Panama Leaks: a climatic tremor

The Panama papers, the mega international tax evasion scandal, has caught public consciousness, taking the world by storm and forcing prime ministers to resign from their posts. But how it further aggravated the global climate crisis is alarming. Interestingly, what the Panama tax affair represents is an old phenomenon. Analogously, the ancient Romans had also dealt with a similar situation when the Queen of East Anglia revolted against corrupt Roman tax collectors in the British Isles in 60 AD. That revolt was crushed by Emperor Nero and resulted in the appointment of new administrators for the British Isles. Fast-forward to the 21st century and we see a similar pattern of tax-related corruption and the expected remedy: replacement of officials.

Now, dynamics of scandals like these have resonating effects on various parts of the globalised world; and one such area is climate change. The vested interests of the people involved in so-called ‘legalised’ channelling of millions of dollars in safe tax havens have direct ramifications on international efforts to systematically curb global warming causes. Greenhouse emissions — especially carbon dioxide — have been the main cause of increase in average world temperatures, and the recent Panama leaks saga told us that huge amounts of money, which have escaped tax nets in their home countries, are consistently being invested in carbon-producing plants without the filtration of environmentally safe standards set by the international community. Hence the never-ending circle of negative, capitalist-driven motives continue to be fuelled by hidden tax money in the form of indirect investments.

The clear example of this are thousands of names of people and companies in the Panama papers, who have set up offshore companies to avoid environmental fines and taxes, and ensure wealth secrecy. For instance, the US tax policy’s ‘deferral’ clause allows multinational firms with offshore subsidiaries to avoid tax indefinitely. The outcomes are simple: firstly, it provides a catalyst for non-ecosystem friendly investments, as firms are not worried about fines or lawsuits; and secondly, international climate change protocols’ objective to build a greener planet dilutes in the mist of financial window-dressing by legal experts. Basically, it is the causality of tax evasion and offshore companies’ special privileges with climate change repercussions that have become so worrying for the world. Jessica Tuchman Mathews, a former member of National Security Council, has shed light on the security threat to global peace due to global warming and lack of effective mechanisms to mitigate deadly droughts, precarious food scarcity, ominous demographic movements and rapid deforestation. All these can lead to conflict and have had catastrophic consequences. The example of recent floods in Pakistan, India and Bangladesh uncover the weak planning and governance of states and highlight the dearth of tax funds to respond to the crisis.

These countries need effective climate-related policies in the region and they should strategise robust financial remedies required for pacifying climate change impact. But sadly, the Panama leaks exposed an ugly truth. Tax havens promote tax evasion and shroud a layer of toxic investments which, although increase economic activity in developing economies, do so at the expense of international climate standards and safeguards. Tax havens such as Cayman Islands, Switzerland, Bahamas, Panama and many more have, over the decades, absorbed capital from both developed and developing nations. But the recent focus on aid-receiving developing nations has rejuvenated the tacit role of organisations like the IMF and World Bank to help these nations improve their tax-to-GDP ratio, which in turn strengthens their economies, making them more able to handle the adverse effects of climate change. But the World Bank’s failure to regulate transcontinental transactions under the shadow of secret tax savings, is cause for concern.

What is worrying is the report by Friends of Earth International, which explains the World Bank’s contradictory actions. On the one hand it is funding coal-based projects despite an option for eco-friendly projects in India and South Africa and on the other, advocating climate conservation initiatives. The lack of a system of checks-and-balances in the actions of the alleged torchbearers of global transparency, notably the World Bank and IMF, raises questions about the international community’s commitment to tackling the climate question.

At the Paris Conference 2015 — lauded as the epitome of a consensus between the East and West — 196 countries, including China and the US, agreed on restricting global average increase in temperature to 2°C. However, the non-binding nature of all previous protocols including this one, leaves little room for hope as more untraceable funds continue to be injected in world economies. The result is acceleration in hidden tax-funded projects and threat to global peace and security.

Offshore companies are playing an important role in undoing the efforts being made for a sustainable environment for our future generations. Climate change activists, who protested outside BNP Paribas’ Paris headquarters in December 2015, blamed the bank for its anti-climate tax investments and highlighted the loopholes in the complex financial banking systems. Furthermore, another source of concern for the international community is the unchecked activities on land and in water and penalty shields in the form of offshore subsidiaries. For instance, the recent survey forecasting the amount of plastic bags on ocean beds by the end of 2050 explains this precarious dilemma of the modern age and carbon-intensive tax investments. In addition, the air polluted by industrialisation tells the story of the human quest for maximum return on their investments despite standards set by climate protocols.

On the other hand, even if tax is collected by the state and offshore remittances returned, a Machiavellian mindset exists amongst leaders and policymakers. They hold a different opinion regarding the use of taxes and hedging against climate issues and their repercussions seem a secondary concern. They do realise that utilising tax funds to mitigate and respond to climate change and promoting environment-friendly policies are imminent but not more important than national interests — such as the question of ‘security’ — which dominate countries’ strategic thinking and their budgets.

The spending of the US, China, India and others on their defence budgets using public tax money indirectly fuels the millions of factories building modern weapons. This is not a secret and exacerbating global atmospheric conditions has become the norm. For the sake of the human civilisation, we must understand the parity between negative impacts of investments on the world economic apparatus and the side-effects of economic industrialisation on our daily lives. Aristotle’s advice to humans on consuming only the basics and avoiding excessive consumption confers the ideas that a virtuous life could be lived if we dispel our greed for wealth and power.

Published in The Express Tribune, July 6^th, 2016.

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