You have to admire whoever is behind the Panama Papers leak. It is far and away the slickest piece of socio-political manipulation to have occurred in recent memory. But before we examine who benefits, we need to take a step back and view the context in which this has taken place.
It's The Debt, Stupid
King Solomon taught us that the borrower is slave to the lender. Our governments borrow. The banks lend. It does not take a genius to understand who is in charge, and it is not the electorate. However when we understand that banks lend money they do not have, created through power granted to them by the very politicians to whom they lend, we begin to see the magnitude of the scam.
Western governments are now addicted to debt. Japanese debt is over 200% of GDP. The USA has recently passed the 100% mark, and nearly half of its national debt consists of interest accrued on previous debt. Other western governments are in similar condition.
Politicians need money to keep the party going. In their desperation, they are going on a tax hunt. This is not new. Every empire in recorded history has done the same thing. The pattern has repeated itself over and over. Government spends more than it can raise in tax revenues. To make up the difference it borrows more than it can ever repay. When debt can no longer meet its insatiable appetite, it debases the currency. Until recently this meant reducing the amount of precious metal in coinage and replacing it with base metal. Today it is called Quantitative Easing.
When this fails the state begins expansionist wars in part to deflect attention from its own failings, and in part to protect its economic interests abroad either by forcing the purchase of its exports, or by directly extracting wealth from the countries it conquers.
Finally, when none of these strategies work (they never do) the state turns on its own population. It taxes everything in sight, criminalises normal activities, imposes capital controls, fixes prices and confiscates property. We are at this point now. Civil asset forfeiture in the US in 2015 was greater than all burglaries and private theft. Yes, the US government stole more money last year than all other thieves combined. This is useful information for it allows us to know with considerable precision where we are on the road to collapse.
Tax Hunt
When any ruling class begins to fear losing its power, its members become somewhat paranoid. This is when we begin to observe a sharp increase in surveillance, selective prosecution, suspension of due process and similar violations of our rights. Any pretext is provided as rationale for extracting money from the populace no matter how unjust, impractical or counter-productive the measure.
FATCA is one of the most arrogant pieces of legislation to be passed in modern times. The US government essentially assumed global jurisdiction and required all the banks in the world to report to it. The estimated cost of this regulatory burden on foreign economies is anywhere from twenty to fifty times the tax revenue generated for the US.
We will not hear any member of the political establishment admit that they were wrong and that FATCA was a mistake. Nor will we hear any politician any time soon admit that the root of the problem is that governments perpetually spend more money than they earn. We will only hear them deflect attention away from their incompetence and corruption, and right now the accent is on 'tax cheats'. Somehow, if we could only get these people and corporations to pay their 'fair share' then we could balance the budget and all our fiscal problems would vanish.
There are just two problems with this. First, even if we confiscated every penny from the rich, it would not begin to solve the fiscal problems created by gross mismanagement on the part of our elected leaders. Secondly, ensuring collection of all these taxes would require monitoring and taxing every transaction in the world. This simply is not possible. Yet.
Under The Influence
Enter the war on cash, and the war on financial privacy. The two are one and the same. Our governments under the influence of Karl Marx have come to consider that the fruit of our labour belongs to the the collective, not to us. Since our elected representatives are the custodians of the assets belonging to the collective, they are therefore the custodians of the fruit of our labour.
They decide how much of it we can have, and they keep the rest. If we listen to François Holland, their fair share is 75%. In some western countries it has recently been as high as 95%. No sane person, no matter how patriotic, is going to take this lying down. So the tension between the creators of wealth and the tax man is increasing.
Privacy, and its enabling technology known as cash, are under fire. Politicians do not understand that there is not an endless supply of money. They do not understand fiscal restraint. They do not understand that the existence of wealth is not inevitable, that it must be created and that their measures can be detrimental to wealth creation. They actually believe that their bumbling mismanagement helps the economy. The cracks are showing, they need someone to blame, and they desperately need more money. Targeting cash and financial privacy promises to meet both of these needs.
Secrecy Is A Bad Word
You will notice that we never hear the word 'privacy' used in conjunction with financial affairs or offshore financial centres. Instead we hear the word “secrecy”. Privacy is perceived as a good thing. Everyone wants privacy. Secrecy by contrast is associated with evil, plotting, conspiracies, abuse of power and generally everything we find distasteful. However since privacy is a basic human right, the war on financial privacy is a war on human rights. It is part of the war on freedom. The genius of the Panama Papers lies in the fact that the perpetrators have managed to rally the enthusiastic support of the masses in the war on freedom. The latter are like sheep queued up at the abattoir, gleefully cheering as each sheep gets slaughtered, oblivious to the fact that the queue is getting shorter and shorter.
Since the fall of the communist bloc, we are in search of an enemy. There is something profoundly perverse in human nature that requires a scapegoat, an object of contempt, a guilty party upon whom any and all abuses may be heaped without reservation and with no feelings of guilt. The Panama Papers came just at the right time. Hitler blamed the Jews. McCarthy blamed the Communists. The architects of the New World Order blame the “tax havens”.
To answer the question posed in the first paragraph, those who clearly benefit from the Panama Papers are the political leaders of over-indebted high-tax western style democracies. It fuels their justification for the attack on our rights, liberties and freedoms, and brings us one step closer to the global surveillance state that they are building.
Privacy Is Not A Luxury For Some
Politicians and journalists deliberately conflate privacy with crime. We were shocked, shocked to discover that the president of Pakistan has money in an offshore account. Where in heaven's name is he supposed to put it? In a Pakistani bank where all his political enemies can see it and gather intelligence on him? We must understand that in that part of the world the expression political enemy has more sobering connotations than it does here.
There are countries where organised crime is more powerful than the state. There are countries without rule of law. There are countries where belonging to the wrong religion, political group, family or ideology can strip you of rights granted to everyone else. Those who live in such places, in the absence of financial privacy, become targets for extortion, kidnapping, asset confiscation or assassination. But the political class, the journalists and the general public do not care one whit about extortion, kidnapping, asset confiscation or assassination. As long as it doesn't happen to them.
Two Measures
Both government and the press appear to have two standards of measure, one for the state and one for the rest of us. Eric Snowden was a contractor working for the National Security Agency (NSA) and enjoyed a high level of security clearance. He became aware of disturbing things. The US government routinely engaged in criminal activities. These were not rogue government employees acting on their own accounts.
These were cases of government agencies committing criminal offences routinely and as a matter of national policy. So he did a very courageous thing. He made public a body of evidence that would condemn the wrongdoing of his government. However, we did not see officialdom or even the press for that matter come out and condemn the criminals. Instead we heard cries to bring the Whistleblower to justice.
In the case of the Panama Papers, a hacker illegally accessed and stole confidential information from a law firm. This information about the private affairs of a large number of people, the vast majority of whom are entirely innocent of any wrongdoing was then delivered to the press. Did the press respect the privacy rights of the people involved? No, they published the information. Where are the cries to bring the hacker or the journalists to justice?
At this point I must make absolutely clear what I am not saying. I am not suggesting that there is no wrongdoing, that there are no criminals, that stolen loot has not been stashed or that there has not been any tax evasion. But these matters are for the courts to decide. In the absence of any conviction, individual privacy should be respected.
The Real Problem: Income Tax
The root of the problem is not tax evaders, drug traffickers or fraudsters. It is income tax.
Income tax is unjust because it violates the basic human right of privacy. It is no one's business how much money you make. Not even the state's. If we need to violate human rights to finance government we are in serious trouble.
Income tax is unnecessary. Most western countries did not need it prior to World War I. Governments did just fine for generations without it. It was introduced at various times in various countries, but it is safe to say that until the end of the nineteenth century it was rare, nowhere near the rates practised today (typically two to ten percent), and for the most part it was introduced to finance war. When World War I was over it was used to fund socialist utopian projects. Not much has changed. It is still used to fund war and redistribute wealth.
Income tax is antiquated because now that we have electronic currencies that can be used to increase the money supply in a controlled manner, governments simply do not need it. They can finance themselves by increasing the money supply at the desired rate of inflation. This would place an invisible and inescapable inflation tax on everyone in proportion to how much money they have. There would be no tax evasion, no complex rules to appease one pressure group or another and no tax collectors. With a modicum of fiscal restraint there would be no government debt.
Income tax is unenforceable because until we have a world-wide totalitarian dictatorship, there will always be somewhere to hide. It is detrimental to prosperity because it is paid primarily by creators of wealth while everyone else gets off scot-free. Low income wage earners fall below the minimum tax threshold and wealthy people have myriad ways of avoiding it. The burden falls on the middle class and owners of small businesses.
Abolishing income tax is anathema to the politicians who continually rally the support of the working class by promising to make the rich pay, then deflect responsibility for their failings by blaming the rich for not paying. It is anathema to the rich for the same reason: they don't pay and want it to stay that way. It is anathema to the bankers because it is the platform upon which the politicians build their promises which cannot be funded without debt. Although it is a key element of our economic plight, don't expect income tax to disappear any time soon. Its political value is too great.
Furthermore, wide-spread support for income tax is bolstered by the myth that somehow paying high taxes is patriotic and those that engage in perfectly legal tax-avoidance are not. There is absolutely nothing patriotic about funding the thugs and thieves that are running our countries into the ground.
If it were possible to legally avoid paying income tax by simply opening an bank account in an adjacent county and depositing one's pay cheque there, how many of these pro-tax activists would stubbornly continue to pay up to half of their monthly wage in taxes when everyone else on the street avoided them by driving twenty miles to open a bank account? Given that it is just that easy for multinational corporations to legally avoid taxes and that paying them unnecessarily would put them at a competitive disadvantage, stunt growth and cost jobs, why would they do otherwise? The hypocrisy amazes me.
When personal income tax remains under 20% tax evasion is rare because it is not worth the risk. It only becomes a problem when tax rates become abusive. In order to collect such abusive taxes it is necessary to violate human rights by invading our privacy. Our leaders are prepared to punish the innocent, far more numerous, with the guilty. Our corrupt political classes do not care about human rights, they only care about lining their pockets and maintaining power. Unfortunately, the most ardent supporters of the scam will likely become its principal victims.
The New Divide
The OECD, the Tax Justice Network and other anti-freedom organisations are gaining strength. They are declaring economic war on any country that does not levy income tax at rates as high as those practised by their member states. Thanks to carefully orchestrated publicity campaigns like the Panama Papers, they are garnering a broad base of support. They are not going to stop. The OECD has already evoked the possibility of cutting entire countries off from the SWIFT network if they do not comply with their demands. Iran was cut off recently, albeit for entirely different reasons. However, the technique has been tried with success, so they know that they can do it and they know what results can be achieved.
Why have non-compliant countries not already been cut off? This would have a polarising effect, and it is a little too early at this stage. Not all countries want to be lap dogs to the US and the EU. Such a move would invoke the common rule that the enemy of my enemy is my friend. Strange bedfellows would result. However, the western powers have demonstrated that their arrogance has few or no limits. This has a tendency to cause blind spots, and I believe that we will yet see the day when countries will be subjected to open and real threats of being cut off from the banking network if not actually cut off.
This will put pressure on non-compliant and unwillingly compliant countries to accelerate the move to find an alternative to the dollar as a reserve currency and build a parallel financial network. This has already begun with the China International Payment System as an alternative to SWIFT, and this trend will continue to gain momentum. Some but not all OPEC countries will comply and remain with the current system. The US fifth fleet in the Persian gulf will be enough to keep the loyalty of Saudi Arabia. This is a critical factor and it would be foolhardy for the western powers to become too aggressive in this project until agreements are in place to guarantee the flow of oil from the Saudis and other OPEC members. Of course if negotiations fail, there is always war.
Expect the anglosphere and the EU to lead the anti-privacy bloc. Russia, China, much of Latin America and all enemies of the US will remain outside and be forced to use the parallel banking network. Switzerland will likely remain neutral and perhaps be one of the few countries on good terms with both sides.
Looking Forward
Initially, the fledgling alternative banking network and the ragtag bunch of countries supporting it will look pretty weak compared to the G7 countries and the almighty dollar. In addition to China and Russia there will be a pot pourri of tinpot dictatorships, libertarian democracies and developing countries too small economically speaking to be worth chasing. However, the more stable of these countries will attract entrepreneurs like flies. There will be substantial brain drain in the west, and to the extent it remains possible in this bipolar world, a drain of capital. Over time they will flourish while western democracies continue to decline.
It would be wise to store a significant portion of one's portfolio in countries that are likely to remain outside the anti-privacy bloc, but not for reasons related to privacy. The day may come when it becomes difficult or impossible to get your money out. It will be trapped in an insolvent banking system and subject to bail-ins, arbitrary account freezing and outright confiscation under the flimsiest of pretexts.
Conclusion
Do not be lulled by the spin doctors of western leaders who are unanimous in their anti-privacy rhetoric. When listening to them, keep in mind the words of Roger Bartlett in The Great Escape: There's only one way to put it, sir: they are the common enemies of everyone who believes in freedom.
