Elites In Pandora's Circle And Panama Papers: No Wonder The Rich Are Getting Richer

Illustration (Source: Unsplash)

JAKARTA - The news that two high-ranking Indonesian officials were named in the Pandora Papers "hidden assets" investigation document may not be too surprising. Because in a similar investigation known as the Panama Papers, Indonesian elites have also been recorded. Among the big tycoons this practice is considered a business trick. No wonder the rich are getting richer.

The International Consortium of Investigative Journalists or ICIJ conducted an investigation into the secret deals and hidden assets of some of the world's richest and most powerful people revealed in the dataset. This data set is known as the Pandora Papers.

The investigation involved more than 600 journalists from 150 media outlets in 117 countries. The investigation is based on the leak of confidential data from 14 offshore companies that regulate shell companies in tax havens. They can avoid the obligation to pay taxes. There are 11.9 million files from various offshore companies that have wealthy clients from various backgrounds.

The Pandora Papers expose 35 secret names of world leaders, including the affairs of incumbent presidents, former presidents, prime ministers (PM), and other heads of state. The Pandora Papers also highlight the secret finances of more than 300 other public officials, such as government ministers, judges, mayors and military generals in more than 90 countries.

In addition there are a hundred billionaire names displayed in the leaked data. There are also the names of celebrities, rock stars, and well-known businessmen. Many also use shell companies to hide luxury items, such as property and yachts.

Of the various names mentioned, two Indonesians are familiar, they are Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan and Coordinating Minister for Economic Affairs Airlangga Hartarto.

Luhut is said to be related to a Panamanian company, namely Petrocapital SA. According to Luhut's spokesman, Jodi Mahardi, Petrocapital SA is a company established under the laws of Panama. The company was founded in 2006 by Edgardo E.Dia and Fernando A.Gil.

Menkomarves Luhut Binsar Pandjaitan (Source: Kemenkomarves Documentation)

One of Petrocapital SA's business fields is oil and gas, with a paid-up capital of five million US dollars. Luhut, admitted Jodi, had served in the company.

Meanwhile, Airlangga is said to have established a shell company as an investment vehicle and to manage trust funds and insurance. Airlangga's shell companies include Buckley Development Corporation and Smart Property Holdings Limited.

Both companies are located in the British Virgin Islands, a tax-exempt jurisdiction in the Caribbean. Buckley Development is highlighted in red in the Pandora Papers. The company must complete information on the number and value of assets owned and the purpose for which the company was founded.

Previously, these two companies were also mentioned in the Panama Papers. The document mentions that Airlangga is the beneficiary of Smart Property Holdings Ltd and Burkley Development Corporation, two shell companies located in the British Virgin Islands.

ICIJ estimates the money hidden in offshore companies in tax havens ranges from 5.6 trillion to 32 trillion US dollars. The IMF says that the use of tax havens costs governments around the world up to $600 billion in taxes each year.

"The ability to hide money has a direct impact on your life ... it affects your child's access to education, access to health care and housing," said Lakshmi Kumar of US think tank Global Financial Integrity.

Panama Papers

In 2016 ICIJ also issued the Panama Papers. The Panama Papers revealed 2.6 terabytes of data from 11.5 million documents sourced from a single party, namely the law firm Mossack Fonsesca. The law firm provides asset management services for companies located in Panama.

The Panama Papers cover the secret financial dealings of world political leaders, global scandals, and hidden financial deals by financiers, drug dealers, billionaires, celebrities, sports stars and more.

The Panama Papers document also mentions the names of familiar Indonesians, one of whom is Djoko Tjandra. At that time, Djoko Tjandra was a fugitive from the Attorney General's Office regarding the transfer of debt claims (cessie) at Bank Bali. Several other people known to bear names in the Panama Papers are Sandiaga Uno and Riza Chalid.

However, it seems that the Indonesian people are no longer surprised by this. There have been too many cases of embezzlement and misappropriation of money in this country. Even the people named in the Panama Papers and Pandora Papers were not investigated further. This situation makes people indifferent.

Panama Papers discussion (Freddy Foss, Nordiske Mediedager/Wikimedia Commons)

Tricks to secure assets

To quote the BBC, securing money abroad is quite easy, all you need to do is set up a shell company in one of the countries or jurisdictions with a high level of secrecy. A shell company is a name-only company, with no staff or offices.

To create a shell company, requires money. There are offshore services that are paid to set up and run a shell company. These companies can provide the addresses and names of paid directors, leaving no trace of who ends up behind the business.

Countries such as the Bahamas, Panama and the British Virgin Islands are often chosen as locations for shell companies to establish. This is because these countries are difficult to cooperate with in terms of exchanging data by the tax authorities of the country of origin. That's why these countries are known as tax havens.

Ease, this situation is also used by unscrupulous businessmen to hide their wealth and avoid paying taxes. They can hoard wealth without having to know the country and avoid paying taxes.

Classic practice

According to the independent charitable organization Oxfam, the world is never short of wealth. The global economy has increased almost fivefold over the last 30 years. In 2017, its value reached nearly 78 trillion US dollars.

However, the gap between rich and poor is also widening. The rich always experience a massive increase in wealth, while those who are poor also get poorer. Since 2015, the richest 1 percent of people have more wealth than the rest of the world combined.

Such extreme economic inequality is fueled by rampant tax evasion. While millions of people around the world live in poverty, wealthy individuals and corporations, hiding their wealth in tax havens, continue to evade taxes. This prevents poor countries from providing vital services.

When individuals or multinational corporations store wealth in tax havens, they also avoid paying taxes in the countries in which they do business and where they make money. In doing so, they rob the government of the resources needed to provide vital public services and infrastructure such as schools, hospitals and roads, and tackle poverty and inequality.

Another problem is that tax havens can't or don't want to stop this practice. The IMF said tax havens often defend themselves as "tax neutral" countries that help international finance and investment flow smoothly. In fact, only the private sector is proven to enjoy the benefits. Globally, in addition to tax losses, allowing capital to flow freely across borders carries risks, including the danger of financial instability in emerging market economies.

According to data from Oxfam, multinational corporate tax evasion costs poor countries at least 100 billion US dollars every year. This money is enough to provide education for 124 million children and prevent the deaths of nearly eight million mothers, infants and children every year.

Citing DW, last July the G20 approved a proposal for a tax haven. The proposal sets a minimum global corporate tax rate of 15 percent for large multinationals. The plan would reduce profits for companies like Facebook and Google to take advantage of low taxes such as in Ireland and the Cayman Islands. The proposal also forces companies to pay more taxes where they actually operate.

However, the proposal must pass the US Congress. That is tricky given that some Republican lawmakers say it will make US companies less competitive. In addition, countries with low taxes are also against the plan.

Another drawback of the proposal is that it does not apply to wealthy individuals, especially those from authoritarian countries who can hide wealth abroad with impunity. Not surprisingly, in the future the world economic gap will widen.

Read other information about TAX or read other interesting articles from Ramdan Febrian Arifin.

Other BERNAS