Transparency, Tax and the Panama Papers

Financial Times, 13 April 2016

Transparency thwarts the abuse of power to enrich the powerful

But disclosure can increase the information asymmetry between ruler and ruled

The clamour for politicians to publish their tax returns has gained momentum in the wake of the Panama Papers leak. But already many are claiming that transparency has gone too far. There is a valid argument that the British focus on the tax affairs of individual politicians risks overshadowing the larger, and much more important, story revealed by the Panama Papers: that of systemic global corruption, tax avoidance and money-laundering.

However, David Cameron and other politicians do themselves no favours by adapting only grudgingly to the public’s changed expectations. As with MPs’ expenses, the current disclosures were not given willingly but under duress. The prime minister’s initial refusal to address reporters’ enquiries fed suspicion. The question of whether he had any financial dealings with offshore jurisdictions was a legitimate one. His refusal to address this question was, inevitably, followed by a slow drip of disclosures. Such a reluctant response corrodes public faith in politicians and political institutions.

There is now a move to make financial disclosures mandatory for all MPs while some (mostly MPs) say such transparency is an invasion of their privacy. It is worth mentioning that the same argument was made by MPs to withhold details of their expenses.

Transparency is seen as the antidote to corruption because secrecy is, if not its cause, then at least a necessary precondition. This is especially so for corruption involving private enrichment from public goods. Transparency is a power-reducing mechanism so it matters whose affairs are made transparent and for what purpose.

Transparency can help citizens hold the powerful to account; but it can also be used by the powerful to control citizens by making their lives transparent through surveillance. For transparency to be just, it must always be considered in relationship to power.

The reason the majority of global anti-corruption campaigners support mandatory asset and income disclosures for elected and other senior officials is because these people are powerful. Transparency helps ensure that power is not abused or used to make the powerful, or their immediate families, rich. There is also a genuine public interest in ensuring that the people who make laws and levy tax are following those laws and paying their fair share of tax. What we have seen in the past week is a reluctant acceptance of this rationale for transparency.

But the rare discretionary (and largely incomplete) financial disclosures from politicians are like crumbs from the king’s table, and it is perhaps for this reason that ravenous reporters and rival politicians gobble them up. A more mature democracy depends on a press and polity able to gain access to troves of civic information as a matter of course, not meted out under duress.

Many countries other than the UK have mandatory asset and income disclosures for elected and senior officials. In the US, for example, federal politicians and officials must make such declarations under the Ethics in Government Act and the Stop Trading on Congressional Knowledge Act. Tax returns are private in the US; but since the early 1970s most presidents have released their returns publicly and these are available online.

In addition, an increasing number of laws and regulations mandate that employees (and their families) working in financial institutions must make full asset declarations to the jurisdictions in which they work. This higher burden of disclosure is justified on the grounds that such employees have access to powerful information that could be abused for personal gain. It is for this reason, too, that there is a strong public interest in publishing the beneficial owners of companies.

Yet MPs do not accept this argument for themselves. They claim such mandatory disclosure is an invasion of privacy, even while they are happy to approve legislation such as the investigatory powers bill that enables far-reaching surveillance of citizens by the state. This is the problem with the argument that if you have nothing to hide, you have nothing to fear: it ignores the issue of power. If we are not careful, transparency can be used to increase, rather than reduce, the information asymmetry between ruler and ruled.

Transparency strengthens democracy only when it gives citizens information they can use. It is not just about politicians telling us what they want us to know. For it to mean anything, it must empower citizens and provide answers to the questions they ask, not merely spoon feed them meagre information rations.