Panama Papers will cement global resolve for tax compliance

THE massive leak of offshore account documents - as many as 11.5 million files - from Panama-based law firm Mossack Fonseca is a signal warning to clients, bankers and any so-called tax haven that the days of discreet "don't ask, don't tell" variant of banking is well and truly over, particularly when it comes to the shielding of illicit wealth.

Already, the fallout from the debacle - dubbed Panama Papers - is significant and wide ranging. Iceland's Sigmundur David Gunnlaugsson was forced to step down as prime minister. In the UK, Prime Minister David Cameron has had to explain his late father's offshore holdings. Included in the files are 33 companies blacklisted by the US, and alleged terrorism and nuclear weapons financiers from the Middle East and North Korea, says the International Consortium of Investigative Journalists (ICIJ), which analysed the documents.

Illicit financial flows and capital flight to offshore jurisdictions wreak serious economic impact particularly on developing nations, depressing tax revenues and funds available for infrastructure, for instance, and further widening the wealth disparity. According to the Tax Justice Network, there is an estimated US$1-1.6 trillion in illicit cross border flows a year, dwarfing the US$135 billion in global foreign aid. ICIJ's analyses highlight several "power players" as holders of offshore accounts, comprising leaders or public officials of emerging countries such as Azerbaijan and Iraq. The relative dearth of American names does not mean that Americans are more tax compliant. The US hosts its own tax haven in Delaware, which is why the Tax Justice Network has put the US in third place in its 2015 Financial Secrecy Index, after Switzerland and Hong Kong. This is ironic; the US has been vociferous in its crackdown on tax cheats but in Delaware it is said to be easy to set up anonymous shell companies. Singapore ranked fourth on the index.