Washington: The world’s leading economies on Friday embraced a new crackdown on tax havens and the use of shell companies to hide money, as the Panama Papers scandal claimed another victim.
A draft communique from the G20 finance ministers meeting in Washington endorsed a plan that would rip away the shield of secrecy for companies and individuals stocking assets offshore behind anonymous companies, a dramatic move that could put a deep dent in tax evasion, money laundering and illicit finance.
Making the beneficial owners of companies, trusts and foundations transparent “is vital to protect the integrity of the international financial system,” the draft G20 communique said.
The move came as Spain’s industry minister Jose Manuel Soria resigned over allegations he had links to offshore companies.
Files from the leaked document trove of Panama law firm Mossack Fonseca showed Soria was an administrator of an offshore firm in 1992. He was just the latest in a number of powerful officials, including the leaders of Russia, Iceland, Britain and Argentina, linked by the Panama Papers to offshore tax havens.
Soria stepped down admitting “mistakes” in explaining his alleged offshore interests and “the obvious harm that this situation is doing to the Spanish government,” which is one of the five European powers behind the new proposal to end anonymity for the beneficial owners of shell companies.
– Cutting into secrecy –
On Thursday, in the strongest reaction yet to the leaked Panama Papers, Britain, France, Germany, Italy and Spain proposed a blacklist of havens like Panama if they failed to share corporate registry data.
And they proposed setting up databases of the beneficiaries of shell companies for the use of tax and other authorities around the world.
In a joint statement during a meeting of the World Bank and International Monetary Fund in Washington, finance ministers of the five said: “The recent extensive leaks from Panama show the critical importance of the fight against tax evasion, aggressive tax planning and money laundering.”
“Today we deal another hammer blow against those who hide their illegal tax evasion in the dark corners of the financial system,” British Finance Minister George Osborne said in a statement.
Their proposal was to be weighed by the ministers of the entire G20 Friday, with expectations they will embrace it, even while some, including the United States, allow the creation of anonymous shell companies, trusts and foundations as part of normal business.
– Panama to cooperate –
World Bank President Jim Yong Kim said the illicit financial activities enabled by tax havens undermined the fight against poverty.
“When taxes are evaded, when state assets are taken and put into these havens, all of these things can have a tremendous negative effect on our mission to end poverty and boost prosperity,” he said.
The Mossack Fonseca leak placed Panama in the spotlight as one of the leading havens that have not joined an agreement on sharing information on bank accounts and other assets.
Under pressure, Panama said Thursday it was ready to begin working together with the “Common Reporting Standard” (CRS) system on sharing information about assets and accounts.
“Panama’s path to financial transparency is irreversible,” Vice President Isabel de Saint Malo de Alvarado said in a statement.
German Finance Minister Wolfgang Schaeuble applauded the statement.
“This shows that our approach is promising, and we’ll continue to promote it with vigor,” he said.
He said the new proposals will first take root in Europe. “Rapidly all Europeans will join in, and then we’ll soon exert pressure (to join) also on a global scale,” he said.
– Warnings over slow growth –
Meanwhile the G20 was under pressure to step up measures for growth amid warnings from the International Monetary Fund that the global economy is at the risk of stalling. Both the IMF and World Bank say the demand for financial support from struggling governments has risen to levels normally seen during crises.
“In the global economy, there are not many bright spots,” World Bank President Kim said. “The weakening global economy threatens our progress toward ending extreme poverty by 2030.”
“We are on alert, not alarm,” IMF chief Christine Lagarde said.
“The current policy responses that we are seeing need to go faster and need to go deeper.”