A Global Theme: Leaders and Tax Avoidance
David Cameron, Sigmundur Gunnlaugsson, Putin, Bashar Al Assad, Mauricio Macri, and the list goes on. These world leaders have all been suspected of engagement in a shady Panamanian shell company business. The release of the Panama Papers has called into question the legitimacy of a plethora of powerful people, which has forced analysts to confront the idea that anyone can be susceptible to the immoral activities that constitute tax avoidance. When such a long list of wealthy individuals, some of whom are respected in the Western world, are all accused of the same dealings, questions about human nature begin to arise. How could someone like David Cameron be involved in a business with which he has notoriously supported legislation to stop? Why would a leader want to risk their hold on power by engaging in sketchy tax activities? Tax evasion and tax avoidance are different in their legality and the line between the two is sometimes hard to draw, but according to Newsweek “both tax avoidance, on the more serious end of the scale, and tax evasion seem to fall under the “morally wrong” category.” Although tax avoidance is considered legal because it is simply the exploitation of loopholes written into the law, it is commonly viewed as undermining rule of law and democracy. A broad spectrum of leaders were involved in the Panama Papers scandal, and this demonstrates the pervasion of tax haven usage from democracies to authoritarian regimes alike.
A study conducted by The Guardian examined individual’s tendencies to succumb to the corruptive effects of power. The study “suggests that institutions should limit how much their leaders are allowed to sip from the seductive chalice of power.” The notion that power corrupts has always been a topic of controversy and discussion. On one hand, leaders like George Washington are known for willingly giving up power in order to preserve democracy, but on the other hand, leaders like Qin Shi Huangdi, China’s first emperor, are known for using their power to burn books, murder the opposition, and indoctrinate their constituents. Although these examples are extremes, they beg the notorious question of “what corrupts a leader?” A leader who takes advantage of tax havens may not be synonymous with a corrupt leader, but parallels between the inclinations of the two leaders can certainly be drawn. In the end, the study points to the conclusion that institutional rules and norms must be in place in order to expunge political systems of the vices of human nature, which may come in the form of a prominent leader engaging in sketchy tax avoidance.
“In the end, the study points to the conclusion that institutional rules and norms must be in place in order to expunge political systems of the vices of human nature, which may come in the form of a prominent leader engaging in sketchy tax avoidance.”
The difference between David Cameron, Sigmundur Gunnlaugsson, Putin, Bashar Al Assad, Mauricio Macri, and the other leaders supposedly hiding their money in shell companies is the way in which the political systems of the countries they represent dealt with the accusations against their leaders. Although human nature and power’s ability to corrupt both effect these leaders, the ultimate question is how the political systems of their countries responded to the Panama Papers scandal. The rules and norms that characterize democracy allow for a shining light to be cast on corrupt leaders and provide systems by which to remove these leaders from power. Whether it is by formal powers such as impeachment, or a civic legitimacy that the government must maintain, democracies make it easier to expel corrupt leaders.
For example, Sigmundur Gunnlaugsson, Iceland’s former Prime Minister, stepped down from power after accusations of involvement in the Panama Papers scandal. Calls for his resignation surfaced when the Panama Papers revealed his ownership of a shell company in the British Virgin Islands. Iceland is a parliamentary government, and calls for an early election combined with the overall threat to civic legitimacy of the country were enough to force Gunnlaugsson to step down. These principles made it conspicuous that Gunnlaugsson would step down in light of his clear conflict of interest, and thus allowing the government to successfully expel its belligerent leaders.
On the other hand, leaders like Vladimir Putin maintain their stronghold on power despite questionable pursuits. Although Putin denies engagement in the Panama Papers scandal, there is evidence that some of his “close associates” had been moving $2 billion through offshore accounts. After a series of attacks and skepticisms, Putin has come out defensively claiming that all the accusations against him are an attack on Russia by the West. The vague situation certainly raises questions about Putin’s legitimacy and his country’s inability to investigate further on the accusations against its leaders. Political scientists often characterize Russia as an illiberal democracy, and this form of governance does not necessarily support methods by which to scrutinize its leaders. Putin’s involvement in the Panamanian law firm is unsettled, but real scrutiny and investigation does not seem to be taking place in Russia any time soon.
The leak of the Panama Papers uncovered a multitude of world leaders involved in sketchy tax activities. From world leaders to wealthy individuals, people seem to find ways to escape taxation if it’s in their best interest. Tax avoidance is driven by the individualistic mentality of curbing the rules in order to preserve wealth, and world leaders are not exceptions to such mentalities. Such a contentious mindset is a vice of human nature, and in order to avert it from politics, there must be institutions and norms in place to eradicate immoral leaders.