When the story about Panama Leaks became a major headline news across the world in 2016, all hell broke loose in Pakistan too. More than 400 Pakistani nationals were identified as owning properties in offshore havens even though the value of those properties/funds may only constitute a miniscule proportion of the estimated $16 trillion—a staggering figure even though considered to be a conservative estimate by many pundits and bankers—held in offshore jurisdictions. It goes without saying, however, that out of the list of ‘culprits’ only the then prime minister, Nawaz Sharif and a sitting high court judge were deemed by our state and society to be put through a rigorous judicial process and an even more vicious and hysterical media trial. Rest of the citizens figured in the list could only ‘quake in their boots’ momentarily upon receiving innocuous sounding notices from the Federal Board of Revenue (FBR).
As the air filled with conjectures, accusations and hitherto unproven charges of corruption, the Pakistani society went into overdrive and was made to be gripped with an anti-corruption fever adorned with the appropriately jingoistic slogan of—as has happened on quite a few occasions in the course of our national history–‘bring the looted wealth back to Pakistan’; conveniently ignoring and arrogantly dismissing the talk of affording a fair opportunity to the accused to defend themselves through a trial.
The vicious circle of inequality and disproportionate distribution of wealth is unleashed in a substantial way since it is practiced and perpetuated as a profession by trust and estate planners which is flourishing at an alarming speed
As an aspiring rights based and egalitarian society in its outlook and approach, we should be concerned and well informed of the fact that offshore trusts are a popular vehicle for tax evasion and avoidance with a very small part contributed by the so-called corrupt politicians. Just because a politician or a bureaucrat is accused of corruption is not enough reason to declare him guilty on TV talk shows without a fair trial in the court of right jurisdiction where evidence is adduced and rebutted by both sides and witnesses cross examined in order to get to the bottom. In his spellbinding book, Treasure Islands (Vintage 2016), Nicholas Shaxson informs us that the IMF estimated in 2010 that the balance sheets of small island financial centres alone added up to $18 trillion—a sum equivalent to a third of the world GDP at the time. Furthermore, the US Government Accountability Office (GAO) reported in 2008 that 83 of the USA’s top 100 corporations had subsidiaries in tax havens. In the 2009, research by the Tax Justice Network, an independent advocacy group based in the UK, using a broader definition of offshore, discovered that 99 of the one hundred largest companies used offshore subsidiaries. In each country, the largest user by far was a bank. In short, the use of offshore tax havens in the corporate world of the civilized world is staggering, according to Shaxson.
In the Western capitalist societies, tax is seen as a membership fee for everyone. Whereas tax evasion is illegal, tax avoidance is legal. The latter, however, is seen as immoral, unethical and unjust. Apart from avoiding tax liability, another possible purpose of creating a trust can be to protect beneficiaries from potential future destitution, whom the settlor (creator of a trust) deems as spendthrift or to provide specialized care for the disability of a beneficiary; or to protect the beneficiary from a potentially crippling future divorce settlement in his home jurisdiction.
The use of tax havens is an integral part of the world financial system whose vast power has resulted in the political capture of Washington and London. Even Barack Obama is reported to have remarked out of palpable exasperation during his presidency along the lines of, “the trouble is all that is legal.” The money parked in offshore accounts is brought back to the economy since governments tend to lure such investment with the promise of tax exemptions. In other words, the vicious cycle and culture of tax avoidance and tax evasion continues with government protection and patronage which accentuates the already unfair wealth gap. Closer to home, following the western example, tax amnesty schemes launched by various governments in Pakistan over the years are also considered to be legitimate measures taken by a sovereign government to stimulate economic growth.
The advantages of trusts have diminished over time due to the reforms to prevent abuses of trusts made possible by organizations like the Organization for Economic Cooperation & Development (OECD) which actively monitor the workings of estate planners with a view to blacklisting those involved in shady activities. These reforms cannot be discussed for shortage of space, suffice it to say that those do not go far enough to address the issue of corruption and poverty alleviation which is exacerbated when loopholes exist in the tax system to avoid paying taxes which may be utilised to fund a myriad variety of programs to train the poorer section of the society in order to make them employable. One could argue that there exists an inverted morality that sees tax as evil and unjust whereas tax havens and secrecy are perceived as ‘good’ by those who hold offshore accounts.
The vicious circle of inequality and disproportionate distribution of wealth is unleashed in a substantial way since it is practiced and perpetuated as a profession by trust and estate planners which is flourishing at an alarming speed. Their association called Society of Trust and Estate Planners (STEP) has seen phenomenal increase in its membership since its inception in 1991 (till 2016 its membership had ballooned to 20,000 in 95 countries). In her essay, Trust and Estate Planning: The Emergence of a Profession and its Contribution to Socioeconomic Inequality (2013), Brooke Harrington lays threadbare how this so-called profession of trust and estate planning has contributed towards the wealth gap around the world. According to Harrington, the work of this profession is essential to the maintenance of a particular set of socioeconomic relations, through expert control over structures that concentrate power, status, money, and other resources in the hands of their clients. The dubious nature and description of such advisors can be gauged from the fact that these are trust and estate practitioners who must, therefore, be part lawyer, part tax adviser and part investment adviser rolled into one. It goes without saying that such advice helps wealthy people shield their fortunes from taxation and regulation, and then transfer assets across multiple generations, creating enduring clusters of socioeconomic privilege, which is a distortion of democracy.
Tariq Bashir is a Lahore based lawyer. Follow him on twitter @Tariq_Bashir