SMUG MONEY: Panama papers scandal the biggest example yet of doublethink?

Written by Rebecca O'Connor on 4th April 2016

At the weekend, the good money girls wondered whether the greatest hypocrisy of the modern age is what we do with our money. You know, saving with bad banks, investing in tobacco stocks because the dividend is good, that kind of thing.

Then the Panama Papers expose happened, in which someone close to the law firm Mossack Fonseca leaked details of firms and individuals using offshore accounts. The firm has no choice but to acknowledge its involvement in possibly the biggest global financial scandal ever uncovered, while simultaneously washing its hands of wrongdoing. And of course, this doublethink is not surprising.

Lots has been and will be written about this over the coming days, so we will just focus on this: how is it possible that a law firm is subject to an expose of an activity, in which it can do nothing other than admit an interest, but then denies culpability? It’s more than a blindspot. It’s also more than cognitive dissonance. And it has arisen perfectly understandably, because a lot of tax evasion is legal. The problem is that it isn’t moral. So you have the world’s rules telling you one thing, and your own heart telling you another.

Having lived off the legality of tax evasion handsomely for decades, an increasing number of firms and individuals find that they are no longer able to accept the legality as an excuse, even to themselves, and even though they are making money from it.

Mossack Fonseca is not alone. Panama is not the only country. There are thousands of law firms and accountancy practices perfectly legally moving money offshore for the purposes of what is benignly referred to as “minimising tax”. What is interesting is how uncomfortable many of them seem to be feeling lately about this. A collective conscience is developing. But it is causing a bit of an internal conflict that not surprisingly, some are unable to withstand.

“It’s completely legal” an accountant with a heart and a blush muttered in conversation to me the other day. “It’s a private matter” a spokesman for David Cameron said of his late father’s tax affairs. Legal, yes. Private, maybe it shouldn’t be. But we all know how uncomfortable it makes us feel that in a world of huge inequality, the rich don’t pay taxes and the poor do.

As the immorality of the legal but rotten system continues to weigh increasingly on those who have, perfectly legitimately but wrongly facilitated this tax evasion on a grand scale, there may be more such leaks. But what will we do with this information? Will international tax laws be changed? If even those with vested interests in maintaining international tax treaties they way they are currently structured want to make things fairer, then the law has to be changed, doesn’t it?

While President Putin and others in power allegedly have more to lose than anyone else has to gain from legal changes, this seems, unfortunately, unlikely. Which means we may face a situation where legal and financial professionals may instead have to be governed by other guiding principles: their own internal moral compasses.