Thanks to the Panama Papers, corruption is finally on the
front pages.
The “Panama Papers” leak reveals widespread use of offshore
accounts, especially in Europe. Experts believe that that most of the exposed
accounts have been used for tax evasion and also note that the firm from which
the information was taken is only one of many that create such accounts.
Will the leak matter? There’s certainly evidence that it
should. Among other things, strong EU action on corruption could greatly
increase the viability of the union and make the difference in preventing
Brexit.
Corruption is a core issue.
The UN, which just released a world happiness report, includes “freedom
from corruption” as one of just six key measures.
And RAND just released a report for the
EU Parliament which states that government corruption costs the member states
somewhere between €179bn and €990bn in
GDP loss per year. Those numbers
don’t include tax evasion (estimated
at $78bn) or corporate tax manipulation (estimated
at $80bn).
These reports, and many others, describe perceptions of
widespread corruption as undermining the public’s view that society is subject
to the “rule of law.” That’s a very big deal and is actively feeding
Euroskepticism.
Look closely, and you’ll see that the Euroskeptics’ growing appeal
rests on a four-legged stool – the economy, terrorism, migration – and
corruption. The first three are about effectiveness, the last is about
legitimacy. If there’s no sense of a rule of law, support will erode even if
effectiveness grows.
On corruption, employed here to include cheating officials,
tax evasion, and tax manipulation, the EU has been a mighty report-generating
machine. Action? Not so much.
Consider just four examples of egregious inaction and moral
passivity where the EU’s Council and its oversight body, the EU Commission, ignored
crime and manipulation.
1)
Despite knowing that the core of Greece’s
financial disaster was the failure of wealthy elites to pay taxes, the EU
failed to make this a central issue in the bailout, instead requiring harsher
pension reform. That’s not
going well. And the EU also avoided any serious criticism when the previous
government failed to take action against people with Swiss accounts.
2)
Despite strong evidence that corrupt
judges and other officials were responsible for the takedown of Bulgaria’s
CCB bank in 2014, the EU has said nothing and has offered little help to the
current PM who is trying to clean things up. And the apparent victim, Tsvetan
Vasilev, is still subject to EU extradition orders that would likely force him to
face the same judges who helped broker the fraud.
3)
Even though economists and other professionals had
long spoken about them, people in Brussels, claimed to be surprised by rampant
tax manipulation on the part of Apple, Amazon, and many others.
4)
Even
though the Swiss branch of HSBC was actively promoting cross-border tax evasion
to not just the wealthy but also the well-off throughout the union, EU leaders
absurdly claimed to know nothing about this destructive practice until they
read about it in the newspapers.
Rule of law?
Like New Yorkers in the 1960s who ignored street violence, when
it comes to financial crime, leaders across the EU “don’t want to get
involved.”
The EU can’t hide behind legal constraints. Tax manipulation
and tax evasion thrive because they’re transnational. If Brussels can be a
pervasive regulator of life’s minutiae such as product labeling, why can’t it
at least be a strong, unremitting voice for tax justice?
EU survival requires a new community mindset on corruption.
Instead of tiptoeing around the concerns of a few national politicians, the EU
will have to seize the bully pulpit and speak directly to the people.
Strong and immediate action on tax evasion would be very
popular. It could begin with the creation of a high profile agency with a
prominent leader who releases regular, highly visible reports on outcomes that
highlight leaders and laggards among member nations. Calls for a ban on allowing
tax criminals to remain anonymous would add some energy – ordinary people hate letting
cheaters avoid publicity.
Offshore tax havens would be told to either become
transparent or lose all banking and commercial connections with the EU. Who
cares if officials in countries like Panama and the Cayman Islands are upset?
Next, a major push to harmonize tax laws to prevent
corporate manipulation would generate lobbyist-drive resistance, but an
assertive EU position would be immensely popular simply because it would be
morally right.
Finally, aggressive national measures in the area of
government corruption should become a condition of continued EU membership. Be
certain that the roar of popular approval across the subcontinent will drown
out the complaints of purchased politicians.
It’s important to note that adopting a bold stand on
corruption is likely the only action that the EU could take between now and
June 23 to avert Brexit. Which is more appealing to voters? Advocacy for a truly
level field on taxes and a strong push to eliminate financial crime and
manipulation? Or, maintaining policies that are at best confused if not
actually complaisant?
The EU has a choice here. It could move fast to fix its
moral foundation, quickly generating the kind of citizen support that will make
it better able to deal with its other problems. Or, Brussels could announce
that it will issue another report.
