6. Regulatory Mayhem in Offshore Finance: What the Panama Papers Reveal

This chapter discusses the worrying increase in offshore financial flows resulting in tax evasion in the global economy. We demonstrate that offshore financial tax evasion is nothing new; it has been tolerated for decades, and its increasing scope portends a role in future crashes. The Panama and Paradise Papers reveal how individuals, multinational firms, terrorists, and criminals increasingly use offshore financial centres to hide wealth and evade taxes. While the various government and international entities have devoted considerable attention to the issue, reform efforts fail to address the fundamental drivers of offshore finance: a lack of transparency, information sharing, and tax competition. The failure of governments to work together has important implications, including creating a disproportionate burden on individual taxpayers, exacerbating inequality, raising questions of fairness, constraints on fiscal policy, and increasing resort to debt by governments. Our suggestions for reform focus on ways towards consensus, transparency, coordination, and enforcement in global financial regulation around taxation.