Saturday, April 9, 2016
The problem with Panama: It’s all legal
Frank Flannery. Picture: Gareth Chaney
I never cease to be amazed at how good some people are with money. Take Frank Flannery. Twenty years ago when he was working for Rehab, the charity that champions people with disabilities, he bought a house in London for £615,000. This would be the equivalent today of forking out more than €2m for a pad. And you thought those kind of living quarters were the exclusive preserve of wealthy businesspeople, bankers, lawyers, and accountants? No sir, if you watch the pennies, the pounds will take care of themselves.
Frank was moving to London to continue his work with the group and needed a place to live. The Bank of Ireland sorted him out for a large mortgage. Except, as the Panama papers published this week revealed, he also had a mysterious benefactor.
A letter written by the bank refers to further security for the mortgage coming from an offshore company based in Jersey to the amount of £250,000. Frank has reacted to this news with astonishment, saying he is “a stranger to the matter”.
Maybe it was somebody who admired the good work Frank was doing with Rehab, and weighed in ‘on the QT’ to help him find a half-decent place to lay his head.
Or maybe it was somebody who admired the good work Frank had done in Fine Gael. Until recently, he was a major force in the party for the last 35 years. Supporting the democratic process is an admirable pursuit often favoured by shy, rich folk. Maybe somebody thought that sorting out Frank without his knowledge was a nod towards good politics.
Between the cost of the house — located in salubrious Primrose Hill — and the mysterious benefactor, the revelations about Frank’s home affairs once more demonstrate to mere mortals how it is that those with wealth and connections can really live.
The most interesting aspect of Frank’s Panama story — apart from his ignorance of the whole thing — is that it was all perfectly legal. Wealthy individuals can shovel a quarter of a million into an offshore account out of the reach of national agencies. They can set up a myriad of companies and accounts through law firms such as Mossack Fonseca, from which the Panama papers emerged. They can move money around, engaging in major tax avoidance — the legal version of tax evasion. And they are assisted by no shortage of banks, lawyers, and accountants, all taking a generous slice on the pie. It’s their world, we just live in it.
This is all legal, because there is no political will to ensure that wealthy individuals and corporations pay something at least approaching their fair share.
Thomas Piketty, the French economist who has written about global inequality, reckons that up to six trillion dollars could be squirrelled away in a manner that ensures little or no tax is paid on it. That’s six thousand billion dollars.
Hiding money and assets is accommodated mainly because most of those engaged in it are well-connected, particularly to politicians who make the laws.
Why would lawmakers discommode friends who are influential and supportive? Of course, every now and then, the smell becomes a little overpowering and a morsel of law is thrown at the peasants to quieten them.
Even within that context, laws are useless without a willingness to enforce. Back in the 1980s, when this country was on its knees, there was a massive off-shore tax fraud for the middle classes. Bogus non-resident bank accounts were opened up by hundreds of thousands of people who were resident in the State.
The accounts were exempt from Deposit Interest Retention Tax, and beyond the reach of the taxman. So if you shovelled in undeclared money, you won on both counts. Many did, at a cost of hundreds of millions, to an exchequer that was in dire need of money.
In his 1987 budget speech, Minister for Finance Ray McSharry scoffed at the notion that there was some sort of a scam afoot.
“There appears to be some misconception about the tax status of non-resident deposits,” he said. “Let me make the position clear. Such deposits are entirely free of retention tax in our jurisdiction. I can give assurances that we have no intention of changing this arrangement. Non-residents can lodge deposits here in complete confidence.”
Yet a few weeks earlier his department had been warned by the State-owned TSB bank that “a large number of non-resident accounts held in certain commercial banks are not genuine”.
Throughout this period, another scam, this one for those with serious wealth and connections, was taking place through Charlie Haughey’s bagman, Des Traynor.
The Ansbacher accounts facilitated more than 200 individuals with offshore accounts in the Cayman Islands. Considering whom Traynor was, and that he was skimming the accounts to feed Charlie, it’s little wonder that there were no great efforts at the time to investigate.
Today, whether it be individuals or corporations, the laws are fashioned to ensure that money can be shifted around the globe in a manner that allows for taxation to be treated as little more than an irritant.
This country is regarded in some quarters as a corporate tax haven. In 2013, Apple confirmed that it paid just 2% tax on two of its Irish subsidiaries.
Imagine that? We, the citizens, offer one of the lowest corporate tax rates in the developed world at 12.5%, yet the tech giant managed to legally pay less than a fifth of that.
Last week, Barack Obama made a rare intervention on behalf of US citizens. A multi-billion dollar deal between pharma giants Pfizers and Allergan would have seen their combined tax bill shrink. The process involved the smaller company being backed into the larger one in a process called “inversion”. Obama blocked this kind of deal by executive order.
It was a small move, but one that reflected a growing anger among the wider population.
History has shown that the political will to take on vested interests only gains momentum when the injustices are too obvious and severe to ignore any longer.
In the aftermath of a major recession across the developed world, the issue of tax injustice is growing larger by the day. This week’s publication of the Panama papers can only add to the growing cacophony for it to be addressed in a coherent and decisive manner.
Meanwhile, Frank Flannery sold his London pile in 2012 for £2.8m. By then, he had left his post in Rehab, but was engaged in consultancy work for the charity which netted him in excess of €350,000 over seven years. Much of this work involved lobbying the politicians whom he had helped elect.
When issues over Rehab blew up in controversy, Mr Flannery refused to appear before a Dáil committee. He claimed to be victimised by politicians. Right up until last Sunday, he had been a prominent media pundit, expounding on what politicians should do in the national interest.
Now he has been victimised again by this leak about something of which he is entirely ignorant. The world is just so unfair sometimes.