Why poor nations remain poor

The revelation of names of national leaders, celebrities and billionaires in the Pandora Papers shows how they have used the services of 14 offshore providers to hide their wealth or pay less tax. The media has already published some sensational stories of how the icons of industrial houses, sportspersons and those with links to politicians have routed illicit financial transactions, stashing away billions. Simultaneously, we have seen the statements issued by these people denying any wrongdoing or illegality, and asserting that they have followed the rule of law.

Offshore service providers put in their professional expertise to advise their clients on how to move their wealth secretly from one destination to other, ostensibly all within legal boundaries. But the ICIJ has unearthed documents that reveal the setting up of dubious structures and trusts in tax havens to hide wealth.

These cross-border financial flows are backed and facilitated by well-organised network of offshore tax havens that rely on intermediaries or ‘enablers’. They are not just passive facilitators, they are often active and aggressive purveyors of illicit financial flows. They include tax advisers, financial institutions like banks, and corporate trust providers.

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According to Prem Sikka, Professor of Accounting at the Business School, University of Essex, UK, “The big four accounting firms -- PWC (Price Waterhouse Coopers), Deloitte, EY (Ernst and Young) and KPMG -- are the epicentres of global tax avoidance industry, adversely impacting and subverting democracy”. His study in 2012 revealed that annual tax avoidance in developing countries due to this was about $500 billion. In comparison, the total foreign aid disbursed by the developed countries is about $120 billion per year.

These companies have enormous political and economic clout, as their combined revenue earnings amount to that of the 55th largest economy in the world. Their past history shows dealings with questionable regimes and dictators. Their motive is to make profits by providing opportunities for elites to transfer wealth from poor nations to the safe jurisdictions of tax havens.

It is too naive to accuse tax havens of facilitating these capital flows. In reality, they are just conduits to extract wealth from the global south to the global north, serving bigger financial centres like New York and the City of London. The illegal money from the poorer countries is laundered to make it legal and eventually it reaches the final destinations, especially in the US and Europe. The Pandora Papers have confirmed this to be the case.

What is intriguing is that these illicit flows of money are uni-directional: to the coffers of the old empires, the colonial rulers. In the post-colonial era, the elites established sophisticated mechanisms to take their assets to offshore jurisdictions to continue the extraction of wealth, protecting the interests of old colonial rulers and setting up this new empire.

For the old empires, wealth was created by the exploitative system of slavery and colonial resource exploitation. The all-pervasive and powerful new empire is dominated by the US and Europe, which perpetuate the global system of wealth extraction through tax havens and secrecy jurisdictions.

World leaders hail the economic rise of China and India. But these claims sound so hollow when we see that the wealth created by exploiting people and natural resources through a few billionaires ends up in tax havens, enriching the new axis of the global offshore economy.

The world has never seen this level of amassing of wealth and power, concentrated in the hands of a few, leading to inequitable distribution and widening the gap between rich and poor. This is already unprecedented in human history, but we are only just getting started on digital transactions that can move capital and wealth seamlessly.

This has resulted in the erosion of democratic and human values. Modes of capitalistic production, based on the profit motive as the sole objective instead of community good, will not only create tensions within humanity, but as the signs show, we are annihilating other creatures on the planet in the process.

We need tectonic shifts in global governance to address this challenge that threatens humanity. The Pandora Papers are an indication of the failure of a so-called successful model. The faultlines were evident in the financial crisis of 2008 and the Panama Papers revelations in 2016. But we failed to take note and enact measures to address the structural problems of modern industrial civilisation.

The revelations of the names of prominent Indians in the recent expose show how these links of global capital are being reinforced by global financial systems.

Recall the rhetoric of our Pradhan Sevak to bring back all the offshore money and deposit it into every citizen’s account? Well, that was the political promise before elections; the reality is now in front of us, revealed by the Pandora Papers.

Let us hope his government takes measures at least to halt the further draining of the country’s wealth to secret destinations in the service of the new empires that our elites and politicians serve.

(The writer is an environmental activist)