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Financial Transparency After Panama

Walter Russell Mead

Berlin and Paris unveiled a welcome set of new initiatives on transparency and tax dodging yesterday. The Financial Times:

“We need full transparency worldwide,” Mr Schäuble said as he released a plan entitled “Fighting effectively against tax cheating, tax evasion and money laundering.”

Both Mr Schäuble and Mr Sapin, who have led the way on previous global financial transparency projects, such as the automatic exchange of information between banks, want to seize the opportunity created by the Panama Papers leak to force through further reforms. Paris put Panama back on its own blacklist last week after removing it in 2012 and plans in the coming weeks to publish a list of ultimate beneficiaries of trusts and foundations with assets or beneficiaries in France.

While it is a good thing to see the rule of law extended into secretive bank havens, implementing all of this is going to be a lot trickier than many understand.

Take for example, the example of countries like Russia. On the one hand, the international financial system must not continue to serve as a well-paid accessory to kleptocrats that rule the roost there. Thuggish strongmen and their kinfolk need to be frustrated in their efforts to stash piles of ill-gotten loot in shell companies and safe havens abroad.

At the same time, there is lots of room for unintended consequences to manifest themselves. Russia’s legal system is essentially a dispute adjudication mechanism for the mafia—that is to say, there is no real difference between what is legal and what is criminal. Will Vladimir Putin get to use the international legal system to help him shake down Russian businessmen, strangle opposition media companies and otherwise cement anti-democratic and ultimately anti-legal power? Is that really a step forward for the forces of order and light?

Similarly, there is lots of dirty money sloshing around in China and, increasingly, a lot of it wants to get outside. Some of the money was made by those the regime now wants to label as criminals, and some was made by the folks in power. The ‘criminals’ will have court orders issued against them; the powerful will be immune.

It’s one thing to crack down on tax dodging citizens of countries like Britain, Germany, France and the U.S. But dealing with the much larger problem of an international financial system that has been deeply compromised by the rampant corruption in some other parts of the world is even more important—and is much harder to do than many realize.

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