Latin America has again hit the headlines for the wrong reasons. Politicians and officials from the region feature prominently in the Pandora Papers, a release of leaked files on wealth held in offshore havens. Ninety out of the 330 politicians and public officials mentioned in the data leak are Latin American, including three serving presidents, a finance minister and a central bank governor. Argentina has the third-largest number of beneficial owners of offshore companies, after Russia and the UK. Honduras, one of the poorest countries in the Americas, has more politicians named in the Pandora Papers than Nigeria.
The Latin American fondness for stashing wealth offshore is shared across the political spectrum. In Argentina, former Peronist officials feature as well as the conservative opposition. (Multimillionaire former president Mauricio Macri observed last month that in Argentina “to make money, you have to avoid taxes”.) Businesspeople connected to Venezuela’s ruling socialists and a former legal adviser to Mexico’s leftwing president appear alongside conservatives from other countries, some of whom made fortunes in business before entering politics.
The immediate consequences have been most serious in Chile where Sebastián Piñera, a billionaire president damaged by the social protests of 2019, is fighting for his political life. Leaked files indicate that when his family sold a mining company early in his first term, part of the price was conditional on a favorable regulatory decision. Piñera has said he was not involved with managing the company at the time, but a congressional committee is nonetheless considering an opposition request to impeach him.
The Pandora Papers highlight another worrying trend: the extensive use of secrecy jurisdictions inside the US. Some of the prominent figures mentioned had responded to tighter controls on offshore havens by moving assets from the Caribbean to states such as South Dakota, a rapidly growing secrecy jurisdiction. The US remains non-compliant with four of the recommendations made in 2016 by the Financial Action Task Force, an international body fighting money laundering and terrorist financing. These include ensuring adequate information on beneficial ownership.
Always quick to demand co-operation from other countries on tax secrecy, Washington needs to do more to crack down on its own jurisdictions, which are governed by state law, and to ensure that information from US-based entities is shared fully and promptly with foreign governments.
The disclosures in the Pandora Papers have prompted reflections globally on the unfairness of an elite able to avoid taxation and hide ownership by shifting assets offshore. In Latin America alone, the UN Economic Commission estimates that tax dodging costs revenue equivalent to 6.1 per cent of the region’s economies.
But perhaps of most concern is what the Pandora Papers say about the unwillingness of Latin America’s wealthy to invest in their own countries. The OECD quotes a figure of €900bn in Latin American assets held offshore. Argentina is almost synonymous with unpayable foreign debt, yet the country’s net international investment position is positive to the tune of $129bn.
Cracking down on evasion and improving disclosure from offshore havens are vital goals. But guaranteeing the rule of law, economic stability and sound money at home are equally important. Ultimately, Latin America’s governments should reduce the appeal of offshore investment by making their own countries more attractive to invest in.