法律、倫理與天堂文件 Law, Ethics and The Paradise Papers

Whilst the releasing this week of the Paradise Papers has lead to much debate on the legal and ethical issues concerning the operation of offshore financial entities, Evan notes little is written or said about the wider context of the relationship between ethics, law, taxation, sovereignty and the social contract. This, he argues, is what many people find so disconcerting: that the industry exposes an internal contradiction within the foundation of what we have come to accept as a modern and just society.

編按: 本週流出的「天堂文件」引發了諸多爭論,當中主要圍繞離岸金融實體運作的法律和倫理問題。 Evan 指出,關於倫理、法律、稅收、主權和社會契約之間更廣泛的關係,並未有太多的討論。他認為,這些關係是許多人覺得如此令人不安:這個行業暴露出的矛盾,卻是遠超我們所接受的現代公正社會基礎之外。


The publication this week of leaked confidential papers from Appleby, a Bermuda based legal and financial service company specialising in offshore incorporation, has again raised the issue of supposed tax havens and of the legal practice of tax avoidance.

The Paradise Papers, as they have come to be known, shed light on the operation of what is today being derogatively termed Britain’s Offshore Empire — a collection of British overseas territories and crown dependencies, including among others Bermuda, the British Virgin Islands, Jersey and Guernsey, with a regulatory jurisdiction that has encouraged the  clustering of bespoke legal and financial services for overseas capital.

This should not come as a surprise. In fact, as early as the 1950s the great documenter of post-colonial transition, VS Naipaul, had already highlighted what he saw as Britain’s policy to rapidly develop economies in Britain’s military-strategic colonies that had no local economy of their own by providing legal and tax incentives as a means to lure foreign capital. It was hoped in time these nascent financial centres would evolve the skills and infrastructure that allowed more mature financial service based economies to develop, thereby allowing for a normalisation of tax rates. Naipaul warned of the foolishness this policy, and that ultimately a sustainable economy cannot survive by being an outlier in the global system. He warned that problems lay ahead.

When last May the Panama Papers were released, a similar cachet of leaked papers but from the offices of the law firm Mossack Fonseca, I asked a friend working as a lawyer in the industry for his views. Being someone who could not claim knowledge of the intricacies of international tax regulation nor of experience servicing its clientele, this seemed the right first step to take before forming an opinion.  It was the first point he made that was most poignant, and which I now believe cut to the core of the issue:

“The leak only reconfirms what we already know, but what many people wish they did not.”

Then as now what I believe most people find so disconcerting is not what has been exposed, but a sense that central to a system we actually value and cannot practically dismantle is an inherent grey area of contradiction between the law and ethics; and, which I have yet heard discussed, that between our sense of fairness in a global context and two principles that underpin what we have come to accept as the foundations of a modern and just society — the social contract and national sovereignty.

A year and a half on, not one person has been prosecuted in association with the leaked Panama Papers. From what I have so far read of the Paradise Papers, I do not see any actual evidence that anyone has broken the law. This no doubts will be enough for lawyers working in the industry to justify their sense of professional ethics. However, and this is the crux, one is still left feeling that some of the papers nevertheless reflect upon what is in principle unethical and what ought to be a legal injustice.

There is clearly a disconnect between the law and what the common man would consider to be just, and around this inefficiency has grown a perfectly legitimate industry that feels to the majority provide services to those with ethically questionable motivation. It is also morally difficult as it runs contrary to what is objectively fair — that as a member of society one is obliged to pay what is due.

The argument that only the law can define ethics, as some have advanced, fails to understand a fundamental: that ethics is foundational to man — indeed, it is ethics that defines humanity, or more specifically our higher consciousness, from the baser existence of lower animals. Ethics exist independent of the law. The law, however, does not. Law is derived from ethics.

In the case of the provision of offshore financial services, motivations must be a consideration as ethics is an issue. What motivates those into setting up offshore vehicles?

Mark Pragnell of Capital Economics has argued in a recent op-ed piece that has been much circulated within industry circles that crown dependencies and overseas territories offer “tax neutrality” that is attractive as “stable, secure and neutral jurisdiction for cross-border economic activity”. But this argument as two obvious shortcomings: firstly, there are many other equally stable, secure and, in the context of a particular set of cross border activity, equally neutral jurisdiction that may be used for such incorporation, and that are perceived as more just and robust tax systems; and secondly, this does not explain the vast majority of services provided by those in the offshore industry to clients who are seeking to obfuscate ownership through complex financial set-ups that in themselves do not legitimately serve any other purpose.

This is not to say that there are no morally legitimate needs for such services. However, given how it is viewed, perhaps unfairly though certainly not without justification given the lack of public transparency, it would simply be ill advised to risk so much opprobrium for such little actual benefit. This is a simple calculation that those who advised the Duchy of Lancaster, that manages the Queen’s estate, now no doubt regret they did not before consider.

Then there is the issue of professional responsibility. Lawyers must of course advise clients on the word of the law. But the truth is we expect, and lawyers are more than happy to give, more than merely what is law. We expect legal advice, which is to advise not only on the law, but on its most favourable application.

So here again motivation must be considered, and a human judgement called. Whilst a proposition does not and should never be understood to constitute a criminal offence, the line between what is lawful and what we personally consider to be ethical is easily tested by a common thought experiment: by making the situation personal. In this way, for example, former British Defence Secretary Michael Fallon’s wayward hand, though not illegal, nor even considered worthy of a complaint by the journalist in question, is nevertheless inappropriate should we consider what likely answer Sir Michael would give to the following question: would he be comfortable if it was his daughter who had endured the experience?

Finally, we are disconcerted by the reality of the situation. Though we may not be immediately apparent, the very nature of the way we understand and have organised the modern world is by its nature based on an acceptance of variation: that different people and communities have different needs, and that nations exist on the authority of its people and to administered to these needs. This inevitable means that core to each nations is its right to set its own tax rate, and to tax its people to a level that they implicitly agree. The issue of tax has to be understood in the wider context of both state sovereignty and the social contract.

For there to be nothing that one might term a “tax haven” — a term that is itself misleading, as they are not tax-free nor disconnected from other tax jurisdictions — there would inevitably need to be no variation in tax systems. Indeed, any variation inevitably presents the potential for one to be considered to offering an advantage. Yet worldwide standardisation would, one presumes, require every state to relinquish its right to tax its own people, which is not only at present inconceivable politically but would also fundamentally undermine sovereignty and the social contract — the basis of what we consider to be a modern a just society. Thus this one issue has the potential to unravel far more than we are prepared, and inwardly I believe many of us know it. It is “what we already know, but what many people wish they did not.”

What has been personally disappointing has been the media coverage, not for sides taken but for the sides the media has chosen to show. Represented are the viewpoints of justice activists and practising tax lawyers, and of politicians — all have a stake in presenting a certain answer. However those that may be able to offer a genuinely more neutral and knowledgable answer, and one that seeks neither to accuse nor defend but to present a more comprehensive understanding, are noticeable by their absence. For a society that places such esteem on the legal profession, what of legal philosophy? Today we may have created a vast library of knowledge, but often it seems we have lost the skill to ask the questions that most need to be asked.

Returning to my friend the tax lawyer whose line when starting our conversation I found most insightful, though perhaps not quite in the way he imagined. Whilst there was much in our conversation that we did not agree upon, I do find myself drawing the same conclusion — that the most pertinent question we should be asking is not what do we do about supposed tax havens, but how do we address the law in our own jurisdiction to better represent what society considers to be just. In other words, how might we reform our own tax systems to more effectively accommodate an industry that’s existence is symptomatic of other fundamentals. It is this internal contradiction within what we have come to accept as a modern and just society that we truly find so disconcerting.

(The original article is posted in The Stand News)

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