Since we found out that President Mauricio Macri became one of the highest-profile political leaders to be implicated in the Panama Papers leak of some 11.5 million legal documents from Panama-based law firm Mossack Fonseca — the greatest data cache release in history — the presidency has scrambled for a response and stuck to it.
“It was nothing illegal,” he said, his words repeated by his cabinet colleagues from Vice President Gabriela Michetti and Cabinet Chief Marcos Peña down as the administration sought to downplay evidence of possible tax avoidance in the Macri clan. Even, outrageously, the new Director of the government’s Anti-Corruption Office, Laura Alonso leaped to the defense of the President soon after the news broke (and was roundly criticized for doing so).
The line they used, absolving oneself of any wrongdoing by repeating the phrase “it was legal” again and again raises a very important point that has surfaced since the leak.
At face value, the government is correct. Avoiding domestic tax by stashing assets in an offshore company in, let’s say, a tax haven (because that funnily enough appears to be where the vast majority of these “ghost” companies linked to global millionaires are based) isn’t illegal. Hence the current demarcation between tax avoidance and tax evasion.
But does that make it ok, or fair?
Legality is not the same as morality, despite what US plantation owners in the 19th Century may have argued.
Differentiating the two things is, in fact, extremely important, as Russian dissident and former prisoner of Soviet gulags Alexander Solzhenitsyn told an audience in Washington, DC during his first public address on US soil in 1975:
“One cannot think only in the low level of political calculations. It’s necessary to think also of what is noble, and what is honorable — not only what is profitable. Resourceful Western legal scholars use the term ‘legal realism.’ By legal realism they want to push aside any moral evaluation of affairs.”
“At the present time it is widely accepted among lawyers that law is higher than morality. That isn’t the case. The opposite is rather true. Morality is higher than law. This view must never be abandoned. We must accept it with heart and soul.”
The government’s clinging to this very same legal realism falls into the same trap, 41 years later.
Obama Beats Down Macri’s ‘Legal’ Argument In One Breath
Even though Macri’s name was splashed over global headlines as an incumbent head of state possibly involved in tax avoidance, he is fortunate that the International Consortium of Journalists (ICIJ) and German newspaper Süddeutsche Zeitung who first broke the story chose last weekend to do so.
Because any earlier and he might have faced a scolding from new BFF and US President Barack Obama, who visited Argentina just weeks ago and had this to say on those multimillionaires who, like Macri, have defended themselves with the ethically flimsy shield of “legality”:
“A lot of it’s legal, but that’s exactly the problem,” Obama told reporters earlier this week, more or less destroying the defense we are now being treated to by Macri in one sentence.
Because most current laws on taxes don’t work in tandem across international boundaries, rich business owners can legally escape the nuisance of having to contribute a proportionate share of their millions to their national economies in tax — which might otherwise be spent on building schools, hospitals, roads, you name it — by stashing money in companies in places like the British Virgin Islands or Hong Kong, where taxes on wealth are far more generous than at home for those who have a lot of it.
It’s legal. Is it moral? Is it something we should be OK with? After all, anyone in Argentina struggling to make ends meet in our brave new world of cancelled subsidies, extreme price hikes and mass layoffs doesn’t exactly have the capital, resources or time to set up an offshore company.
When those with lower incomes don’t pay their taxes, they can go to jail. When wealthy business owners don’t, it’s called good business sense.
Perhaps people will defend those with such offshore accounts.
People like Macri’s fabulously wealthy father Franco (one of the richest men in Argentina), who was the registered CEO of Fleg Trading Ltd. — the company that appeared in the leak — and who took the decision to create an offshore firm with him at the helm and his sons as the designated princes (vice presidents: Mauricio and his brother Mariano all appear in the Fleg Trading Ltd. document).
They might argue that Argentine banks and previous currency restrictions forced businessmen to register companies overseas, and that it’s difficult to register companies in Argentina.
Fine. Let’s address this issue. But it’s not the only reason that offshore ventures exist for rich people living or operating in Argentina, who according to lawyer Eduardo Barcesat are storing an estimated US $420 billion generated in the country in overseas tax havens and not paying their dues on any of it.
If it’s only Argentina being Argentina that is causing the offshore problem, why are the Panama Papers producing such a global scandal? It’s surely naive to suggest that the greed of the rich individuals implicated in these leaks isn’t a factor.
I for one cannot accept that the Macris chose the Bahamas to set up Fleg Trading Ltd., purely because of its aquamarine waters and pristine white sand beaches.
As leader of the Victory Front (FpV) caucus (or group of legislators from the same party who vote along the same lines) in the Lower House, Héctor Recalde in all fairness pointed out on Sunday, “These sorts of companies are not set up for licit means.”
Tip Of The Iceberg
Even if it turns out to be true, what Macri is saying about Fleg Trading Ltd., that the company was “a mere formality” or that he “had no stake” in it at all, the principle of the thing does not set a good precedent.
Not least because Macri is currently enacting a program of radical austerity from the Casa Rosada and justifying himself by saying, rightly or wrongly, that he needs to do so because there’s no money left. We might ask at this point if there would be a little more money if the State chased down rich tax avoiders…
Just as Macri’s team has rightly criticized former President Cristina Fernández de Kirchner for getting rich out of the presidency during her time in office, so we should criticize all powerful interests like the President’s family for flirting with tax avoidance in this way, because it reinforces the gulf between the rich and the poor in society. It may be legal, but it’s something simply not available to most people, who have fewer resources than Macri and Sons™, and even less now that Reaganomic “belt-tightening” austerity is on the menu.
One thing we can derive with clarity from the Panama Papers so far is who is engaged in this tax avoidance like this. It’s the rich and powerful, from Arabian sheikhs to cronies of Russian President Vladimir Putin.
As one newspaper summed up recently, the Panama Papers have offered us a glimpse of the “secret offshore world of the elite.”
Former legal criminals from slave owners to anti-LGBT clergy eventually found out to their displeasure that laws can change, and often do, in correspondence with popular sentiment.
If Macri’s new compadre Obama and his words are anything to go by, this might happen sooner rather than later.
After all, as one of those who first gave us this glimpse behind the façade, like Süddeutsche Zeitung’s digital editor Stefan Plöchinger said recently, “Just wait for what’s coming next.”
@Doener Einfach mal abwarten, was noch kommt…
— Stefan Plöchinger (@ploechinger) April 3, 2016
Because Mossack Fonseca is just one relatively modest law firm that helps set up offshore companies in tax havens. It “isn’t the Nike, Adidas or Puma… its the ASICS of offshore service providers,” as an old campus comrade of mine commented recently.
Even if all the appeals to legality hold up for the time being, as part of one of Argentina’s wealthiest families, it’s likely Macri will be drawn into more revelations about tax avoidance thanks to this first step in unmasking the offshore business.
Politically, the tide may be turning, as US Democrats from Obama down join European progressives and call for the issue to be addressed, perhaps influenced by Gabriel Zucman’s book on the sheer quantity of wealth denied by the rich to the State or top US and UN Economist Jeffrey Sachs’s calls for a tax haven clampdown “to create a fairer global society.”
Meanwhile, more PRO party officials are being drawn into the mix, and more unsurprising but important news about rich people and “the missing US $20 trillion” could follow. Though Clarín like various news outlets here appeared to be “soft” on Macri this week (according to Zeitung writer Boris Herrmann, who helped publish the papers in Germany) it hit the nail on the head earlier in the week when it ran a story soon after the documents surfaced, reporting that those inside the Casa Rosada were “worried” about the Panama Papers. They should be. We ain’t seen nothing yet.