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It wasn’t good news for a Danish jewelry company or the radio app of the same name when the International Consortium of Investigative Journalists released details about the Pandora Papers.
The name of the project comes from Greek mythology and the open gift box that let out the evils of the world.
Six hundred journalists worked on the project based on nearly 12 million pages of leaked financial information that detail a large and complex international system. It allows the richest and most influential people in the world to channel money into financial vehicles that hide their assets or avoid taxes.
Offshore and onshore tax havens are nothing new. The only surprise of the series was the size and complexity of these networks, as well as the number of celebrities, national leaders and a king.
Delaware entities were mentioned prominently in the less comprehensive Panama Papers a few years ago, but not so much this time.
Delaware has cleaned up its act in recent years and is now shutting down notorious companies linked to criminal activity ranging from money laundering to human trafficking.
This time around, the spotlight has turned more on South Dakota, which has long had an ambition to beat Delaware as a hotbed of minimal disclosure legal entities and associated trust services. Its still tight job market and relatively isolated location prevented Rushmore state from winning over Delaware in the once-fierce battle for banking jobs.
Chicago-based law firm Baker McKenzie, which for some reason does not have an office in Delaware, was mentioned prominently. The firm defended its practices which included working on behalf of clients who did not wish to see tightened laws and oversight. He claims to support the reforms and notes that his activities are perfectly legal.
Baker McKenzie is right. Many, if not most, of the financial vehicles listed in the documents are legal. Yet these entities fail the smell test and, in many countries, result in tax increases for the less wealthy and less powerful.
What to do?
Delaware and, for that matter, South Dakota could become the most transparent states in the Union. However, this would not prevent complex financial vehicles and shell companies from going overseas. Both states would lose revenue to foreign entities without any significant change.
Many are skeptical that much will be done, at least in the short term.
Some signs that the status quo is under pressure emerged over the past week.
One example is the Czech Republic, where its billionaire prime minister seemed to be losing his grip on power. It happened after his party suffered parliamentary losses when his name was mentioned in the Pandora newspapers.
Another development was an agreement in principle of more than 130 countries that would require a minimum tax rate of 15% on legal persons. However, critics say the deal has loopholes that would benefit richer countries. – Doug Rainey, Content Manager.