The Pandora Papers leak shows that the UK is in danger of becoming a corrupt country because it is failing to take economic crime seriously enough, the former chair of the public accounts watchdog told MPs, as she called for more funding for financial crime enforcers.
Dame Margaret Hodge, a senior Labour MP, raised the issue in the Commons as part of a debate on the finance bill, highlighting the central role of London in facilitating economic crime.
She said the Pandora Papers, leaked to the International Consortium of Investigative Journalists (ICIJ) and shared with media around the world including the Guardian, comprised “the largest cache of documents we have ever received” in relation to tax havens.
“The UK lies at the heart of everything revealed there,” she said. “Others have talked about secret property transactions that took place – £4bn identified in the Pandora Papers. There are more UK citizens cited in that tranche of leaks than from any other country. The relationship between the UK and our tax havens is central to the facilitation of economic crime, and again we see the weak and toothless enforcement agencies.”
The Pandora papers are the largest trove of leaked data exposing tax haven secrecy in history. They provide a rare window into the hidden world of offshore finance, casting light on the financial secrets of some of the world’s richest people. The files were leaked to the International Consortium of Investigative Journalists (ICIJ), which shared access with the Guardian, BBC and other media outlets around the world. In total, the trove consists of 11.9m files leaked from a total of 14 offshore service providers, totalling 2.94 terabytes of information. That makes it larger in volume than both the Panama papers (2016) and Paradise papers (2017), two previous offshore leaks.
Where did the Pandora documents come from?
The ICIJ, a Washington DC-based journalism nonprofit, is not identifying the source of the leaked documents. In order to facilitate a global investigation, the ICIJ gave remote access to the documents to journalists in 117 countries, including reporters at the Washington Post, Le Monde, El País, Süddeutsche Zeitung, PBS Frontline and the Australian Broadcasting Corporation. In the UK, the investigation has been led by the Guardian and BBC Panorama.
What is an offshore service provider?
The 14 offshore service providers in the leak provide corporate services to individuals or companies seeking to do business offshore. Their clients are typically seeking to discreetly set up companies or trusts in lightly regulated tax havens such as the British Virgin Islands (BVI), Panama, the Cook Islands and the US state of South Dakota. Companies registered offshore can be used to hold assets such as property, aircraft, yachts and investments in stocks and shares. By holding those assets in an offshore company, it is possible to hide from the rest of the world the identity of the person they actually belong to, or the “beneficial owner”.
Why do people move money offshore?
Usually for reasons of tax, secrecy or regulation. Offshore jurisdictions tend to have no income or corporation taxes, which makes them potentially attractive to wealthy individuals and companies who don’t want to pay taxes in their home countries. Although morally questionable, this kind of tax avoidance can be legal. Offshore jurisdictions also tend to be highly secretive and publish little or no information about the companies or trusts incorporated there. This can make them useful to criminals, such as tax evaders or money launderers, who need to hide money from tax or law enforcement authorities. It is also true that people in corrupt or unstable countries may use offshore providers to put their assets beyond the reach of repressive governments or criminal adversaries who may try to seize them, or to seek to circumvent hard currency restrictions. Others may go offshore for reasons of inheritance or estate planning.
Has everyone named in the Pandora papers done something wrong?
No. Moving money offshore is not in or of itself illegal, and there are legitimate reasons why some people do it. Not everyone named in the Pandora papers is suspected of wrongdoing. Those who are may stand accused of a wide range of misbehaviour: from the morally questionable through to the potentially criminal. The Guardian is only publishing stories based on leaked documents after considering the public interest. That is a broad concept that may include furthering transparency by revealing the secret offshore owners of UK property, even where those owners have done nothing wrong. Other articles might illuminate issues of important public debate, raise moral questions, shed light on how the offshore industry operates, or help inform voters about politicians or donors in the interests of democratic accountability.
Hodge called for a doubling or tripling of the planned £100m levy for fighting money laundering in order to tackle financial crime. She said it was “absolutely critical that we do start taking economic crime seriously in this country”.
She added: “If we don’t, we are in danger of allowing that to seep into our politics, seep into the public domain, and far from being a trusted jurisdiction we become a jurisdiction that is not very different from others to whom we all too often preach that they should tackle the corruption that is endemic in their administrations. We become one of them.”
She said the National Crime Agency’s estimate of £100bn laundered through the UK each year was probably an underestimate.
Earlier in the Commons, Hodge named some Conservative MPs and party associations who had been given money by companies backed by Viktor Fedotov, the Russian-born oil tycoon linked to an alleged corruption scandal.
Anneliese Dodds, the Labour party chair, previously wrote to the Tories asking why almost one in 10 Conservative MPs had taken money from firms, including Aquind, linked to Fedotov.
Aquind is currently seeking permission from the government to build a £1.2bn cross-Channel electricity connection between France and the UK, which the business secretary, Kwasi Kwarteng, is due to rule on next year.
Fedotov’s company has made huge donations to the Conservative party and its politicians. He was revealed in the Pandora Papers to have secretly co-owned a company once accused of participating in a massive corruption scheme.
Lawyers for Fedotov and Aquind have previously strongly denied all accusations of fraud and said accusations of corruption aimed at his Russian firm were “completely false”. They said Fedotov did not personally donate to the Tories. They also said the Russian tycoon had “no influence” over donations made by Aquind, which he did not manage, and had “never had any interest in British politics”.
Kwarteng, who will make the decision based on official advice, has previously declined to comment on the Pandora Papers’ disclosures about Fedotov’s business activities in Russia.
