Why no one is talking about Hong Kong’s dirty money problem
The Panama documents show that Hong Kong is a big intermediary in the movement of offshore funds to low-tax havens
The less than fragrant odour of hypocrisy has been wafting in great waves since the emergence of the Panama Papers containing juicy details of how the rich and powerful ferret away their money.
While the Great Unwashed, or the 99 per cent as they are now called, marvel at the sums of money involved, the usual suspects have been mobilised to inform us that there is nothing to worry about because this stuff is perfectly legal; some go further and self righteously declare that dodging around the taxation authorities is also somehow honourable.
In support of these claims we have been subject to a torrent of words patronisingly explaining the differences between tax avoidance and tax evasion. The former being legal while the latter is not.
The great taxation sages tell us that tax avoidance is what any sensible person does because taxation laws are both complex and onerous therefore if you are smart enough to find a way around them, you have struck a blow for freedom, not forgetting the added benefit of shovelling more cash into the obliging arms of the offshore bankers.
However, and this is a very big however, the fact remains that offshore accounts and a whole panoply of clever accounting means that rich people pay a far smaller proportion of their incomes in tax than the average working stiff who has neither the means or indeed the options available to duck and weave out of the tax net.
This is why the Panama Papers have fueled a burgeoning global movement against the privileges and arrogance of the so-called establishment. This anger will not be assuaged by assurances that the privileged are not breaking any laws; on the contrary, it reinforces the impression that the laws are designed for their benefit.
To avoid a tedious debate over whether offshore banking is always a bad thing, let’s quickly state that there are perfectly understandable reasons for using this form of banking and they are not all tainted. But this is not much of a point as it is similar to saying that you can use a hammer to both knock in a nail or bludgeon someone to death, because it is pretty damn clear that the problem is not the hammer.
The bigger issues are of both appearance and substance. To unravel them it is important not to loose sight of the basic purpose of taxation, which, in essence, is for the purpose of generating funds for public purposes, and, at least in theory, doing so in manner that is based on an ability to pay.
Of course once theory is put into practise, particularly on the scale of taxation systems, everything gets a whole lot more complicated and there are valid debates to be had over the use of taxation, the horrendous way in which the system tends to be run and, well, a whole host of issues that arise out of asking citizens and corporations to part with their cash.
Hong Kong benefits from having a relatively simple and low rate tax regime. However local companies and individuals are big customers for offshore banking services and, arguably, even bigger customers for offshore corporate incorporation. It is not politically correct to talk about this because a major motivation for using these offshore services is driven by a lack of confidence over Hong Kong’s future, despite what these individuals and corporations say when making public statements on this subject. In other words offshore banking and corporate incorporation in the SAR is very much a form of political insurance.
There is nothing wrong with this but the problem is that in Hong Kong the clean water mixes rather too freely with the dirty water produced by a great deal of hot cash surging though the local system in search of secrecy. It is hard to deny that a large proportion of the money tucked away in secret tax haven accounts is derived from bribery, state corruption and many other forms of criminal behaviour but, we are assured, this is quite another matter.
The Panama documents reveal that Hong Kong serves as the biggest intermediary for the movement of these offshore funds. However senior government officials have taken time out to assure us that there are absolutely no problems in the Hong Kong system and that all this intermediary business is perfectly above board.
It can confidently be predicted that these statements will come to haunt those making them. At the very least, the Panama Papers have ramped up calls for transparency and better regulation of this murky offshore business. It’s anyone’s guess why on earth the fine folk in Tamar do not understand how this will lead to greater scrutiny of Hong Kong, and it won’t be in a good way.
Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster