Why, out of all the rotten, corrupt and unprincipled nations of the earth, did the Panama Papers hacker single out New Zealand’s John Key for special mention?
After all, New Zealand consistently ranks nearly top of the ladder as the least corrupt, most transparent of countries.
Hacker “John Doe”, who has now released his “manifesto” of why he hacked Panama law firm Mossack Fonseca, only mentioned one world leader in this explanation – John Key – who he noted “has been curiously quiet about his country’s role in enabling the financial fraud Mecca that is the Cook Islands.”
Key has been similarly silent about Niue, virtually a dependent of state of New Zealand, where, according to Doe, Mossack Fonseca used its influence to write and bend laws, favour the interests of criminals and “essentiall ran a tax haven from start to finish”.
On the explosive release of the Panama Papers, a dump of 11.5 million Mossack Fonseca documents exposing worldwide tax evasion, Key initially denied that New Zealand was a tax haven and said foreign trusts had to fully disclosure – statements that were shown to be untrue by Inland Revenue, which said disclosure was inadequate and New Zealand would be perceived as a tax haven and its reputation would suffer.
Why were people concerned? Because New Zealand had set up a regime whereby any foreigner could set up a company or trust her to take advantage of a law which said they did not have to pay tax on earnings from outside of New Zealand. Foreigners could set up a foreign trust and a Look Through Company (LTC). So long as the LTC had no income or beneficiaries here, it legally had no liability to pay tax.
Then foreigners could claim that technically the LTC had been taxed as its New Zealand entity tax rate was set at zero. The papers reveal how one French investor shifted his holding from Luxembourg to New Zealand because he knew he would pay no tax despite New Zealand having a double tax treaty with France.
Allied to this scam is that the fact that New Zealand has possibly the laxest regime in the world for setting up companies and trusts, so multitudes of foreign shell companies and trusts have been set up using a nominee office in New Zealand, run by a local front lawyer or accountant, where it is virtually impossible to trace the true ownership.
It is now coming to light through the Panama Papers that a torrent of foreign cash including wads of dirty, laundered and plain criminal money came flooding into New Zealand trusts to take advantage of this regime. Yesterday, the Australian Financial Review revealed how Mexican tycoon, Juan Armando Hinojosa Cantu, dubbed “the Duke of Influence”, and others used this lax regime.
As outrage in New Zealand and the world grew with the Mossack Fonseca revelations, Key had to be seen to take action on his clearly spurious claim that New Zealand was not a tax haven. He announced that tax expert John Shewan would review the issue. Shewan is almost certainly a Key supporter politically, is on record as supporting the concept of less tax is best regime, and he has advised the notorious tax haven of Bermuda on tax matters. Don’t expect a hard hitting report.
Key has resorted to the well-tried and often successful tactic of appointing an “investigation” that will not rock the boat, and will take as long as possible to complete the task.
Then it was revealed that the firm of Key’s lawyer, Antipodes Trust Group Ltd, is in fact running an operation that is one of the foremost, if not the foremost, firms involved in the business of setting up foreign trusts and companies so they can avoid tax.
Key said his relationship with Ken Whitney is long-standing, and that is likely true, but Whitney has been involved in the foreign tax racket for years. He even sold his law practice in 2014 so that he could set up Antipodes, which essentially focuses only the foreign trust business. He even gave up his law practicing certificate this year so he is no longer legally entitled to call himself a lawyer.
When the Green Party obtained papers through the Official Information Act showing Whitney and Antipodes had a key role in stymieing Inland Revenue from attempting to tighten up the disclosure and tax rules on foreigners things got even murkier.
On hearing of IRD’s plans, Whitney approached Key. Different versions of what was said have emerged with Key claiming Whitney’s recollection as “sloppy” and Key also having a different version of what he told Revenue Minister Todd McClay, than what McClay recalled.
The upshot was that McClay had a meeting with the “industry”, incredibly in offices of Antipodes, where the industry put the case that the $25m-$50m earned by the industry was worth the resultant sullying of New Zealand’s reputation. IRD’s plan was stamped on.
John Doe, explaining why he has gone to such trouble to obtain the Panama Papers and expose the pandemic of tax evasion, of which New Zealand, Niue and the Cook Islands are just one small part, says that “income inequality is one of the defining issues of our time”
“It affects all of us, the world over.”
He says the Panama Papers provide”compelling answers to these questions about why nothing is done about the clear and massive corruption engendered by tax havens, which essentially legalise the crime of tax evasion”.
“The Panama Papers show beyond a shadow of a doubt that although shell companies are not illegal by definition, they are used to carry out a wide array of serious crimes that go beyond evading taxes,” writes Doe.
He notes that whistleblowers and activists such as Edward Snowden, rather than being given immunity or supported, have been jailed or exiled.
Bradley Birkenfeld was awarded millions for his information concerning Swiss bank UBS—and was still given a prison sentence by the Justice Department.
Doe makes the point that tax evasion cannot possibly be fixed while elected officials, such as Key, represent the very elites who have the strongest incentives to avoid taxes relative to any other segment of the population.
Key’s personal background is as a senior executive at former US investment bank Merrill Lynch, whose role was to screw as much money as possible out of people and businesses without themselves producing a single thing.
Having made a fortune, he has chosen to represent the party that believes the less tax the better society is. His new role as a legislator and leader is to ensure that laws are passed or not passed, that ensure his constituency pays as little tax as possible.
Hence we support tax havens, or do nothing to stop them in places like Niue, despite the fact that if collective action was taken worldwide, tax in most countries would be dramatically lower.
Key and his ilk use their wealth to take full advantage of tax specialists to legally reduce their tax. Hence their hatred of such things as capital gains taxes, inheritance tax, or gift tax and their support for tax havens. One of the world’s richest men, Warren Buffet, has famously noted that he, like most in his position, pays less tax than his receptionist.
Why do Key and his colleagues do nothing about the likes of Facebook, Google, Apple and the rest rorting the system so they pay no virtually tax, instead of forcing them to pay their fare share which would allow us all to pay less? Because Key and his friends will be invested through their blind trusts and so on in the likes of Google and Apple et al.
Why will John Key do nothing about tax havens and even support efforts to “bring to justice” the likes of John Doe? Because it suits him to allow tax havens to exit despite the fact that criminals, the mafia and the rest use them?
Doe castigates the legal and accounting professions for their collusion in these tax avoidance regimes saying “the term ‘legal ethics’, upon which codes of conduct and licensure are nominally based, has become an oxymoron”.
Interestingly, Key has called Ken Whitney a “highly ethical” lawyer.
Doe says: “The collective impact of these failures has been a complete erosion of ethical standards, ultimately leading to a novel system we still call Capitalism, but which is tantamount to economic slavery.”
“Historians can easily recount how issues involving taxation and imbalances of power have led to revolutions in ages past.”
(Simon Louisson formerly worked for The Wall Street Journal, NZPA, Reuters, The Jerusalem Post and was most recently a political and media adviser to the Green Party)