The only two certainties in life are death and taxes,” wrote Mark Twain in the 19th century. He lived in an era before unbridled tax havens and banking secrecy took centrestage to strike off one of these certainties for the privileged. A new pathbreaking expose by the International Consortium of Investigative Journalists (ICIJ) highlights the unimaginable size and murkiness of the contemporary “offshore” banking services industry.

Like a WikiLeaks in the financial world, the ICIJ’s revelations have named and shamed mega-rich businesspersons, corrupt government officials and leading global banks for dodging taxes and stashing away colossal sums of money in offshore hideaways. According to the Tax Justice Network, highly placed individuals and entities from developed and developing countries intent on squirreling away their wealth have a choice of more than 80 offshore secrecy sites, which are believed to “confidentially” manage assets of around $32 trillion for their clients. This mindboggling amount equals the combined gross domestic products (GDPs) of the top four economies of the world. It is a parallel economy of black money oiled by international criminal syndicates.
Since the global economic crisis started in 2008, the vast underground of tax havens and no-questions-asked banking is being dug up due to mounting public outrage at the unfairness of bailouts and austerity. Financial dirty linen — from bankers’ bonuses to tax cheating by white-collar professionals — has been washed in front of the media and piqued lawmakers to try and rein in unethical and illegal practices which were the root causes of the crisis.
This month, the G8 meeting in Northern Ireland is expected to crack down on tax evaders by instituting mechanisms for transparent information exchange among member states regarding which corporation is paying how much tax in a particular country. British Prime Minister David Cameron has asked dubious low-tax or no-tax regimes within his country’s tiny crown dependencies and overseas territories to “get our own houses in order” and join the mainstream push within the European Union (EU) to eradicate banking secrecy.
EU member states have just agreed on a plan to share data on foreign bank depositors after convincing holdouts like Austria and Luxembourg and even roping in Switzerland, whose very name reeks of hospitality for slush funds of kleptocrats. Ireland, which has been found to be attracting big-name tax avoiders like Apple Inc. with alleged “special deals” that pare down effective corporate tax rates to a laughable two per cent, is also facing heat from the US government to mend its ways. A US Senate sub-committee accuses Ireland of playing hanky panky with Apple to make $74 billion in taxes vanish.
In the heydays of financial globalisation, prior to the crash of 2008, offshore paradises like Ireland and Cyprus reaped windfalls by hosting corporations and individuals who accumulated stratospheric wealth and were looking to elude the average 35 per cent or more taxes levied in most countries for that level of income. Financial nerve centres like Wall Street, the City of London, Frankfurt, Singapore and Hong Kong were integral to managing this universe of what British journalist Nicholas Shaxson calls “treasure islands”, staffed by hard-to-trace cunning lawyers, sham corporate boards and shell companies.
As the collapse of Cyprus showed lately, a notion of artificial progress and economic growth undergirds the mythology of these tax havens, whose defenders claim that they are providing legitimate services for the benefit of both foreign patrons and local citizens. Once the bubble bursts, however, the common people and small depositors who were made to believe that banking was a miracle for all are left to pick up the tab and suffer for generations to come.
The ICIJ has documented at great length how financial secrecy “spread aggressively around the world” without serious checks. One of the reasons why governments have been reluctant to go after this malaise and shut it down is conflict of interest. Ruling party politicians and state elites in numerous countries are known to have clandestine accounts in places like the Cayman Islands, Isle of Man, Andorra and Monaco.
The other challenge in regulating these shady nodes of the global economy has to do with competition among nations that vie for attracting foreign capital by hook or crook. Lobbies within these countries threaten their governments of guaranteed catastrophe if they comply with international banking transparency requirements, as rival nations could steal a march over them by opting out of multilateral agreements and continuing to do business as usual.
But naysayer financial interests and compromised political elites are now finding the status quo tougher to defend, thanks to relentless scrutiny by public interest bodies like the ICIJ. The economic crisis is acting as a flashlight that is laying bare the dark and musty financial netherworld to critical examination.
Take the case of Greece, which is in severe economic depression marked by youth unemployment of over 60 per cent. As long as the financial sector-driven pseudo GDP growth was being generated, systematic tax evasion and offshore banking was being condoned lightly as “part of Greek culture” rather than being treated as a national malady. Once Greece slipped from boom to bust, tax offenders and corrupt oligarchs became the butt of social scorn and hatred. Mass movements arose to demand repatriation of the billions that their leaders and businessmen had milked out of the system and stored far from the reach of the law. The corruption that banking secrecy enables is so vast and unaccountable that, if brought to book, it could potentially revive sick economies like Greece or Spain overnight.
Thanks to the public protests and frustration unleashed by the economic crisis, a new global momentum is building against the cult of offshore money-laundering. Concealing obscene riches will be harder in times to come.

The writer is dean at the Jindal School of International Affairs