re seeing enterprises promise undeliverable privacy or anonymity without realising what environment they’re working in. The Ashley Madison adultery website was an example of that. The Hacking Team leak was another fairly ironic example by offering governments the chance to spy on others through a proxy that wouldn’t come back to bite them, except that it did in strings of unencrypted email conversations.

It’s not limited to the private sector. The head of the CIA had to resign for, basically, not realizing how to keep his own laptop computer files secure at his mistresses’ house. Current presidential candidate Hillary Clinton celebrates her lack of basic data security understanding, employing it as an excuse for illegally using the wrong email address for state business. U.S. senators Feinstein and Burr are running yet another bill in Congress aimed at creating vast insecurities in how data is transmitted in their anti-encryption bill. This is written evidence that they don’t have a working knowledge of the thing they’re trying to regulate.

Anyone with the time, interest, intellect and energy can hack and analyze data. One poorly configured server, open port, lost mobile, or irate employee can blow your company’s confidentiality agreements. Data’s default setting is to leak. The same week that the Mossack Fonseca news hit the press, CESG, the “information security” front for GCHQ, released its advice for “those responsible for making decisions about technology and information risks on behalf of the business.” It’s good stuff. Ramón should see to it that his company has a copy.

leak-image_urlIn my own line of work we have this this data security framework relevant to certain kinds of NGOs and nonprofit sector organizations. But I think my favorite one, also released last week, is Google’s zero-trust “BeyondCorp” strategy, where data security is constantly assessed on case-by-case, based on each employee’s behavior with it and the condition of the devices they use. Offices are not seen as inherently more secure than coffee shop wifi, allegedly. Organisational data security is big business because most companies are in the same situation as that Panamanian law firm, regardless of what their business is. This includes yours.

It’s strange that an offshore asset hiding company shouldn’t think about these things, or not think about them more, I guess. Its own business model is based on an accurate reading of human behavior: People will pay less for things if there’s a way to do it that they can access. What’s most interesting is that The Panama Papers leak illustrates how little concern there is over law, international regulation and policymaking on the subject of asset reporting. Hacking, sharing and leaking data all work on a similar concept. People will naturally do something if the opportunity is present and there exists the right mix of motivations. The only reason they don’t understand this is because they don’t apply what they already know to the fundamental reality of digital: Capacity still makes the rules.