An ancient Greek myth tells the story of Pandora, the first human woman. After curiously lifting the lid of a container owned by her husband, she released the curses that would forever plague humankind out into the world.
Like the myth, a massive data leak in October 2021 has resulted in a monumental revelation of a concealed system, spurring a conversation about international accountability and legality. The Pandora Papers — totaling 11.9 million files — were compiled when 14 offshore service providers shared confidential images, emails, and documents with the International Consortium of Investigative Journalists (ICIJ) detailing the new methods that global politicians and officials have taken to evade their taxes.
These 14 agencies assisted individuals with establishing holdings or companies in areas with low tax rates, and thus held priceless information about the world leaders who were regularly using their services.
The ICIJ, a global nonprofit network of journalists, had exposed similar findings in the Panama Papers in 2016 and the Paradise Papers in 2017, but both leaks contain data obtained from a single source. The Pandora Papers, on the other hand, have shed light on the offshore tax havens of 35 world leaders, highlighting the corrupt actions that executives, entertainers, and politicians take to shelter their wealth.
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The global coverage of the Pandora Papers has encouraged this type of societal pressure worldwide. Citizens, independent organizations, and media outlets are teaming up to share their voices and change a fundamentally flawed system. At the same time, in the United States, Joe Biden’s Build Back Better plan introduces a tax surcharge on Americans who earn more than $10 million while strengthening the IRS’s enforcement of the payment. The ICIJ’s investigation comes amidst a years-long reckoning that the ultra-wealthy are shielding their money from tax payments, reinforcing disparities between the rich and the poor.
“There are times [when] public anger and discontent are hard to contain so the system is pushed to a corner and that’s when change is more likely,” said Elinda Labropoulou, a Greek journalist who has written for CNN and the Washington Post. Recalling her work on refugee migrations and the rise of far-right parties in Greece, Labropoulou explained that while it may initially be difficult to keep audiences interested in groundbreaking work, pursuing a story will eventually “empower pressure groups” to “keep the story in the public eye.”
Despite the serious ethical transgressions uncovered by the Paradise and Panama Papers, Americans may be hearing about these leaks for the first time. Rather than uncover deeply embedded tax havens in certain U.S. states, the previous leaks focused on specific, lesser-known individuals, which made the issue seem less widespread and newsworthy. But in the Pandora Papers, American companies and imbalanced state systems are frequently implicated in the documents. Elite multinational banks and law firms headquartered in the United States and Europe — such as Morgan Stanley and Baker McKenzie — have been cited for cooperating with companies from countries with lower tax rates to set up accounts for wealthy individuals who want to store their money in unassailable havens (both have denied any involvement in illegal procedures).
The U.S. has suffered a “terrible black eye from these revelations,” said Will Fitzgibbon, an ICIJ senior reporter. The state of South Dakota, for example, which has generous regulations for trusts that are owned by dynasties, has acted as a tax haven for the rich worldwide, including Ecuadorian bankers William and Roberto Isaias. The siblings, who had embezzled government bailout money, allegedly stored their money in three trusts in South Dakota since the state’s flexible laws allow the ownership of money to become ambiguous, and thus difficult to tax. Previously, the U.S. was a “nonresponsive, surly, silent global player,” Fitzgibbon added. This time around, Fitzgibbon says that American lawmakers, advocacy groups, and media publications have been “the most vocal in many ways” as journalists partnered with the ICIJ to report on the documents’ alarming contents.
The ICIJ is a prime example of how collaborative journalism can inspire citizens to act and push for ambitious reform. Investigative journalism aims to discover information of public interest that someone is trying to hide, Labropolou said. “Based on facts, [it] is meant to serve as an enabler for democracy and a checks-and-balances mechanism of the political system,” she continued. With the help of small, local teams, citizens can observe the direct impact of ICIJ’s findings in their home countries.
Unfortunately, many countries curtail press freedom, so such critical reporting on individuals in power often cannot happen. The U.S.’s strong judiciary and vibrant civil society have largely held leaders, companies, and entertainers accountable for their actions, which cannot be said of every affected region in the Pandora Papers. “Every country and every continent has different dynamics in terms of how these stories can be told and how these stories are received,” said Fitzgibbon. “Journalists in other continents could not participate in the project because they knew that if they [did], they or their families would face punishment,” Fitzgibbon said.
Nonetheless, Fitzgibbon still hopes that the revelations will yield significant reform in these countries. “I am very much a believer in the cumulative effect of the power of these projects,” he said. “The fact that a term like ‘tax haven’ or ‘offshore’ or something more specific like the BVI [British Virgin Islands] are common currency not only in journalism but the language of the streets… is a sign of the recognition of the importance of this issue in society,” said Fitzgibbon.
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The revelations have shaken the foundations of civil society and governance across the world, often in different ways depending on the country. While Russian spokespeople have been quick to dismiss the ICIJ’s investigation as unsubstantiated and inconclusive, for example, Latin American countries like Mexico are in the midst of institutional reform.
The papers reveal that in Mexico, over 3,000 businesses and 80 politicians worked with private banks and firms to abuse tax privileges in other countries. Mexico’s president Andrés Manuel López Obrador decisively neglected the severity of the allegations. Instead of using the papers to call for reform, he questioned the significance and accuracy of the financial data detailing the involvement of Mexican nationals. “He has minimized the investigation’s findings as he usually does regarding corruption scandals involving his government. He says that corruption was worse in the past than it is today. Nevertheless, his government has failed to sanction some of the most recent crimes committed by public officials,” Andrea Cárdenas, a journalist for Quinto Elemento Lab, told The Politic. Quinto Elemento Lab, an independent nonprofit organization with a mission to empower citizens, has partnered with the ICIJ to investigate and disseminate the information in the Pandora Papers to Mexican readers.
Mexico’s Senate has pushed back on López Obrador’s skepticism by beginning to discuss legislative reforms which will severely limit the ability of the well-off to obscure their financial activities. Even before the release of the Pandora Papers, Nestora Salgado and Ricardo Monreal, two senators representing the center-left Morena Party, had proposed a law in March 2021 prohibiting civil servants from shielding money in tax havens. At the time of its introduction, the Senate remained largely passive on the widespread issue of corruption, but the Pandora Papers have renewed efforts to pass the bill.
Another senator from the opposition party, Xóchitl Gálvez, proposed a new law that would require civil servants to publicly declare their asset statements and be transparent about where their money and businesses are going, according to Cárdenas. While the legislation is still under discussion, Mexican policymakers are hopeful that the energetic, immediate reaction on social media to the Pandora Papers will finally encourage reform which would otherwise be rapidly dismissed by López Obrador.
Two hours after six journalists, including Cárdenas, published the contents of the Pandora Papers in Mexico, the director of the Unidad de Inteligencia Financiera (UIF), a government agency that seeks to prevent financial crimes, tweeted that he would launch an investigation focused on the 80 Mexican politicians named in the files. However, the investigation hit a roadblock after political conflicts of interest forced the director to resign.
Concerned that UIF and other investigations conducted by the government may fail to follow through on their ambitious projects, journalists like Cárdenas and her team have stepped in as protectors of public interest. They directly contacted the UIF to determine whether the agency produced any conclusive findings. The six journalists also created a database where one can easily search the names and activities of the Mexican individuals included in the papers.
“For months, one of our main duties was transferring all that is included in the Pandora Papers in our own database,” said Cárdenas. “So we note their name in a column, the date when the company was created, the type of company — trust, business, or foundation — the tax haven in which it was registered, the office or agent who registered the company, and other observations or notes of interest.”
Cárdenas has spoken with Mexican senators across the political spectrum and, despite the slow pace that reform has taken since October, she reports that they believe that two regulatory laws have a significant chance of being implemented by December 2021. One proposes to entirely prohibit businesses from moving to tax havens, while the other, taking a more moderate approach, would simply obligate public servants to be transparent about their holdings.
With senators, citizens, and agencies collectively putting pressure on the Mexican government, the Pandora Papers have greatly exceeded past initiatives. Calls for accountability and transparency that would previously fade away due to executives’ quick dismissal are now being taken seriously, especially as journalists uncover specific details that highlight the need for reform.
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What is especially striking and complicated about this trove of documents is that the majority of the activities enclosed in the files are technically legal. Because its jurisdiction ends at its borders, a national government cannot make tax havens illegal. Individuals have the freedom to choose to correspond with a foreign bank if they favor the banking rules of another country. When the rich abuse this trust by participating in a morally unethical process that remains within the constraints of the law, there is little that governments can do to step in.
Certain named individuals were unaware of their involvement in such a widespread operation, according to Daphne Reuter, ICIJ’s data journalist and researcher. Some politicians may have been assisting an acquaintance or a colleague with setting up a bank or a trust without realizing that they were perpetuating the problematic offshore economy, said Reuter. The system is omnipresent to the point that it can be difficult to avoid when establishing a trust in a foreign country.
Britain’s former Prime Minister Tony Blair and his wife have been criticized for dodging £312,000 of mandatory stamp duty by buying a London townhouse, but they explained that they only submitted their joint income and capital to the seller without realizing that they had become implicated in a shady global network.
“I think [politicians] are going to be more cautious now,” said Reuter, adding that the frequency and specificity of offshore leaks has made it nearly impossible for perpetrators to go unnoticed. Many politicians forgot to exercise caution because, oftentimes, “the end client is not in touch with the offshore service provider, the bank is,” Reuter explained. To solve this issue, it is “a matter of asking the right questions — going to the bank and asking: How does this system work? What is behind the bank account? What is behind the real estate?”
Indeed, the wealthy will need to exercise caution when opening up foreign bank accounts or trusts because, if they are found to be participating in the offshore system, they have very little recourse or way of spinning their involvement in a positive light. The ICIJ cannot be condemned for sharing specific individuals’ activities because American legal precedent protects it. “In a 2001 case (Bartnicki v. Vopper), the Supreme Court held that the First Amendment protects the disclosure of illegally intercepted communication. For the Pandora Papers, this means that reporting on unlawfully leaked information can receive First Amendment protection,” said Amanda Reid, faculty co-director of UNC’s Center for Media Law and Policy. Consequently, the ICIJ is fully protected even if the accused try to argue that the data was illegally acquired by the offshore service providers.
This protection extends to another general First Amendment right which states that truthful information regarding matters of public concern can be disseminated “as long as the publisher played no role in illegally acquiring it,” Dr. Jonathan Peters, the press freedom correspondent for the Columbia Journalism Review, told The Politic. Since the ICIJ did not violate any laws by obtaining information from the offshore service providers, the people mentioned in the documents cannot retaliate by resorting to legal claims. Instead, they will simply have to be wary about which assets they buy and to whom they are transferring their money to avoid having their reputations tarnished.
Are these leaks enough to curb the unethical activities that the Pandora Papers describe? After all, the data is so comprehensive that even the most surreptitious transaction is identifiable. Marwan Kheireddine, Lebanon’s former minister of state, condemned his colleagues in 2019 for continuing to participate in tax evasion despite the stark poverty that many citizens are facing there. However, the Pandora Papers reveal that Kheireddine “signed documents as owner of a BVI company that owns a $2 million yacht,” according to the ICIJ. The piercing investigations easily take down empty public statements, and hypocrisy arguably attracts even more admonition.
Fitzgibbon worries that the Pandora Papers will not prevent leaders from hoarding their money unethically but rather encourage them to adopt cleverer mechanisms to avoid being caught, a process that is already somewhat visible. Russian president Vladimir Putin, for instance, has used clever pseudonyms that range from a girlfriend, a driver, or a hairdresser to buy lavish properties, according to Fitzgibbon. “My fear of course is that politicians are becoming smarter,” Fitzgibbon added, citing the use of a strawman as a common tactic to conceal purchases.
As proactive legislation forces the rich and famous to declare the destination of their assets, there is much less of a chance that they will unintentionally abuse a tax haven. However, as Fitzgibbon notes, the wealthy may always attempt to circumvent regulations and avoid paying their share of taxes.
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The Pandora Papers are, by themselves, just a compilation of the offshore activities of various business executives, politicians, and celebrities. To ignite discourse about reform and hold these individuals accountable, journalists from across the world have also participated in an extraordinary initiative to succinctly summarize their findings and make the data accessible to more readers than ever before. With so many details available to an organization like the ICIJ, the well-off will be discouraged from engaging in the system and will exercise caution when dealing with their assets. “Results in such investigations take a long time to [emerge] but creating precedents and raising questions of legality are [the] first steps to bringing change,” said Labropoulou.
Mexico’s case demonstrates that reform is possible, even if it takes a significant amount of time. Other national governments, which may be hesitant to introduce radical anti-corruption measures, will be subject to growing demands from the public and the press for accountability and transparency about the offshore economy. While some leaders may attempt to devise clever pseudonyms or rely on middlemen to execute an operation, they ultimately will have to pay their fair share or face the consequences of global scrutiny.