Paradise Papers Research Articles

Focus: The case for tax justice as a whistleblower protection issue

With the revelations of the Panama Papers and Paradise Papers, tax justice has become a hot topic for governments, media and NGOs. Trade unionists should use this emerging issue as an opportunity to remind governments of the impact tax exploitation has on the average workers; the integral role workers, especially in the judiciary, tax, and customs sectors, play in exposing tax exploitation; and the way in which this is inextricably tied to the need for improved whistleblower protections. Tax exploitation, including evasion and avoidance, increases the tax burden on average citizens, exacerbates income inequality and erodes resources needed to fund essential public services and fight poverty. When large multinational organisations and the ultra-rich use complex tax avoidance schemes or techniques such as tax loopholes and shell corporations to avoid paying their fair share of taxes, they are doing so at the expense of the average worker. This is no longer a surprise for anybody but it is unusual that those harmed by these practices (99 percent of the population) do not actively react to the way in which these practices undermine basic public services and reduce the resources available for public policies. Tax exploitation drains the pool of resources governments draw on to fund public services such as transit, infrastructure, highways, schools and healthcare. Tax abusers take advantage of public services without contributing back their fare share, eroding the quality and accessibility of these services. The burden for supporting public services is then shifted to the shoulders of the average worker. The vital role of whistleblowers Tax justice is also tied to another emerging labour issue: whistleblower protection. Due to their position within institutions, workers, specifically those in the judiciary, tax, and customs sectors, are uniquely placed to uncover and expose tax abuses, fraud and corruption. In fact, a recent Global Fraud Report found that whistleblowers were the single most effective way to uncover fraud. In 32 percent of cases where fraud was uncovered, an employee had blown the whistle to provide information that facilitated an investigation. In cases where a senior or middle manager was implicated, that number increased to 41 percent . Workers are on the frontline for uncovering tax exploitation, fraud and corruption. But coming forward to expose wrongdoing can come at a cost. Whistleblowers can suffer professional reprisals including demotion or dismissal, as well as isolation, character defamation, imposition of hardship or disgrace, exclusion and harassment in their workplace. Workers’ fear of these consequences and their fear that they will not be protected by existing legislation can have a significant chilling effect on their willingness to expose wrongdoing. In fact, research has shown that fear of reprisal is the number one deterrent to workers blowing the whistle. Unfortunately, this fear is well-founded: a recent survey of over 10,000 workers in the public, private and non-for-profit sectors across 13 countries found that 36 percent of workers who observed and then reported misconduct suffered formal retaliation. An example of the direct tie between tax justice and the need for strong whistleblower protections can be found in the recent issues surrounding the Canada Revenue Agency, the federal agency that administers tax laws for the Government of Canada. Starting in 2013, the government implemented sweeping austerity measures including a $250million budget cut to the Canada Revenue Agency over four years, resulting in a massive loss of capacity and institutional knowledge. The connection between austerity and declining tax revenue couldn’t be more clear: austerity begets cuts, which emboldens tax evaders, which leads to more cuts. Around the same time, employees disclosed to the tax justice organisation Canadians for Tax Fairness that they were aware of corporate and political lobbying at the higher levels of the CRA and of an unofficial quota of cases they were expected to resolve. The combined result of these two factors was that employees were encouraged to target simpler, less time-consuming cases and to avoid complex investigations into large-scale tax fraud. Some CRA employees were concerned about the pressure on employees to move away from largescale , high-profile investigations. However, out of fear for their position, they were only able to disclose their concerns to Canadians For Tax Fairness under...

Focus: The Marikana Massacre: wages as the blind spot in the tax evasion debate

12 | International Union Rights | 25/1 FOCUS | TAX AND TRADE UNION RIGHTS No doubt, workers across the world were shocked as striking mine workers at the South African town of Marikana were shot to death during their strike for higher wages in 2012 at Lonmin Plc, the third largest platinum mining company in the world. Thirty four workers were massacred by police on 16 August. Ten had already been killed in the days before. Most of them when a police General ordered tear gas and shock grenades against a peaceful march1. Among the ten were also two police officers and a security guard. The Marikana death toll is in fact above 50 today, due to suicides in directly affected families. As for injured and traumatised workers and family members, they can be counted in hundreds. Most of the victims were rock drill operators (RDOs). The RDOs were paid a basic wage of about 5000 South African Rand per month (corresponding to $600 at that time). They demanded a basic wage of 12,500 rand per month ($1500 USD). In September after the massacre close to 200,000 mine workers in all kinds of mines were on strike for R12,500. To workers in South Africa, also outside mining, the ‘R12500’ became a symbol for having a life. In the eyes of established South Africa, however, the mine workers were ignorant of the realities in the mining industry. The workers effectively demanded an increase of the basic wage by 150 percent! This was considered outrageous and completely utopian. ‘Wage evasion’ as one deadly factor In 2014, the power of the Marikana Commission of Inquiry (MCI) gave two researchers from AIDC access to the financial statements of Lonmin’s subsidiaries in South Africa. One question was, if the R12,500 demand was at all ‘affordable’, because Lonmin had refused to negotiate. This was a small part of the Commission’s task to give a background to the catastrophe. The financials of daughter companies are confidential. Only the annual reports of a mother company that sell its shares on the stock market are public. This is the legal situation in South Africa, and in most countries. Still, it is the local subsidiaries that pay taxes to the government and wages to the workers. As a rule, they employ the whole productive workforce. Lonmin Plc is based in Britain. In 2012 it employed some 50 managers. Lonmin’s largest South African subsidiary Western Platinum Ltd (WPL) employed 25,000 of Lonmin’s workers in 2012 (with another 3000 employed by the subsidiary Eastern PL). The confidential financial statements showed that WPL every year had transferred an average R245 million in ‘sales commission’ to a letter box company in Bermuda. But there was no one in Bermuda selling anything. The company receiving these millions had the exact same address as Appleby Services – the law firm at the heart of the Paradise Papers. When this went public, Lonmin argued that the transfers were shifted to its South African head office affiliate Lonmin Mining Services (LMS) in 2008. The audited financial statements of WPL showed however that the transfers to Bermuda continued right up until 2012. If the R245 million sent to Bermuda were divided by 4000, the number of RDO workers, this alone covered a wage increase of about 100 percent, or R5000 per month. Another R200 million per year was sent from WPL to LMS in ‘management fees’. This helped to pay huge salaries to forty managers. From 20102012 , they also received share based payments bonuses, costing WPL R100 million per year. That alone corresponded to an additional R2000 wage increase per RDO worker. On top of this, a net payment of R758 million was made from WPL to London in 2006. Lonmin Plc sold a South African mine to its own subsidiary WPL. This selling of a mine to oneself, as it were, was advantageous because of the double tax agreement with South Africa. Lonmin does not pay taxes in the UK, only in South Africa. An unexamined perspective For public sector workers, corporate tax dodging represents a threat not just to their labour conditions and livelihoods but to the essential services they deliver...

Focus: Subsidising the rich: how workers pay the price for corporate tax dodging

For decades wages have stagnated, public services have been squeezed and inequality has risen as workers struggle to understand why the riches of globalisation seem to pass them by. Recent leaks and tax scandals make for great headlines and expose the missing piece of the globalisation riddle – where all the money has gone. But what is often overlooked is that workers are the biggest losers of tax dodging. Those who benefit put great effort into keeping information about tax avoidance and evasion away from the public. They also relentlessly promote the myth that we cannot afford quality public services. For decades, we’ve been told that there simply isn’t enough money available. We’ve seen privatisation, cuts to education, health and public housing, the introduction of user-pays and rising service charges. And we’ve seen wage freezes for essential frontline staff such as nurses. When globalisation brings phenomenal riches but workers are repeatedly told there is no money for wage rises or public services they look for answers. Migrants, refugees, unemployed and welfare recipients become easy targets. If we cannot provide bold alternatives to address inequality, ensure universal access to public services and require the wealthy to make a fair contribution, we risk ceding ground to the false promises and fear mongering of the far-right. Ending corporate tax dodging must be a central pillar to our alternative programme. How big is the problem? Estimates put the total value of assets held offshore, beyond the reach of effective taxation, at $32 trillion USD, equal to about a third of total global assets. Of this, it is estimated that about $11 trillion is from the world’s least developed economies. Jeffrey Sachs calculated the cost of ending global poverty would be a fraction of this amount: about $3.5 trillion. The biggest losses are due to corporate tax avoidance. The Tax Justice Network estimates that multinational corporate tax evasion in the USA costs $188 billion USD annually. For Pakistan it’s $10 billion or 30 percent of total tax revenue and Chad lose $1 billion a year, equivalent to 37 percent of total tax collection. These are only estimates – the real amount remains unknown because of the secrecy which shrouds the offshore system. The inability to get accurate information about the size, actors and exact methods of tax dodging is critical in undermining the fight against it. Tax dodging hurts workers Make no mistake, tax avoidance supresses wages. At the heart of these avoidance schemes is a simple concept. Companies shift their profits to low tax and high secrecy countries and away from the countries where the work is done or the sales are made. This is done to demonstrate to the tax office that there is no profit to be taxed. But it is also handy to show to workers and unions that there are no profits to pay wage rises - and is often used to justify job cuts. If the tax office can’t find the money what chance do workers have? Starving Services hurts workers The Paradise papers and other leaks make clear why our public services are underfunded: far from trickling down, we can see that wealth is flooding offshore. And workers pay the price. Perhaps the clearest example is healthcare. In many countries, the health budget is struggling to keep pace with an aging population and better, but more expensive, medical care. The gradual underfunding of health systems forces a simple but difficult choice. We either find funds for health care or we allow privatisation. The basic flaws of private provision are shockingly simple: user pays creates a barrier to poorer people getting the care they need. As the US experience shows, highly private health systems not only drive crippling inequality but are also highly inefficient. Research by the Institute of Medicine shows the US system wastes nearly one third of every medical dollar spent - almost $750 billion a year1. That is more than the Pentagon budget and more than enough to care for every American who lacks health insurance. Most of the waste comes from unnecessary services ($210 billion), excess administrative costs ($190 billion) and inefficient delivery of care ($130 billion). National comparisons...

Focus: The Marikana Massacre: wages as the blind spot in the tax evasion debate

12 | International Union Rights | 25/1 FOCUS | TAX AND TRADE UNION RIGHTS No doubt, workers across the world were shocked as striking mine workers at the South African town of Marikana were shot to death during their strike for higher wages in 2012 at Lonmin Plc, the third largest platinum mining company in the world. Thirty four workers were massacred by police on 16 August. Ten had already been killed in the days before. Most of them when a police General ordered tear gas and shock grenades against a peaceful march1. Among the ten were also two police officers and a security guard. The Marikana death toll is in fact above 50 today, due to suicides in directly affected families. As for injured and traumatised workers and family members, they can be counted in hundreds. Most of the victims were rock drill operators (RDOs). The RDOs were paid a basic wage of about 5000 South African Rand per month (corresponding to $600 at that time). They demanded a basic wage of 12,500 rand per month ($1500 USD). In September after the massacre close to 200,000 mine workers in all kinds of mines were on strike for R12,500. To workers in South Africa, also outside mining, the ‘R12500’ became a symbol for having a life. In the eyes of established South Africa, however, the mine workers were ignorant of the realities in the mining industry. The workers effectively demanded an increase of the basic wage by 150 percent! This was considered outrageous and completely utopian. ‘Wage evasion’ as one deadly factor In 2014, the power of the Marikana Commission of Inquiry (MCI) gave two researchers from AIDC access to the financial statements of Lonmin’s subsidiaries in South Africa. One question was, if the R12,500 demand was at all ‘affordable’, because Lonmin had refused to negotiate. This was a small part of the Commission’s task to give a background to the catastrophe. The financials of daughter companies are confidential. Only the annual reports of a mother company that sell its shares on the stock market are public. This is the legal situation in South Africa, and in most countries. Still, it is the local subsidiaries that pay taxes to the government and wages to the workers. As a rule, they employ the whole productive workforce. Lonmin Plc is based in Britain. In 2012 it employed some 50 managers. Lonmin’s largest South African subsidiary Western Platinum Ltd (WPL) employed 25,000 of Lonmin’s workers in 2012 (with another 3000 employed by the subsidiary Eastern PL). The confidential financial statements showed that WPL every year had transferred an average R245 million in ‘sales commission’ to a letter box company in Bermuda. But there was no one in Bermuda selling anything. The company receiving these millions had the exact same address as Appleby Services – the law firm at the heart of the Paradise Papers. When this went public, Lonmin argued that the transfers were shifted to its South African head office affiliate Lonmin Mining Services (LMS) in 2008. The audited financial statements of WPL showed however that the transfers to Bermuda continued right up until 2012. If the R245 million sent to Bermuda were divided by 4000, the number of RDO workers, this alone covered a wage increase of about 100 percent, or R5000 per month. Another R200 million per year was sent from WPL to LMS in ‘management fees’. This helped to pay huge salaries to forty managers. From 20102012 , they also received share based payments bonuses, costing WPL R100 million per year. That alone corresponded to an additional R2000 wage increase per RDO worker. On top of this, a net payment of R758 million was made from WPL to London in 2006. Lonmin Plc sold a South African mine to its own subsidiary WPL. This selling of a mine to oneself, as it were, was advantageous because of the double tax agreement with South Africa. Lonmin does not pay taxes in the UK, only in South Africa. An unexamined perspective For public sector workers, corporate tax dodging represents a threat not just to their labour conditions and livelihoods but to the essential services they deliver...

Riding the equality wave: Generalising public support for a more inclusive society

Although debate on social inclusion issues continues to be polarising, with loud voices eschewing or espousing ‘political correctness’ and the need for social change, there are recent indications both in Australia and around the world that citizens are demanding greater equality and opportunities for all. Certainly, the public vote for marriage equality signalled much positivity in Australia in response to the strength of the vote and the total number who participated. Indeed, the need to legislate for wider human rights protections was raised in the subsequent political jostling that preceded the enactment of marriage equality legislation (Gribbin, 2017). That this led to more discussion of whether a Bill of Rights (or similar) was needed for Australians was most unexpected. Furthermore, issues relating to gender equality and equal pay in Australia continue to gain more traction, assisted in part by some recent, well publicised cases (for example, Stuart, 2017). Internationally, the social movement to end sexual abuse and harassment, following the exposure of high profile cases in the entertainment industry, politics, and sport, has become a juggernaut. The leaking of information detailing secretive off-shore, tax avoidance arrangements of the world’s elite and multinational companies, as most recently reflected in the widespread reporting of ‘Paradise papers’ (for example, Garside, 2017) provides further support for the idea that there is growing intolerance of inequalities and power imbalances. To highlight these issues in isolation, however, masks the true complexity and scale of the efforts required to affect real change and the numerous challenges that still need to be addressed, both in Australia and across the world. Notable examples include the failure to recognise the ‘Uluru Statement from the Heart’ to progress recognition of first Australians, and the treatment of refugee and asylum seekers internationally. Despite some evidence indicating there are structural determinants of more inclusive attitudes at the population level, for instance, cognitive ability, social status and education (for example, Perales, 2017; Schoon, Cheng, Gale, Batty, & Deary, 2010), the challenge for researchers and practitioners alike is how do we build on, expand and generalise inclusive behaviours, policy, and practices for the advancement of other social justice issues?

Under the spotlight

In recent weeks, the UK parliament has been beset by accusations about powerful men sexually harassing female MPs, journalists and party activists. Those revelations followed similar claims leveled against big names in Hollywood. Most recently, the leak of financial documents known as the Paradise Papers exposed a network of tax-avoidance schemes used by the world's super-rich and famous. Here, Bloodworth talks about the connection between unethical behavior and power.