Dan Hough

The so-called Panama Papers have offered a treasure trove of information for those looking to uncover corruption, inappropriate behaviour and plain old foul play.  But they have also offered plenty of ammunition for those who might want to use accusations of corruption to further their own political means.  Dan Hough tries to find a way across this tricky terrain.

The leaking of over 11m documents from a Panamanian law firm, Mossack Fonseca, to a consortium of journalists has catapulted issues of corruption and inappropriate behaviour back in to the public spotlight.  The documents offer an insight in to how the rich and powerful dodge sanctions, launder money and circumvent national laws to avoid paying tax.  Indeed, there has been plenty of evidence to back up assumptions that politicians and their friends and family play to different sets of rules to everyone else.

It didn’t take long for legitimate questions about appropriate behaviour to transform into calls for politicians to resign.  Sigmundur Davíð Gunnlaugsson, the former Prime Minister of Iceland, was the first to take his leave, whilst soon after British PM David Cameron was having to fend off a barrage of questions about not just his own affairs, but those of his late father, Ian Cameron, and his wider family.  Others were also slowly beginning to feel the heat.

The Panama Papers have certainly talked to the populist zeitgeist.  Those who already possessed a disdain for politics have found plenty of reasons to be yet more disdainful.  Yet there is a clear danger that the popular press (particularly in the UK) can skew our analysis of what we are really discovering.  Are we, for example, really that surprised to find out that dictators the world over are being accused of shifting their wealth in to secrecy jurisdictions?  In truth, allegations against, for example, the families of at least eight current and former members of China’s politburo, friends of Vladimir Putin and close family members of authoritarian hard men such as Hosni Mubarak hardly telling us anything that we didn’t suspect already. 

It is perhaps much more noteworthy that so few democratic politicians appear to have been named in these documents.  There are exceptions, of course, but they are generally precisely that – exceptions.  And they appear to be relatively small in number when compared to the alleged money laundering antics of those in non-democratic states.

It is also worth noting that many of the accusations made against western politicians centre around what the accusers don’t like rather than what is clearly and unambiguously unlawful and/or corrupt.  That David Cameron found himself revealing he paid £75,898 of tax on a salary of £200,307 in 2014-15 and that he began opening up about how his family dealt with issues of how to manage inheritance says more for the abject way he dealt with the issue in the first place than it does about corruption and improper behaviour.  Indeed, if Cameron needs to put all the details of his financial position in to the public domain, then where do we go next?  Should all cabinet members be doing the same?  Or maybe all MPs?  If we are talking about those who have a stake in the everyday life of politics then surely all journalists should be open about their tax arrangements, too?  And, following that logic, why not go the whole hog and get academics who analyse politics to tell us where they keep their money (assuming they have some) as well?

Defining Corrupt Behaviour

Clearly, a little sanity needs to be brought back to this debate.  In order to do this it might be worth thinking about what we understand corruption to be.  Over the years this is something that academics have spent a lot of time thinking about.  There are four basic positions, all of which have their advocates.  Firstly, there are traditional definitions based around what is legally considered corrupt.  Adopting this approach does at least give clear and consistent guidelines that can then be mapped on to real-world cases.  But, laws inevitably vary across time and space, and politicians generally realise that breaking the law should be avoided – hence they often find ways of getting around laws in ways that many others would still perceive to be corrupt.

Secondly, corruption is often considered to be an abuse of a public role for private gain.  Or, as Transparency International has put it, the abuse of ‘entrusted power’ for private advantage.  The strength of this approach is that it allows observers to analyse individual acts within the context of what those power holders are entitled to do – regardless of whether the alleged indiscretion involves breaking the law in the broader sense.   This helps give context, and it still allows for generalisable rules to be developed.  It does, however, sound decidedly ‘western’ to some.  What of situations where those in power are expected to, for the sake of argument, appoint members of their wider family and/or ethnic group to lucrative positions of power regardless of their appropriateness for the job?  In a significant number of states using public roles for private gain is both expected and understood to be appropriate.  As Michaela Wrong once wrote of Kenya, winning an election in Kenya means that it’s “your turn to eat” from the public sector trough.

Thirdly, sets of definitions based around the ‘public interest’ also have their advocates.  If someone possessing entrusted power does something that deliberately goes against the interests of the wider public (such as, say, rigging Libor), then it can be understood as corrupt.  Whilst again being strong on context, the major weakness of this approach comes in defining what exactly the public interest is.  Indeed, as popular analysis of the Cameron family’s links to Mossack Fonseca show, interpretations of what is in the public interest can and do vary considerably.

Finally, political anthropology has helped push a series of definitions based on values, norms and, particularly, context.  Advocates of this approach argue that abusing public office for private gain falls down in situations where it is not clear where the boundaries between the two lie.  They subsequently think that definitions need to be thought and re-thought anew in each given setting. 

The Challenge of Understanding Mossack Fonseca

Much of the behaviour of western politicians that has been revealed over the past few days fails to fit neatly in to any of these corruption boxes.  Using offshore jurisdictions and creating ‘tax neutral’ arrangements for your finances may sound suspicious to many, but, as has been widely argued, there is clearly nothing illegal about the vast majority of these transactions.  It is also hard to claim that politicians have been using their office to illicit private gains.  David Cameron was a wealthy man long before he arrived in Number Ten, and it would seem positively reckless of him not to be thinking about how best to organise his financial affairs.   This remains true regardless of his current job title. 

That doesn’t mean that he hasn’t made serious mistakes in handing the public fallout from Mossack Fonseca, but that is more about competence than it is corruption.

There clearly are public interest arguments for revealing that the likes of Sigmundur Davíð Gunnlaugsson in Iceland had, at least in theory, good reason to be thinking rather too much about his wife’s finances than perhaps those of the Icelandic banks that were collapsing around him.  There is also a clear public interest argument to be made about discussing the processes involved here.  But that is more as so little is known or understood about the world of offshore finance.  Trying to understand more about when offshore facilities are being legitimately used (perhaps for tax neutrality reasons or to keep potentially dangerous enemies from holding those with legitimate wealth to ransom) and when they aren’t is certainly a worthwhile enterprise.  And, indeed, it is investigations like these that put issues such as beneficial ownership of companies, something David Cameron has been keen to push of late, on to the public policy agenda.

Where to now?

Three lessons can be drawn from all of this.  Firstly, the Mossack Fonseca leak revealed that many people who have a disdain for democratic processes and the values of fairness and justice behave in ways that democrats find inappropriate.  So much, so obvious.  Secondly, the world of offshore finance remains complex and at times very murky.  Policy-makers around the world need to think about ways of rectifying this, and of protecting secrecy where it really is needed but also bringing much more openness and transparency to legitimate financial transactions.  Transparency International has come up with a list of next steps that politicians could do much worse than look at as a starter for ten.

Thirdly, the rich and powerful are keen to find ways of reducing their tax bills.  This is surely akin to discovering that residents of the Vatican tend to be Catholic.  Plus, this sentiment is hardly a preserve of the super-rich, as anyone in the UK who owns a Cash ISA will be aware.   Curiously, it is David Cameron who has the best opportunity to move the debate on how best offshore finance should be regulated forward when he hosts an international corruption summit in June.  Given the complexity of the offshore world he faces a tough task, but the momentum is clearly moving (if still slowly) towards more openness and more accountability.  In a world where leaks pose an ongoing threat to secrecy hunters and the reputational costs of being caught investing inappropriately are increasing, we are probably moving in the right direction.  This, however, has little to do with corruption as its traditionally understood, and much more to do with explaining how offshore finance really works, simplifying complex tax codes and changing the balance between legitimate secrecy and covert operations that exist simply to dodge tax obligations.


Daniel Hough is Professor of Politics at the University of Sussex. He tweets @TheDanHough.

Image:  Maria Fernanda Gonzalez