World Politics News   Articles for World Politics Course

Iceland’s Prime Minister, Sigmundur Davíð Gunnlaugsson, has resigned because of pressure from citizens angry that he apparently disguised his investments in offshore banks to avoid disclosure.  He becomes the first public casualty in the Panama Papers scandal.  But China has taken steps to prevent any public discussion of the papers by censoring all mention of them in any media source.  The censorship has  been extensive even though the Papers “show that relatives of at least eight current or former members of China’s top ruling body, the politburo standing committee, possess offshore companies.”  Many, however, are wondering out loud about why virtually no Americans have so far been named in the leaks.

The Panama Papers raise the question of what can be done to prevent these legal, but smarmy, activities.  The first point we should keep in mind is that there is no necessary reason why the tax code has to allow individuals to disguise their income and wealth.  Presumably, the tax code should be written so that every tax payer has the same options as every other tax payer.  But offshore banking is only available to individuals with a lot of money (the offshore banks charge huge fees for the privilege of depositing money).  Second, we have to keep in mind that tax policies are exclusively reserved for sovereign states–there are no international organizations that have any role in setting tax policies in any state.  Thus, states find themselves in competition with other states for individuals to hold their money within their legal authority.  The fear is that if a state banned offshore banking, individuals would simply move to states that allowed offshore banking. This competition limits the degree of cooperation whereby states could limit the activity–the only international regulation possible is the regulation allowed by the most lenient state.