The political and financial elite use offshore business on a massive scale and their vested interests prevent them from taking on the often opaque practices occurring in tax havens, said Michael Hudson, senior editor with the International Consortium of Investigative Journalism (ICIJ) in an interview with RFE/RL following the fallout from the release of the “Panama Papers”, which has rocked world capitals.
“You can’t say in every instance that they are hiding money and that they are involved in misconduct, but this shows that there is a separate system, a sort of an underground part of the world financial economy that the richest and the most powerful people are using”, emphasized Hudson.
RFE/RL: How did you obtain these documents and why, just now, have they been revealed, since it is known that suspicious offshore operations have been going on for years?
Hudson: One of our German partners, Sueddeutsche Zeitung, a daily newspaper in Germany, obtained these papers a year ago. A whistle-blower contacted them and said that he believes that there are some illegalities going on. He said: “Once this information comes out, I won’t need money. You need to protect my identity because I feel like my life will be in danger because of all the powerful people that are in these documents.” So our German partner got the data and realized that this is [an] incredible wealth of information and decided to bring it to ICIJ because of our track record and other big data sets related to offshore.
RFE/RL: In a statement, Mossack Fonseca denied any wrongdoing and said it has always complied with relevant laws and regulations. How would you comment on that?
Hudson: There are questions being raised and we can see that they have done business with lots of questionable characters, including people from the companies that have been blacklisted by the US government because of evidence that they have been involved in wrongdoing, such as doing business with Mexican drug lords or terrorist organizations like Hezbollah, or world nations like North Korea and Iran. So an offshore middleman like Mossack Fonseca has a responsibility to screen their clients, to look at their clients. When they set up a company they have to look at who the owner is going to be, what kind of business they are in, what is their background, do they have a history of being involved in terrorism, do they have a history in money laundering. There were at least 33 people from companies that have been blacklisted by the US government because of evidence that they have been involved in some sort of wrongdoing.
RFE/RL: Let’s get back to the previous question. Several Russian commentators see the Panama leaks as an attack on their country. In the same vein, the Global Times, a newspaper with close links to the ruling Communist Party, implied that the leaks were part of a "disinformation" campaign by Western forces and that Washington had played an important role in previous information leaks.
Hudson: I can tell you that the US government has nothing to do with that reporting. ICIJ has a long history of criticizing the US government. One of our biggest investigations in the past documented all the lies that the US government said in its run up to the war in Iraq. We are independent. I know that in some countries it is hard to understand the idea of independent press, one that’s not under the pressure of the government. I can also say that we have done tough stories that have put pressure on the Prime Minister of Iceland. We did a story about the father of a British Prime Minister David Cameron. In these stories, and in previous stories, we have a history of going after politicians of many countries, not just Russia or China.
RFE/RL: Could you explain how the whole mechanism functions with the example of Russia and Ukrainian President Poroshenko?
Hudson: These documents show that financial and political elites around the world are using the offshore system. For example, you can see it in Russia’s arms conflict with Ukraine in 2014. On the one side of the conflict you can see people close to Putin involved in offshore transactions. On the other side of that conflict we have documents showing that representatives of Ukrainian leader Petro Poroshenko were setting up a company for him in the British Virgin Islands, even as Russia’s invasion was going on. So it gives you a sense that this is not just about one country or one leader. This is about the whole world, this is about how political leaders around the world use offshore to do business.
RFE/RL: You follow closely what is going on in the Balkan countries. But just to remind you, three years ago we talked about fraudulent privatization in Serbia. You mentioned some serious corruption cases, but no culprits have been processed yet. This is still going on around the world but nobody is facing any responsibility for this.
Hudson: What offshore does is that it allows powerful people around the world to move money and set up structures in secret, under cover. And it makes it very difficult for authorities and investigators to get out what’s going on. So we’ve seen this in Serbia, we’ve seen this in China, we’ve seen this in the United States. We’ve seen people who had been able to get away with financial and political misconduct by using offshore entities. And the United States is not immune from this. The United States has made a lot of noise and said a lot of things about how we want to crack down on offshore secrecy or crack down on cross border tax evasion. But the truth is there are a lot of Americans who are using offshore to take advantage of people around the world and take advantage of other Americans, people like Bernard Madoff who made the largest Ponzi scheme in history of the world. He was using offshore entities too. His documents aren’t in these Panama leaks, but previous investigations have shown how Bernie Madoff and other major Ponzi schemes in history were using offshore entities, offshore companies and offshore bank accounts to pull off their frauds and move money after they’ve stolen it.
RFE/RL: Let me ask you about the role of United Kingdom. A number of British overseas territories and Crown dependencies are named in the files raising the question of what the UK can do about them.
Hudson: There are really serious questions about British crown dependencies and overseas territories, and about London itself - about how money moves in and out through this web of offshore havens that are linked to the United Kingdom, and how it moves into London through luxury real estate in London and through London banks. There are also serious questions in the United States about how luxury real estate in places like New York and Miami has been bought up secretly through offshore companies. There are also serious questions about money involved in drug dealing, tax evasion and other misconduct through big American banks.
RFE/RL: There are 365 big banks involved in these suspicious offshore operations, as stated in the Panama Papers. At the same time, the leader of the opposition Labor party Jeremy Corbyn has said, "They are sucking tax revenues out of our own country and many others fueling inequality and short-changing our public services and our people. There cannot be one set of tax rules for the wealthy elite and another for the rest of us."
Hudson: Well, yes, I’ve heard that comment and I think that those kind of words are going to be spoken in a lot of places now and there is this question on how world leaders and their family members are connected to offshore. And again going back to David Cameron, Prime Minister of the United Kingdom. His father, who was a stock broker multi-millionaire, was a big Mossack Fonseca client who used the law firm to shield his investment funds from UK taxes. And they were using untraceable bearer shares and employing company offices based in the Bahamas in order to keep investments in the fund, so that they wouldn’t be taxed in the United Kingdom. Cameron’s father is a tax haven example on how offshore history is incorporated into the lives of political and financial world elites. That way of self-interest has made it very difficult. There [are] lots of politicians, including David Cameron over the years, who have said we need to do something about offshore secrecy, it’s time to end offshore secrecy, it’s time to reform things, but usually after the statements are made very little has been done.
RFE/RL: Perhaps this is an exaggerated statement, but could we say that this scandal is additional proof that offshore businesses are one of the causes of the global economic crisis that is still going on? We see that inequalities in the world are widening. For example, at the beginning of the crisis in 2008, 1% of the wealthiest people possessed 44 % of the world’s wealth. This year at Davos Summit it was said that the number had reached almost 50 per cent. Are these kinds of businesses significantly contributing to the global financial crisis?
Hudson: There is no doubt that researchers will look at inequality and many of them believe that tax offshore havens are major contributor to inequality and to the ability of financial elites to gain more money. It produces poverty. We saw that in Serbia in a story that we did a few years ago that you talked about earlier. There was real suffering, people losing their jobs, people being thrown [into] poverty because of offshore transactions that were being used to move wealth out of companies in order to strip companies of their assets and shut them down. And money was going into the hands of the powerful few and millions of workers in Serbia were suffering.
RFE/RL: You mentioned that not many statements have been given so far. Why don’t politicians and world leaders tackle this issue? Is it that the personal interests of powerful institutions like Wall Street and big banks are pulling the strings behind the scene? You wrote a famous book entitled “The Monster” which explained the role of Wall Street in the financial crisis and which got a lot of attention around the world.
Hudson: I think that critics would say that there is a lack of will, but it is a complex situation because we are talking about dozens of jurisdictions around the world that are acting in tax havens. And part of the problem is when you crack down on one tax haven, when you go out to the British Virgin Islands, people simply move their business to another place and another place pops up. So it is going to take a sustained global solution. We cannot have small incremental changes if we want to change what is going on in the offshore world.