While the vast majority of people across the world are under the grip of hunger and economic insecurity, hundreds of politicians, business executives, royalties, celebrities, religious leaders, and even drug dealers were exposed to have been salting away their wealth in faraway offshore accounts. These individuals are counted among the super-rich, many of whom are set to meet with government leaders in Davos for the 52nd World Economic Forum this week.
Earlier this month, the International Consortium of Investigative Journalists (ICIJ) completed its releases of massive stores of data—2.9 terabyte of images, emails, and spreadsheets—of secret financial dealings of the global elite. Dubbed “the Pandora Papers,” the documents detailed transactions of money estimated to range from US$5.6 to US$32 trillion.
First published in October 2021, the Papers implicated individuals and companies from countries such as Cambodia, India, Malaysia, Pakistan, the Philippines, Qatar, South Korea, and the United Arab Emirates. Also included were individuals from Switzerland, Ukraine, the United Kingdom, as well as a former official of the International Monetary Fund and the Legionaries of Christ religious order.
Previously, the ICIJ released the Panama Papers1 in 2016, with 11.5 million confidential documents. A year later in 2017, it also leaked the Paradise Papers, which outed the likes of AIG (US-based leading global insurance company), Prince Charles, Queen Elizabeth II, the president of Colombia Juan Manuel Santos, and U.S. Secretary of Commerce Wilbur Ross.
In the Pandora Papers, the Philippine Center for Investigative Journalism (PCIJ) and Rappler listed more than 940 individuals and companies with Philippine addresses2. Some of the more recognizable names from the business sector include the Aboitiz family, the Sy siblings, Helen Dee, Rolando Gapud, and Enrique Razon Jr. Government officials or individuals with links to government mentioned in the Papers include Transport Secretary Arthur Tugade, Dennis Uy, and Senator Sherwin Gatchalian and his family.
The Aboitiz family owns the Aboitiz Group, with interests in banking, real estate and infrastructure, and power generation—the Aboitiz Power Corp., a Philippine listed company that operates several coal-powered plants.
The Sy siblings, owners of the SM Group conglomerate, are listed in Forbes 2021 as the richest Filipinos with a combined worth of $16.6 billion. In 2016, the group denied allegations that it had been practicing endo (contractualization). But In the same year, an inspection of the Department of Labor and Employment in SM stores in Metro Manila revealed that only 34,210 out of the company’s 67,248 employees had regular employment status. By keeping the bulk of its employees on a contractual basis, the company is able to avoid complying with labor laws and core international labor standards, which guarantee certain benefits for regular workers.3
Helen Dee is the chairperson of Rizal Commercial Banking Corporation (RCBC). The bank was used by cyber criminals to steal $81 million from the Bangladesh Bank in February 2016.4 The bank has been financing investments in coal power plants, but in December 2020, it announced that it will no longer finance new coal power projects.
Rolando Gapud served as financial adviser for the family of the former dictator Ferdinand E. Marcos. The illegally-amassed wealth of Marcos has been a subject of numerous court litigations. As a respondent in several cases filed by the Philippine Commission on Good Governance (PCGG), Gapud later agreed to help identify some of the ill-gotten wealth,5 portions of which were eventually recovered.
Although ousted by a popular revolt in 1986, the Philippine government is far from recovering fully the Marcos family’s stolen fortune, which is deftly hidden through a web of cronies, like Gapud. Imelda, the family’s flamboyant matriarch, was convicted by the Sandiganbayan,6 the country’s graft court, for seven counts of corruption in 2018 while serving as a lawmaker for her husband’s hometown. Today, prospects of recovering the Marcoses’ ill-gotten wealth are bleak, as Ferdinand “Bongbong” Marcos Jr. is poised to take over the Philippine presidency after highly-contested elections7.
Way back in 2013, the ICIJ reported that Imee Marcos, the eldest progeny of Marcos, is one of the beneficiaries of the Sintra Trust,8 created in June 2002 in the British Virgin Islands. Documents show that Imee was a financial advisor for the Sintra Trust, including a company in which the Sintra Trust was a beneficial shareholder, ComCentre Corporation. The documents also mentioned a bank account in the Sinagapore-based United Overseas Bank Limited.
The Pandora Papers also mentioned Dennis Uy, a Davao-based businessman engaged in shipping and logistics, gas distribution, telecommunications and other industries. He is known to have donated P30 million to Rodrigo Duterte’s presidential campaign. He was later appointed presidential adviser for sports, and has been an honorary consul to Kazakhstan since 2011.
Uy was embroiled in a business controversy in 2021 with the Makati Business Club, after his company, Udenna Corporation, acquired 90 percent of the Malampaya offshore gas field. Malampaya9 is supplying five power plants in Luzon, the country’s largest island. In the recently concluded Philippine elections, Uy’s logistics firm signed a Php 500 billion contract with the Commission on Elections to transport electoral ballots and vote counting machines, a significant number of which were defective on the day of the election10. As Uy is widely identified to be within the administration’s key elite circles, the granting of the bid to his logistic firm has been under fire.
Tugade and his children appear in the Trident Trust records as owners of Solart Holdings Limited, a British Virgin Island company. In the same Papers, members of the Gatchalian family are mentioned in nine offshore companies.
Earlier in 2013, Manny Villar who is the second richest Filipino11, was reported by the PCIJ to have been maintaining offshore accounts. Villar’s wife, Cynthia, chairs three Senate committees in the current 18th Congress—agrarian reform, environment, and agriculture and food. The Villars own vast tract of land under their real estate business12, and it so happened that Cynthia’s committees have oversight in government land-related programs and developments.
Along with the Villars, Jinggoy Estrada who is Senator-elect in 2022 under the Ferdinand Marcos Jr. and Sara Duterte ticket was also reported to have offshore accounts. Jinggoy and his father, former president Joseph Estrada were both convicted and jailed for corruption raps. The older Estrada was later pardoned by another former president, Gloria Macapagal-Arroyo, who herself was convicted by a lower court in a plunder case but was cleared by the Supreme Court in July 2016, weeks after a close ally, Rodrigo Duterte, was elected president.
The inclusion of individuals from the Philippines in the Pandora Papers is hardly surprising, as elites from at least a dozen Asian countries have also been revealed to maintain offshore accounts. Two of the financial services providers mentioned in the Papers, Asiaciti Trust and Il Shin, are based in the financial centers of Singapore and Hong Kong, respectively.
The Indian Express reported13 more than 300 Indians with offshore accounts, including two former officials of the Indian Revenue Service, and a score of Bollywood celebrities, sports stars, business persons, and even individuals accused of fraud and other financial crimes.
The Pandora Papers14 also revealed that financial backers, officials and family members close to Pakistan’s Prime Minister Imran Khan to be owning concealed companies and trusts holdings, with several military leaders being involved. In Sri Lanka, former deputy minister Nirupama Rajapaksa15 and her husband used shell companies and trusts to hide some $18 million in assets, while Nepal’s lone billionaire, Binod Chaudhary, a politician and retail and manufacturing magnate, owns shares in three offshore shell companies.
The Center for Investigative Journalism (CIJ) Nepal16 reported offshore dealings of the Malaysian billionaire founder of Top Glove, a giant rubber glove maker which hugely profited from the COVID-19 pandemic. The company was accused of employee abuses, including forced labor, with workers mostly coming from low-income countries.
In Malaysia, the Malaysiakini17 investigated the role of Singapore in the global offshore financial system. They reported that while the island city-state does not have attractive tax and asset protection comparable to other offshore financial centers, it offers specialized financial services, such as creating and managing shell companies and trusts in overseas jurisdictions.
In Thailand, the Isra News18 reported that Chitpas Kridakorn, a parliament member and heiress of the Singha beer empire, was a potential beneficiary of a trust that owned luxury properties in the United Kingdom, based on a 2017 transactions, although it was not ascertained whether the transfer was finalized.
The Tempo magazine on the other hand, reported that two top Indonesian officials are linked 19 to several offshore companies. Coordinating Minister for the Economy Airlangga Hartarto reportedly owned two companies registered in the British Virgin Islands, but he denied any connections. The report also said that Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan was a director of a Panama-based oil company.
One glaring reality in the Pandora Papers involving individuals in Asia —many of those implicated have close links to government officials, if not former or current government officials themselves. Business and governance are intimately linked. This makes future actions and lobby efforts for transparency and accountability more difficult.
While some of the transactions can be legitimate investments, the intention to hide it from the country of origin by account owners is clear and could be inferred as an attempt to avoid tax obligations, conceal ill-gotten wealth, or worst, launder money acquired from criminal activities.
In October last year, activist and science-fiction author Cory Doctorow20 tweeted that offshore dealings of the super elite’s being legal is the true scandal. “Each of these arrangements represents a risible fiction: a shell company is a business, a business is a person, that person resides in a file-drawer in the desk of a bank official on some distant treasure island,”he said.
Doctorow was commenting on what the Pandora Papers revealed—the intensive use of shell companies which are mostly inactive, maintained for future and various financial arrangements. These shell companies are registered in an OFC (Offshore Financial Center), a territory or country that provides foreign companies with business and financial services. Some of the well-known OFCs include the British Virgin Islands, Bahamas, Bermuda, Cayman Islands, the Isle of Man, Seychelles, Hong Kong, and even Switzerland. Some of the documents obtained in the Papers were also in trusts set up in the US, such as South Dakota and Florida.
The ‘offshore’ system is nothing new—it originated in the 1960s, with the creation of the Eurobond21: a financial investment instrument allowing owners to move their wealth covertly across jurisdictions, while evading taxes altogether, or at the very least, avoid payment of higher rates of interest.
In the 1960s, the European middle-class had difficulty finding low-risk places to put their savings and earn safe returns. Regulation Q, formulated in 1933 under the US Glass-Steagall Act,22 discouraged Europeans from putting up deposit accounts because the law limits interest rates paid on deposits in checking accounts. Added to this, the US’s Interest Equalization Tax of 1963, which carried 15 percent tax on the price of a bond purchased, decreased the capital account outflows, increasing investment in the US. Eventually, it choked the flow of dollars into Europe; inhibiting companies from funding their projects. The Eurobond23 was the workaround, and it served later as the prototype for other money market funds.
Today, it is the super-rich that is handsomely benefitting from the outcome of the Eurobond and its underlying needs that birthed the offshore system. The financial market in which offshore banking is just one limb, has now mutated into a beast, siphoning off every wealth created anywhere in the planet.
Considering that a huge percentage of this stashed-away wealth were generated at the expense of the working people through slave-like conditions and unlivable wages, not to mention the rapacious exploitation of the environment which threatens the global ecological balance, offshore banking takes on a whole new meaning.
A study by Daniel Reck24, an assistant professor from the London School of Economics and Politics published in 2021, states that tax evasion schemes by the super-rich are becoming sophisticated” and that even expert auditors are now having difficulty locating offshore accounts, with the top one percent richest benefitting.
One problem is in the privacy and protection these OFCs provide—privacy rights which shield individuals from declaring their assets and accounts. The grey area lies in this point of nondisclosure, when it becomes next to impossible to differentiate tax minimization from evasion or outright fraud.
Reck and his colleagues at Carnegie Mellon University and the University of California said that the top one percent of American earners fail to report about 21 percent of their incomes to the Internal Revenue Service (IRS), significantly more than was previously known. “These super–high-income taxpayers, who have so much to gain from successfully evading their taxes, are much more sophisticated at evasion than the other 99 per cent of earners,” the researchers said25.
The 2021 report by the United Nations High-Level Panel on Financial Accountability, Transparency and Integrity Panel (UN FACTI),26 has identified that large portions of revenue that could be used by governments to benefit their own peoples are being lost in an elaborate scheme of tax avoidance and evasion. The UN FACTI Panel report stressed the importance of a global mechanism for public registries of beneficial ownership to curb these abusive practices.
With legal loopholes that can be exploited to actually evade taxes, the legality of offshore banking is no longer a non exitus. Or perhaps, that tax avoidance through storing wealth in offshore accounts is even legal in the first place is the main issue, and nothing but short of scandlous.
Initial impacts of the Pandora expose
In 2016, the Panama Papers ignited protests that led to authorities launching hundreds of tax probes and criminal investigations. Iceland’s prime minister eventually resigned, and a Ukrainian politician called for the impeachment of their president. Last year, a Bollywood actress was questioned for six hours by Indian authorities on her inclusion in the Papers.
In Malta, Keith Schembri, former Prime Minister Joseph Muscat’s chief of staff, was charged with money laundering and fraud, while in Denmark, the country’s tax minister cited the Panama Papers to justify hiring hundreds of new employees to bolster the fight against tax fraud.
In the U.S the Panama Papers was instrumental in pushing for the enactment of the Stop Tax Haven Abuse Act and the For the People Act.
The Philippines, however, has yet to catch up with the growing clamor to investigate offshore banking and tax avoidance. The exposé on the offshore account of Jinggoy Estrada in 2013 for instance, did not result in tax fraud investigations, despite his being convicted with corruption. The government is still struggling to enforce tax laws in its own jurisdiction particularly against the wealthy individuals and multinational corporations. Taxes from the ordinary working people however are automatically deducted from their paychecks, on top of burdens from heavily taxed products and services that they regularly consume.
According to tax expert Mon Abrea, corruption at the Bureau of Internal Revenues (BIR) is embedded in the system. A former BIR examiner and a prominent advocate for genuine tax reform in the country, Abrea said in 2018 that whatever the TRAIN law was can hope to collect will be wasted due to corruption. He cited a proposed bill on the creation of national revenue authority, where the current BIR examiners will be forced to retire, and only those who pass new stringent mechanism will be rehired27.
Currently, the BIR is unable to address issues of tax non-payment by big business and its relation to government corruption.
In 1993, the BIR filed a tax case against Lucio Tan, one of the country’s tycoons, for not paying P7.68 billion in ad valorem, income and value-added taxes in 1992. The BIR later filed two more cases, accusing Tan of tax non-payment amounting to P9.51 billion in 1990 and P8 billion in 1991. Tan was able to halt the proceeding proper for 12 years. In 2005, the cases finally held their first hearing, with the tax claims ballooning to P25 billion. But a year later in 2006, the Marikina Metropolitan Trial Court dismissed the tax case for lack of evidence.
In 2017, President Duterte announced that Lucio Tan owes the government at least P30 billion in taxes. A year after in 2018, he suddenly “cleared” the tycoon of past tax liabilities, saying he would “forever shut up” on the subject, after Tan as CEO of Philippine Airlines (PAL) offered additional plane to fly home repatriated OFWs from Kuwait, and after PAL’s payment of P6 billion in taxes in 2017.
But the best piece of evidence that tax law enforcement in the Philippines for the rich and powerful is different for the ordinary working Filipinos is the recent Commission on Election (COMELEC) decision to junk the disqualification case against presidential candidate Ferdinand “Bongbong” Marcos Jr. stemming from an earlier court indictment for estate tax non-payment. A portion of the COMELEC decision penned by the now controversial Commissioner Aimee Ferolino, read: “The failure to file tax returns is not inherently wrong in the absence of a law punishing it.”
In the case of the Lopez-owned media giant ABS-CBN’s franchise non-renewal,28 tax non-payment has taken a different role—political weapon against a private company seen as non-ally of the sitting government. The controversy has rendered 11,000 ABS-CBN workers jobless.
Layered benefits for the already rich
Offshore financial dealings have already demonstrated how the super-rich can safely tuck away their wealth from public scrutiny, dodge taxes and take away potential public revenues. It has been noted also that those who maintain offshore accounts are either super-rich individuals or government officials. With that in mind, it is now easy to imagine that any attempt to regulate the wealth creation and preservation of the rich can be swiftly dealt with by those who benefit from offshore banking in the government.
Philippine Finance Secretary Carlos Dominguez III for instance asserted that instituting a wealth tax carries the risk of capital flight.29 He did not say however that the super-rich do not need any reason to move their money as they see fit. This is in spite of the reality that in times of economic crises, the super-rich are the same group that benefit more from government interventions and incentives.
On March 26, 2021, the Philippine Congress enacted Republic Act (RA) 11534, otherwise known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE), formerly known as TRABAHO bill, the second part of the TRAIN Law. Hailed as a COVID fiscal relief to domestic and foreign corporations doing business in the Philippines, it amended several provisions in the old Tax Code. It reduced corporate income tax from 30 percent to the current 25 percent, retroactive to July 1, 2020, and will be reduced further by 1 percent annually in the next six years, up to 20 percent by 2027.
Earlier in June 2020, economists from the country’s top universities issued a position paper opposing its passage. Former UP School of Economics (UPSE) Deans Raul V. Fabella and Ramon L. Clarete and Ateneo School of Government Dean Ronald Mendoza explained that the revenue loss the government will incur is far too great in a time when the need to increase the tax effort is critically important.
According to Fabella, the looming U-shaped recovery will diminish the possible gains of TRAIN law, whether the government will retain the 30 percent or enforce the new 25 percent corporate tax. Clarete for his part noted that during the Asian Financial Crisis and the succeeding Global Economic Crisis in 2007-2009, the country was forced to cut on corporate income taxes to encourage more firms to pay their taxes, but the revenues only improved after the economy finally recovered. He also said that it is only at the end of the Covid-19 crisis that investors can regain the confidence to invest30.
While Finance chief Dominguez claimed that CREATE will generate P42 billion in extra capital once the bill is enacted, and P625 billion over the next five years, economist JC Punongbayan said that it will not jumpstart the ailing economy.
According to Punongbayan the government should instead put money directly in the hands of workers through cash transfers, wage subsidies, or zero-interest loans. He also said that CREATE will favor big businesses, not the MSMEs that employ about 63 percent of the Filipino workforce and were hardest hit by the pandemic. The difference in tax savings, he said, would be in the billions for big business, but only a few thousands for the small business owners.
The assertions of the economists mentioned above in 2020 that CREATE will not result in a rebounding of investments proved to be correct. In November 2021,31 the Philippine Economic Zone Authority reported a 25 percent drop in investment pledges. In February 2022, the drop increased to 27 percent.
Labor groups for their part have called for vigorous government spending, particularly continued support for household’s expenses through cash transfers. The labor sector also proposed economic activities which will generate jobs and income for workers, such as the provision of public transport (through service contracting), provision of infrastructure useful in containing the pandemic and contact tracing. Aside from health, the government could have also augmented its spending in other sectors. Finally, the groups have proposed government stimulus in economic activities, by subsidizing costs of production and wages.
With not enough money to finance its needed economic interventions, the government resorted to borrowing. By the end of 2021, the country’s debt stood at P11.7 trillion, almost P2 trillion or 19.7 percent more than the P9.8 trillion recorded ending 2020. Domestic debt reached P8.17 trillion, 22 percent higher than 2020, while external debt grew 14.8 percent to P3.56 trillion. According to the Bureau of Treasury, the debt is “still within the accepted sustainable threshold as the economy continues to recover from the effects of the pandemic.”
But president Duterte and his economic managers allocated the borrowed money into something else. The 2021 budget indicated huge allocation to infrastructure projects with unestablished social benefits, instead of vaccines and healthcare needs. Whatever limited resources are allocated for public health intervention was compromised by the anomalous Pharmally transactions32. The government has also poured some P19.5 billion to its anti-insurgency program. Allocation for the poor, workers, and small businesses took the backseat.
Where lies our hope?
In Greek Mythology, Pandora inadvertently opened a box left to the care of her husband. Expecting to contain precious gifts, she quickly realized to her dismay that it contained illness, hardship, trouble and pain for humanity. In the end, however, she found out that there remained at the bottom of the box something that can compensate for or even undo the plagues: hope.
The Pandora Papers has exposed not only the growing divide between the haves and have nots. It also revealed that the world has become no more than a playground for the monied class.
A core function of any democratic society is the effective capacity of the government to tax excessive wealth to reduce inequality and disparities of political influence.
These revenues that can be recovered from recovering and taxing offshore wealth can be mobilized for infrastructure, hospitals, schools, and other essential public services necessary for inclusive and sustainable development.
Curbing illicit financial flows and tax avoidance is particularly urgent in Asia, where peoples continue to suffer from budget cuts in essential social services even as they experience multiple crises.. Making the rich pay their share is also particularly challenging in the region, as business interests are closely tied up with the interests of those in the government. If summits of the super-rich like the OECD and the WEF provide any indication, tax transparency and accountability efforts are facing an uphill battle ahead. But the long history of peoples’ struggles for justice and democratic movements in Asia are testament to the rich resources of hope that lie in our midst.
1https://www.icij.org/investigations/panama-papers/
2https://www.rappler.com/newsbreak/investigative/filipinos-tycoons-government-officials-mentioned-pandora-papers-icij/
3Endo is a contraction of ‘end-of-term’ referring to companies’ practice of hiring workers for contractual work, of usually five months and sometimes, even less. It falls short of the required six months continuous work which under the Philippine labor law can be a basis for regular employment status. The practice effectively prevents workers from joining unions, denying them better benefits through collective bargaining. It also prevents workers from charting a better life as planning is difficult in an employment that ends in five months, and subjects them to an almost permanent state of insecurity. Ending endo was one of the unfulfilled political promises of the current president, Rodrigo Duterte. See: https://www.rappler.com/newsbreak/iq/201468-duterte-endo-contractualization-promise-2016-to-2018/
4https://www.reuters.com/article/cyber-heist-philippines-idUSL3N20Z1FL
5 https://www.foi.gov.ph/requests/aglzfmVmb2ktcGhyHgsSB0NvbnRlbnQiEVBDR0ctMzM0MjAyNzM2MTY1DA
6 https://www.pna.gov.ph/articles/1053757
7 https://newsinfo.inquirer.net/1600309/intl-observers-may-9-ph-vote-falls-short-of-free-fair-election-standards
9 https://malampaya.com/about/
11 https://www.forbes.com/philippines-billionaires/#25aa38237776
12 https://www.bloomberg.com/profile/person/1551460
14 https://www.icij.org/investigations/pandora-papers/pakistan-imran-khan-prime-minister-allies-offshore/
15 https://www.icij.org/investigations/pandora-papers/sri-lanka-rajapaksa-family-offshore-wealth-power/
16 https://cijnepal.org.np/binod-chaudhary-pandorapapers/
17 https://www.malaysiakini.com/news/593919
18 https://www.isranews.org/article/isranews/103123-investigative00-2-68.html
19 https://en.tempo.co/read/1513567/airlangga-luhut-responds-to-pandora-papers-report
20 An advocate for liberalising copyright laws, co-founded the free software P2P company Opencola in 1999. Themes of his work include digital rights management, file sharing, and post-scarcity economics.
21 A debt instrument that’s denominated in a currency other than the home currency of the country or market in which it is issued
22 Repealed in 1999
23 https://www.lexology.com/library/detail.aspx?g=3d8c169d-4392-4adb-b6cd-44d034ffc99e
24 https://www.lse.ac.uk/research/research-for-the-world/economics/sophisticated-tax-evasion-by-the-super-rich
25 https://www.lse.ac.uk/research/research-for-the-world/economics/sophisticated-tax-evasion-by-the-super-rich
26 https://www.factipanel.org/
27 https://www.rappler.com/business/209399-corruption-bureau-internal-revenue-abolish-mon-abrea/
28 https://cpj.org/2020/07/philippine-congress-denies-abs-cbn-news-broadcasters-franchise-renewal/
29 https://www.dof.gov.ph/dof-says-super-rich-tax-bill-to-lead-to-capital-flight-tax-avoidance/
30 https://businessmirror.com.ph/2020/06/03/create-bills-ok-now-bad-timing-experts/
31 https://www.philstar.com/business/2021/11/09/2139904/investments-ecozones-decline-25-9-months
32 http://legacy.senate.gov.ph/press_release/2021/1013_gordon1.asp