Opinion | End Russia-enabling global tax havens to save Western democracy

People have been trying to dodge paying taxes since time immemorial, but globalisation has turned tax avoidance and evasion, as well as money laundering, into a lucrative business model. In the past few decades, offshore tax havens such as the Cayman Islands, Bermuda, Cyprus and Ireland have enabled corporations and wealthy individuals to conceal profits and private wealth on an unprecedented scale.

While quantifying how much wealth is stored in offshore tax havens is notoriously difficult, a 2018 paper estimated that the equivalent of 10 per cent of the world’s GDP is held in low-tax jurisdictions.

In recent years, high-profile leaks such as the Panama Papers, the Paradise Papers, and the Pandora Papers have shed light on this shadow financial system and on the tax-avoidance schemes used by the world’s business and political elite. Each revelation triggers a public outcry and demands for reform. Even Pope Francis has declared that tax evasion is a sin.

By highlighting the crucial role that tax havens play in propping up autocratic regimes, Russia’s invasion of Ukraine has underscored the urgent need to rein in offshore finance. But it has also illustrated how little progress had been made. In 2013, for example, the OECD launched its Base Erosion and Profit Shifting (BEPS) initiative, a package of corporate tax reforms meant to ensure that multinationals pay their fair share.

One reason for the lack of progress is that BEPS and similar programmes inevitably encounter a collective action problem. For tax reforms to be effective, all countries must agree to them. But while some countries want to fight tax evasion, others have an incentive to attract foreign capital by lowering tax rates and making information-sharing more difficult.