Some Initial Thoughts on the Paradise Papers Leak

Shu-Yi Oei

Another data leak broke on Sunday, November 5, while I was on a plane home from Bergen, Norway. Coincidentally, Diane Ring and I were in Bergen presenting our Leak-Driven Law paper at a tax conference organized by Max Planck Institute for Tax Law and Public Finance, Norwegian Centre for Taxation, and Notre Dame University.

This new “Paradise Papers” leak involves a set of 13.4 million records from 1950 to 2016.

From the ICIJ’s website:

“The new files come from two offshore services firms as well as from 19 corporate registries maintained by governments in jurisdictions that serve as waystations in the global shadow economy. The leaks were obtained by German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and a network of more than 380 journalists in 67 countries.”

The two offshore services firms in question are the offshore law firm Appleby and Asiaciti Trust, an offshore specialist headquartered in Singapore. Over 7 million of the records came from Appleby and affiliates.

Diane and I argued in Leak-Driven Law that (1) the high-salience and shocking nature of tax and other leaks and (2) the interventions of the press and other actors in processing, framing, and generating publicity about these leaks are important features that can affect how legal responses and reactions occur in the aftermath of a leak. We’ll be keeping track of how events unfold in the aftermath of this latest leak and how it fits or doesn’t fit with the observations in our paper:

Some initial notes and reactions:

This was at Least in Part a Cyber Hack.

Most of the news coverage I’m seeing is focused on the content on the leak, but it’s worth noting that at least with respect to Appleby, this new leak was in part a result of a cyberattack on Appleby that happened last year. I haven’t seen anything to suggest that this was a data theft by an insider (e.g., employee) turned whistleblower. In its response to the leak, Appleby defended itself and noted the challenges of cyber-crime for individuals and businesses.

The Appleby Hack Occurred in 2016.

The public data release only happened on November 5, 2017. This means that someone (the hacker(s) or the journalists) has had the data for at least 10 months before releasing it to the public.

This is in line with some previous leaks, where ICIJ and other media partners collaborated to analyze, process, and frame the leaked data before finally releasing partial information on the ICIJ website.

I also came across this curious nugget from qz.com, about Reddit: “Someone on Reddit hinted at the Paradise Papers 16 days before they were released.” Just another glimpse at the world of journalism and journalists’ roles in the processing and release of these types of data.

It was Never Just about Tax…

As Diane and I have argued, in doing this type of reporting, the press and other actors have not simply been focused on tax compliance but also on other harms of offshore secrecy, including how secrecy facilitates drug trafficking, money laundering, financial crime, corruption, human rights violations, and deepening poverty and inequality. These non-tax concerns are obvious in the ICIJ’s reporting but also in the reporting and responses of other organizations such as Tax Justice Network and Oxfam.

(Of course, there are important tax dimensions as well–as can be seen in news reports about the offshore tax structuring of Apple and other companies.)

…and Now it’s Really not Just about Tax. It’s Also about Politics, Including U.S. Politics.

Revealed in this latest leak are the financial affairs of the U.S. Commerce Secretary Wilbur Ross, the Queen, and a host of prominent politicians from a number of countries and other global elites.

With respect to Ross:

From the New York Times: “After becoming [U.S.] commerce secretary, Wilbur L. Ross Jr. retained investments in a shipping firm he once controlled that has significant business ties to a Russian oligarch subject to American sanctions and President Vladimir V. Putin’s son-in-law, according to newly disclosed documents.”

From Reuters: “U.S. Commerce Secretary Wilbur Ross said on Monday he had done nothing wrong and did properly disclose his investments in a shipping firm that has significant business ties to Russian President Vladimir Putin’s inner circle.”

From The Guardian: “Wilbur Ross denied on Monday that he had done anything wrong after revelations from the Paradise Papers that he has significant investments in a shipping company that does business with Vladmir Putin’s son-in-law and his sanctioned inner circle.”

Other headlines of political interest:

From The Guardian: “The chief fundraiser and senior adviser to the Canadian prime minister, Justin Trudeau, who played a critical role in the rise to power of the charismatic politician, was involved in the movement of millions of dollars to offshore havens, the Paradise Papers reveal.”

From CNN Money: “Leaked documents published on Sunday suggest that the private estate of Queen Elizabeth II invested in offshore funds.”

I’m curious to see whether the high level of political interest in this leak makes it harder to sort between conduct that is outright illegal, conduct that is legal but perhaps regarded as immoral, conduct that simply “looks bad,” and legitimate conduct that just happens to have an offshore component. A high level of perceived outrage may make it easier to lump in legal tax minimization activities with illegal offshore evasion and be outraged at all of it. As Diane and I argued in Leak-Driven Law, we think it’s important to responsibly parse through these nuances and differences in reacting to these leaks and making policy.

This One is Interesting from the U.S. Point of View.

One of the questions that was asked about the Panama Papers leak was why there was relatively little impact in the United States. There are some early indications that the Paradise Papers leak may have a little more resonance for the U.S.:

The ICIJ reports that “[a]t least 31,000 of the individual and corporate clients included in Appleby’s records are U.S. citizens or have U.S. addresses, more than from any other country.”

The New York Times is reporting on how Apple found a new tax haven in which to park its profits (Jersey) after a U.S. Senate subcommittee crackdown: “The previously undisclosed story of Apple’s search for a new island tax haven and its use of Jersey is among the revelations emerging from a cache of secret corporate records from Appleby, a Bermuda-based law firm that caters to businesses and the wealthy elite.”

Bloomberg reports that Democrats and others have called for a slowdown in consideration of the tax reform bill in light of the Paradise Papers revelations: “House Republicans should slow down their consideration of a tax-overhaul bill after investigative reports Sunday alleged offshore tax-avoidance by U.S. multinational companies including Apple Inc. and Nike Inc., congressional Democrats and tax-advocacy groups said.”

Have Our Attitudes Towards Leaks Shifted at All?

One question Diane and I posed in Leak-Driven Law is this: Will repeated leaks and hacks lead to some sort of “new normal” in our perceptions, reactions to, and processing of these types of leaks? And if so, will these impact of these types of leaks start to shift?

For example, many previous tax leaks predated the 2016 wave of cybersecurity threats and hacks. Since then (and after the Panama Papers release in April 2016) we’ve seen a number of high profile hacks and cybersecurity incidents (DNC, Yahoo, NSA, etc.). Many are now familiar with the real effects that strategically timed leaks and hacks and responses to them can have on events of some importance. And at this point—thanks, Equifax!—many Americans have also experienced first hand the panic over the potential consequences of having one’s financial and other data stolen and laid bare to the public. Anecdotally, there may be a growing sense that we are all vulnerable to these types of breaches.

These post-Panama Papers developments make me wonder whether the public may become more suspicious of data leaks, more sophisticated consumers, or perhaps more sympathetic to its victims. On the other hand, other factors (for example, possible dissatisfaction with politicians and suspicion towards elites) may offset these trends.

We’re just in the first days of the international press reaction to this leak and I’m sure there will be much more analysis to come. I will update accordingly.