The Panama Papers: A Discussion Of Some Ethical Issues

The Panama Papers: A Discussion Of Some Ethical Issues

Robert W. McGee
Fayetteville State University – Department of Accounting

May 27, 2016

Abstract:

The Panama Papers refers to a massive leak of information encompassing more than 11 million documents involving more than 200,000 offshore entities. The leak originated in Panama. Some of the documents involve transactions as far back as the 1970s. Numerous wealthy individuals, including top government officials from many countries, have been implicated. The release of information and documents has led to several resignations and numerous lawsuits. The end of litigation is not in sight, as lawyers and government agencies in several countries continue to read and digest the information.

Although there is nothing illegal per se about having offshore entities, some such entities have been used to hide assets, evade income taxes, launder money and evade sanctions. The whistleblower who leaked the information to Süddeutsche Zeitung, a German newspaper, called himself John Doe to maintain anonymity. He leaked the information because of his strong distaste for income inequality and because of his view that there were many injustices being perpetrated by some of the entities and individuals who were availing themselves of the entities.

This paper discusses some of the underlying ethical issues that lurk beneath the surface of most discussions about hiding assets and income offshore. The discussion will focus on the ethics of parking profits (or hiding assets) offshore, tax evasion, bribery, and whistle blowers.

This paper also includes links to more than 80 studies on tax evasion and 11 studies on bribery.

The Panama Papers: A Discussion Of Some Ethical Issues – Introduction

Lawrence J. Trautman (2016) has written an excellent manuscript on the Panama Papers. I will not attempt to critique, duplicate or summarize that paper here. My intent is much more modest, namely, to address some of the underlying ethical issues that are lurking in the shadows of any discussions about the Panama Papers and other attempts to hide assets and income from governments.

Basically, the Panama Papers refers to a massive leak of information encompassing more than 11 million documents involving more than 200,000 offshore entities. The leak originated in Panama. Some of the documents involve transactions as far back as the 1970s. Numerous wealthy individuals, including top government officials from many countries, have been implicated. The release of information and documents has led to several resignations and numerous lawsuits. The end of litigation is not in sight, as lawyers and government agencies in several countries continue to read and digest the information.

The International Consortium of Investigative Journalists (ICIJ) assisted in the dissemination of the documents. Journalists from 107 media outlets in 80 countries combed through the documents and began publishing articles about them and releasing some of the documents on April 3, 2016 (Wikipedia, 2016), which triggered a feeding frenzy among the media.

Trautman (2016) has already outlined many of the details in the case, and a search of the internet makes it easy to get additional information and updates, so there is no need to regurgitate those details here. Any details I would give here will quickly become outdated anyway, and more details seem to become available on a daily basis. The purpose of this paper is to discuss policy and the ethical implications of certain acts and arrangements, not to attempt to keep the reader informed about recent developments.

The remainder of this paper will discuss some of the underlying ethical issues that lurk beneath the surface of most discussions about hiding assets and income offshore. The discussion will focus on the ethics of parking profits (or hiding assets) offshore, tax evasion, bribery, and whistle blowers. The mainstream media either ignores discussing these topics or, when they are discussed, they often get it wrong. That is understandable. Journalists need to write copy that sizzles in order to sell newspapers and magazines. Publishing rational discussions that apply ethical principles to topics like offshore entities, tax evasion, bribery and whistleblowing would tend to put readers to sleep, which would not help sales. Furthermore, many journalists, perhaps most, lack an understanding of ethical principles, and so would not be suited for the job of analyzing these topics by applying ethical principles.

Parking Profits Offshore

In a recent article, Richard Ruben2 reported that the largest U.S. companies added $206 billion to their stockpiles of offshore profits in 2013, an 11.8 percent increase since 2012. Total offshore profits for these companies are now $1.95 trillion, which is more than the GDP of all but the largest nine countries in the world.3 If these multinational corporations formed a separate nation, they would be slightly larger than India and slightly smaller than Italy in terms of GDP. Ruben pointed out that large multinational companies will likely continue to keep their profits offshore until Congress gives them a reason not to.

The scary part of that assessment is that Congress can take several approaches to resolve this problem, assuming that it is a problem.4 One approach would be to penalize companies for continuing this practice, which would lead to negative unintended consequences. Another approach would be to reduce tax rates so that companies would not feel compelled to shelter their profits from the excessive tax rates the U.S. government and various state governments impose of them.