This episode explores what the Pandora Papers reveal about wealth and the governance of a global financial system. What are the common strategies adopted by wealthy companies, individuals, and organizations to evade tax accountability? How have democracies across the world responded to the revelations of the Pandora Papers? And what models are available for publicly-oriented investigative journalism that can hold power accountable?
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BIBLIOGRAPHY
The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, 2014).
GLOSSARY
What is ICIJ?
(00:0:45 or p.1 in the transcript)
The International Consortium of Investigative Journalists (ICIJ), is a U.S.-based nonprofit organization - which is both a small, resourceful newsroom with our own reporting team, as well as a global network of reporters and media organizations who work together to investigate the most important stories in the world. ICIJ encompasses 280 of the best investigative reporters from more than 100 countries and territories and is partner with more than 100 media organizations from the world’s most renowned outlets, including the BBC, the New York Times, the Guardian to small regional nonprofit investigative centers to collaborate on groundbreaking investigations that expose the truth and hold the powerful accountable, aligning the highest professional standards, fairness and accuracy. Source.
What are the Pandora Papers?
(00:0:50 or p.1 in the transcript)
The Pandora Papers is a collection of millions of leaked documents published by ICIJ in 2021 and the biggest journalism partnership in history, which have uncovered financial secrets of 35 current and former world leaders, more than 330 politicians and public officials in 91 countries and territories.
The investigation unmasks the covert owners of offshore companies, incognito bank accounts, private jets, yachts, mansions, even artworks– providing more information than what’s usually available to law enforcement agencies and cash-strapped governments and reveal the inner workings of a shadow economy that benefits the wealthy and well-connected at the expense of everyone else. Source.
What is the Enablers Act ?
(00:14:04 or p.3 in the transcript)
The Enablers Act (Establishing New Authorities for Business Laundering and Enabling Risks to Security (Enablers) Act) was a bipartisan bill proposed in the wake of the Pandora Papers. Legislation would require the treasury department to create new due-diligence rules for American middlemen who facilitate the flow of foreign assets into the United States. The act would update the 51-year-old Bank Secrecy Act, which requires banks to investigate their clients and the source of their wealth but had excluded trust companies, accountants, lawyers and other professionals. Source
What is the Heritage Foundation?
(00:19:03 or p.4 in the transcript)
Heritage Foundation, U.S. conservative public policy research organization, or think tank based in Washington, D.C. Its mission is “to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.” Founded in 1973 by two Congressional aides, Edwin Feulner and Paul Weyrich, it provides research on pending political issues to Congress, policymakers, news media, and academic communities. The foundation flourished during the presidency of Ronald Reagan (1981–89), who used its handbook Mandate for Leadership: Principles to Limit Government, Expand Freedom, and Strengthen America to provide guidance for his administration. Source.
What is the Brookings Institution?
(00:19:05 or p.4 in the transcript)
Brookings Institution, not-for-profit research organization based in Washington, D.C. founded in 1916 as the Institute for Government Research by the merchant, manufacturer, and philanthropist Robert S. Brookings and other reformers. In 1927 it merged with two other institutions established by Brookings, the Institute of Economics (1922) and the Robert S. Brookings Graduate School of Economics and Government (1924), to form the Brookings Institution. Devoted to public service through research and education in the social sciences, particularly in economics, government and foreign policy is one of the most influential think tanks in the US. Source.
SR: Welcome to "Democracy in Question?" the podcast series that explores the challenges democracies are facing around the world today. I'm Shalini Randeria, Rector and President of the Central European University in Vienna, and Senior Fellow at the Albert Hirschman Centre on Democracy at the Graduate Institute in Geneva.
In this episode, I'm in conversation with Dean Starkman. Dean is a fellow at the Central European University Center for Media, Data and Society, and a visiting lecturer at the School of Public Policy at the Central European University. He's senior editor at the International Consortium of Investigative Journalists, ICIG, about which we're going to be discussing today. That’s the consortium which has recently published the highly explosive Pandora Papers. Dean is a journalist, a media critic and a scholar and has won many awards for his writings on finance media in an age of digital disruption. He's the author of the much-acclaimed book, "The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism," written in 2014.
In this episode, we'll hear from Dean about the Pandora Papers, which is a global collaborative project between major media outlets such as "The Guardian," "BBC Panorama," "Le Monde," and "The Washington Post," revealing the large-scale corruption involved in the offshore financial system that helps the rich and the powerful evade all taxes. The Pandora Papers is described to be the largest ever data leak of its kind with 11.9 million files from companies hired to set up offshore businesses becoming available for more than 600 journalists from across the world to sift through.
What are the common strategies adopted by wealthy companies, individuals, and organizations to evade tax accountability? How have democracies across the world responded to the revelations of the Pandora Papers? And finally, what kinds of models are available to us today for publicly-oriented and investigative journalism that can hold power accountable? In my conversation with Dean, I explore the answers to some of these questions. It's wonderful to have you with me here today, Dean. Welcome to the podcast.
DS: So good to be with you. Thanks for having me.
SR: So, let me begin with a brief introduction to Pandora Papers with you for those of our audience who have not followed it in enough detail. Many may have read reports based on the Pandora Papers in various news outlets in their countries, and the revelations they contain about the astonishing scale of the global offshore financial system based in destinations like Panama, Dubai, Monaco, the Cayman Islands, but also Switzerland.
But to those not familiar with it, can I ask you to describe the significance of this hugely challenging journalistic endeavor of which you've been a part? And how is it different from previous projects which were based on data leaks? And probably most importantly, and we'll come to that in a second question, what do the Pandora Papers reveal about global wealth and the fairness of a global financial system to govern it?
DS: The Pandora Papers is the largest journalism collaboration in history, period, full stop. It is based on a leak of 11.9 million documents, the most of its kind, bigger than the Panama Papers or anything else like it, from 14 of these so-called offshore service providers. This is the firm that, if you're wealthy and powerful, you go to to set up an anonymous shell company. They will base that company, register it in some jurisdiction where the taxes are low and the authorities do not force people to put their names on the paperwork, and not require to disclose it to outside authorities in order to set up a bank account in a place like Estonia or Cyprus.
And you are now in business and you're able to move your financial self to a low-tax secrecy jurisdiction and move money around the world, courtesy of the U.S. banking system. It's a bespoke system for wealthy individuals, elites, and multinational corporations, both to do two things: simply avoid taxes in the place where they're actually earning their money, the place where the transactions are actually occurring, and two, to hide wealth from courts, from prosecutors, from all legitimate authorities, and essentially evade the rule of law.
So, this project was so large, it involved so many documents and so many countries that we were able to bring in an enormous number of partners. ICIJ, the organization I work for, is basically the hub of a giant wheel. And eventually we were able to bring in 150 media organizations around the world, and more than 600 journalists. Each one explored the stories in their country. And we all published all at once, in one big bang on October 3rd, and I think that's why it landed with such force and such impact.
SR: So, one of the things that the Pandora Papers reveal is not just the scale and the scope, the ubiquity of the shadowy world of offshore finance economy, but also the significance of global inequality that is rising. And if we look at the report produced by the World Inequality Lab, for example, the most recent one on the topic, it shows that the current levels of global inequality are as high as at the peak of Western imperialism in the early 20th century, with the richest 10% of the global population currently taking 52% of global income. What the report then shows is that countries like the U.S., Russia, and even India experienced spectacular increases in inequality in the last couple of decades, not the least during the last almost two years of the pandemic.
The Pandora Papers then are able to show us the profiles of those who are the major beneficiaries of this income and wealth inequality. Could you say something about what are the kinds of profiles that emerge from this astonishing level of wealth? And what are the common methods, as you have learned, which are being adopted for these kinds of operations to evade all tax accountability?
DS: When you mention profiles, you talk about individuals, people?
SR: And corporations.
DS: Yes. Absolutely. In the case of Pandora Papers, in fact, it was actually the political figures that predominated in this particular set of leaked documents. In a previous project we did called Paradise Papers, it was actually the Apples, the Nikes, and the Googles of the world. But in this case, the profiles are really what's remarkable about this. It's first the sheer number of important political and financial, and businesspeople, and celebrities in the documents.
We had 335 senior public officials, King of Jordan, the Prime Minister of the Czech Republic, the President of Kenya, three sitting presidents in Latin America, a dozen former presidents in Latin America. I mean, it just shows how an entire class of people has basically drifted away from the rule of law in the countries where they live and now are taking part in a separate secret financial system.
And for me, what's kind of particularly troubling or notable is that a lot of the people we found in the documents are the people who you would expect to be helping to end the system. They're public officials who are supposed to be representing the public interests. And if the offshore system is anything, it is a triumph of private interests over the public interest.
And you asked, I think really importantly that what does this do to, or how does it contribute to global wealth inequality? Well, it's a major driver. The minimum figure I've seen, or a very conservative estimate, is $11 trillion in global wealth which is parked in these bank accounts. I don't want people to be misled by the term "offshore." It's a very handy shorthand. But essentially, if you have a dollar account, dollars are always in the U.S. Whether your bank's in Cyprus or Kathmandu, it doesn't matter. Legally, this money is not in the U.S. It's in wherever the corporation that owns the account is registered.
And it works against equality in two ways. One is if money's hidden, then just by the miracle of compound interest, you are free to grow your wealth without the friction that taxes create on that. So it, sort of, greases the wheels of inequality. I mean, one of the main problems is it helps to drain public treasuries that desperately need the money for the kinds of programs that mitigate wealth inequality and help not just sustain societies, but help sustain democracies. As people become increasingly immiserated, they begin to wonder whether democracy is working for them, and I think with good reason.
SR: So, let me ask you about something which has been bothering me about the revelations. I have the feeling, instead of really leading to enormous public outrage, which should have led to commissions of inquiry, which could have led to then later down the road, to structural changes, there has been a rather indifferent reception to the revelations, with nobody really wanting to pick these up in order to bring about real structural changes. Or am I missing something here?
Do you see that there have been political repercussions of the kind that you would have imagined, whether these be in terms of public discussions, media coverage, whether these be in terms of debates in parliament about the need to change domestic tax laws, or international organizations picking these up in order to ensure that global finance is monitored better?
DS: It's a question we often get as journalists. "So, you published this investigation. Where is the grand jury? Where's the handcuffs?" We're actually quite pleased and satisfied with the immediate reaction to this particular project. There have been impeachment proceedings based only on these revelations in Latin America. Latin America is actually in turmoil based on this. In the short term, we're actually pretty happy with it, although, yeah, there were some surprises. We kind of expected a bigger impact in Pakistan, where it wasn't Imran Khan himself, but members of his cabinet. This is the reform era who came in, basically running on a platform of the previous prime minister was caught with offshore assets in the Panama Papers of 2016, swept to office based on this sort of reform, and yet his cabinet is riddled with occupants of offshore companies. So far, we're still seeing how that's going to play out. We do expect it a bit more. Also, in Kenya. Uhuru Kenyatta also strikes a pose as a reformer and champion of transparency. His family has extensive offshore holdings and has for a couple of decades. We're still waiting to see if that has any particular impact.
But on the whole, we're okay with the way the world has responded. This business of offshore, but also I think journalism in general, it's also a long game. It's not just the short game. And the reason we're even talking about the offshore system, that the world is talking about the offshore system, and I'm not bragging here because I wasn't there when this work began, is because ICIJ began doing these projects back in 2013, '14. You know, there was Lux Leak, and Offshore Leaks, and Swiss Leaks. This has been this kind of drum beat. And then the breakthrough came in 2016 with Panama Papers, and that was kind of a global game changer. And I know people say, "Well, it still exists and it's still expanding," and that's all true. But, in fact, many major global reforms have happened.
One is this international exchange of tax information, the Common Reporting Standard, among more than 100 countries that now report where their foreign nationals are. The notable exception, of course, is the U.S., which doesn't report on the foreigners who happen to be in the U.S. But the U.S. plays by its own rules. And then in the wake of the Pandora Papers...again, I don't mean to be cheerleading for our project. You know, it is what it is. But in the immediate aftermath of the Pandora Papers, a bipartisan group in Congress sponsored a very important reform called the ENABLERS Act, which essentially is going to require a whole new class of these professionals.
And these are all of the brand-name firms you've heard about, PricewaterhouseCoopers, the accounting firms, to vet their clients for where their money came from, and to be sure that they're not enabling money laundering or other financial crimes. That's also a major step forward. So I understand people's impatience with the pace of reform, and it has been fitful. But if you look over the sweep of this period, we've gone from 0 to 60 in a fairly short order.
SR: So projects like the Pandora Papers, in which you've been involved, reveal an absolutely central role of good, collaborative, patient journalism in keeping the powerful and wealthy accountable. But, Dean, there's been a crisis, I think, of legitimacy of so-called mainstream or legacy media in recent years more generally. In fact, lack of faith in that mainstream media is an important commented feature of populist politics that have swept democratic polities in different parts of the world more recently. The media environment at both ends of journalism and consumption of news has been polarized in an unprecedented way. And there is a lack of credibility that the media is facing because it seemed to be more and more partisan rather than objective news that it is providing.
In countries like the United States, this has assumed the shape of open hostility between corporate media houses and political leadership. We remember some of the encounters during the Trump presidency well. But the polarization that fake news has created is something larger. And we often tend to think about the advent of digital media as largely responsible for undermining the authority of big names like CNN or The New York Times. But is this the whole story? Is there another way in which we can understand the current crisis and look at its history?
DS: So, yeah. I mean, it's a very important question and one that working journalists have been grappling with for the last few decades, in fact. It's sort of a multi-tiered question. But your question implies that this has been brewing for a long time, and you're quite right. That's quite right. The fact is, I mean, and it's a complex issue and I don't want to suggest that the media doesn't have a share, or a really large share in this. But I think it's important, really important to understand that attacks on the media, from the right in particular, have been a feature of American political and public life since the '60s.
Since that period, particularly the '70s, there have been oligarchs, essentially, American oligarchs, the Olin family, the Bradley family, Richard Mellon Scaife, these were important industrialists from that period, have begun funding movements and alternative movements that would essentially be put in place to intimidate the press, and to foment the idea that the press is an elitist institution that doesn't care about you. In fact, that it looks down on you. All of these ideas were brought into play by institutions, these watchdog groups called Accuracy in Media, and other like groups that began, sort of, basically an anti-journalism campaign. And it was on behalf of and funded by the rich and powerful for obvious reasons, people who are rich and powerful do not want to have their business scrutinized.
And I think, you know, there's another sort of landmark event, or at least students of the media to point, to a famous memo by Lewis Powell, who later became a supreme court justice. At the time, he was a corporate lawyer. He wrote this memo to the Chamber of Commerce back then. And essentially was a call to arms, a reaction to the progressive moment that was the '60s. And was saying that business interests need to arm themselves and create alternative institutions to what he considered an attack on corporations and business from environmentalists, from academics, from science, and from journalism.
And it was during that period that these alternative institutions were created. The Heritage Foundation is created as a counterpoint to the Brookings Institution. It was the right-wing counterpoint to a thing that had been created in the early 20th century. And it became this whole panoply of think tanks, and political action committees, and other sort of this intellectual apparatus that rose in the '70s and '80s. And one of the main, sort of, points of it was to engage in a struggle essentially with American journalism, and essentially to diminish it, to marginalize it, to push it, in the image of the public, off of its perch, off of its position - previously enjoyed position of what I call transpartisan authority, to the margins, to be just another side in a political debate.
And when you sort of think about it, I mean, it's just important to remember that democracy needs transpartisan institutions. It needs institutions that you can trust. When you sort of think about the decline in trust in journalism, that decline is basically across the board. Obviously, Congress, its reputation is in the gutter, but the decline in law, in medicine, in almost every profession, obviously universities, has been crushed.
Many of these faults, mistakes, lack of accountability among these institutions has helped create this distrust. You know, these major elite-led catastrophic events, including the Iraq War, for instance, which was an event brought to you by a range of elites across the board, foreign policy establishment, journalism, you name it. And the financial crisis, which was another gigantic catastrophe for which no one was held accountable, ditto the Iraq War, you know, that also created this sense of that elites can't be trusted in our failures.
So it's been like this double-barreled erosion or factors that are eroding the trust in journalism and institutions across the board, their own particular failures, but also a concerted effort to destroy public trust in these transpartisan institutions. And unfortunately for us, and for society, and for democracy, there is a business model behind this effort to discredit transpartisan institutions, particularly journalism, and it's very profitable. So it's very difficult to figure out how to find your way out of this corner.
SR: So, Dean, you're making a very large point which one could probably summarize in one sentence to say journalism is a public good, and journalism therefore needs to be not only protected, but it also needs resources. The resource of time because it takes a lot of time to do good research and present it, but it also needs money. Now, the question then is, what kind of a watchdog do we need today? What kind of a model would we have available to us which could provide journalists, not only investigative journalists, but good-quality, impartial journalists with the kind of resources they would need in order to enable democracies to function?
DS: Funny you should ask. I just wrote a paper about this in a chapter in a book. In that chapter, I do two things. One, I basically try to convince the audience that they need to give up on commercial models to support journalism in the digital age. I like to call the internet as not a friendly place for small and medium-sized business. And that's what journalism check typically is, medium-sized business. It's basically a winner-take-all environment. That's why you say, well, New York Times is doing well. Yeah, that's right. They are, and they basically are it. But there's this, you know, you've heard of the phenomenon of the long tail, with a few winners and then everything drops off dramatically. And there's this very long tail of everybody else. And everybody else is your local newspaper and stuff like that.
So, the second part of the article was trying to turn people's attention to a way to publicly support and robustly fund journalism. And my model is a tax credit that is actually functioning here, in all places, Hungary, where if you live in Hungary - back in the '90s, a very liberal interesting time of experimentation- they passed a tax law in '96, '97 that allowed taxpayers to check off 1% of the amount that they would pay to a charity. It could be your animal shelter, it could be an orphanage, it could be anything. Or some of these foundations also happen to be news organizations. And the beauty of this model, as far as I'm concerned, it is not based on any committee that decides who gets the money. It's a market-based mechanism where the individual reader, the taxpayer, decides which news organization it's going to give. Now, the only catch, of course, is like, who qualifies as an eligible news organization?
And I go into that in the piece, too, where I talk about the Internal Revenue Service has long had to grapple with this particular question about what's fact-based? It hasn't always done a great job. But these issues have been vetted, they've been through the courts. You would have to make this part of the IRS, you know, much more robust to be able to withstand all the pressures it would be under. Bottom line is it's very doable, and that's, sort of, what I've been, sort of, pounding the table for. If you're relying on crowdfunding or reader support, God bless. It's perfectly fine, but it's just not enough to scale. Journalism needs to be more than this heroic fighting against this giant David and Goliath scenario, which, you know, often is cast as.
For me, journalism needs to be powerful, the newsrooms have to be large. You have to have some surplus, because stories don't always work out, people need to take vacations, people need to be paid. So, you need robust organizations. But I would say, if your listeners are wondering what they can do, yeah, you subscribe, and you subscribe to as many things as you can afford. And I would also say, and we're, sort of, told to say this now every time we go on a podcast, and I think it's just fine, is that you should consider subscribing or donate to ICIJ, or places like that.
SR: Let me come back finally, Dean, to your book, the one that I mentioned at the beginning, "The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism." It seems to me investigative journalism is well and alive. It hasn't disappeared. So, do you think there's been a resurrection or that it did not perform where it should have in alerting us to the financial crisis, but it does perform when it comes to this kind of revelations that the Pandora Papers have brought out?
DS: Good question. My answer would be, I think that appearances can be deceiving. And the fact that you asked that question is kind of a complement to our model because it looks like we're really robust and powerful. But just a couple of things. "The Watchdog That Didn't Bark" was based on a content analysis that I did of pre-crisis reporting. It was a fairly intensive, crazily large dataset of reporting from seven, eight business news outlets. The idea was who and when, when did they provide adequate warning of grotesque abuses in the mortgage market and in the mortgage aftermarket? The irony of it was that the best reporting occurred in the years 2000 to 2003 when the subprime crisis was still in a position to be contained. And I would also say, I think I also demonstrated in that book, that investigative journalism helped keep the subprime business in check through the '90s through a couple of major investigations.
Okay. For reasons I lay out in the book, from 2003 on, when, trust me, you had to be there, the mortgage industry, the financial system went completely nuts. That was absolutely a time of rampant corruption and rampant abuse by brand-name firms, including Citibank, and Ameriquest, and Countrywide, and Goldman Sachs, and Deutsche Bank, and you name it. That's when the investigations disappeared, and that's "The Watchdog That Didn't Bark."
Reporting journalism, investigative reporting, in particular, public interest reporting, it's about two things. One is basically bodies, boots on the ground, number of reporters that you'd have working in local, covering city hall, police department, the school board, parliament, whatever your regional government is. It's easy to be distracted by social media, or opinion pieces, or...I'm actually not talking about media. I'm talking about journalism. I'm talking about news organizations. When we talk about "media" this is a very misleading term. We could spend another episode on why that's the wrong way to think about this problem. But essentially, when you talk about public interest journalism, that's what we mean. We're talking about reporters with time on their hands to be able to investigate something.
But, yeah, I would say don't be fooled. When it comes to investigative journalism, the watchdog barking, you need a lot of lights being shined on the system so that people can have information about who's going to govern them. Journalism is very imperfect and it's not the answer to all of democracy's problems, but it's sort of a foundation for an informed public, and that's why we're not nearly where we need to be.
SR: Thanks for these fascinating insights, Dean, into the ICIG's workings and the ways in which it managed to reveal to all of us the shadowy world of offshore finance.
DS: Thanks so much for having me. It was a great pleasure.
SR: We've learned about the Pandora Papers, the largest journalistic collaborative endeavor in history, based on 14 offshore providers, or, one should say, the largest set of leaked documents from these providers. The papers are a collaborative endeavor of some 600 journalists working across the world, working together in a consortium to expose the shadowy world of money laundering and tax evasion.
We now realize how dependent we are on the relentless work of journalists, who are helping to keep the rich and powerful accountable, and to enable the workings of democracy in keeping checks and balances on the world of not only powerful individuals, but corporations in place. The Pandora Papers show us the world of tax havens, tax secrecy jurisdictions that help the wealthy and powerful, both individuals and corporations, not only to avoid taxes, but as we have learned also, to hide wealth, and more largely, actually to evade the law.
The scale, scope, and ubiquity of this unequal financial system now stands revealed, and it could have an effect on ordinary citizens of the kind that it would shake their trust in democracies as systems which are fair and equal, because what we have learned here is: there is one system for us ordinary citizens, and there is a completely different one for billionaires, for celebrities, for political elites, and large corporations. This offshore system is a triumph of private interests over the public good. It's detrimental not only to the rule of law, but also to enabling the public exchequer to have the resources to end inequalities in our societies, and it may end up shaking our faith in democracies.
This was the eighth episode of Season 3. Thank you very much for listening. Please go back and listen to any episode you might have missed. And, of course, let your friends know about the podcast if you're enjoying these. You can stay in touch with the work of the CEU at www.ceu.edu, and the Albert Hirschman Centre on Democracy at www.graduateinstitute.ch/democracy.