As the novel coronavirus has continued its deadly rampage across Europe the United States, the economic consequences have been devastating. In the United States, so far more than 22 million jobless workers have filed for unemployment benefits in the past month. A shortage of storage capacity has forced oil futures in negative territory for the first time in history. The GDPs of Italy and Spain could shrink by -9% and -12% respectively.
In response, more taxpayer bailout money is being released into the global economy than at any other time in history. The $2.2 trillion CARES bailout package is the largest, but numerous other massive stimulus bills are working their way into markets across most of the developed industrialized world, totaling some $5 trillion.
Leaving aside for a moment the very troubling questions of how we reckon with such massive level of debt and what it does to the US dollar as a reserve currency, there are a few certainties we can count on: when a money train of this size leaves the station, it’s guaranteed that there is going to be corruption, there are going to be winners and losers, and there are definitely going to be some recriminations and scapegoating when the bill comes due.
Already we’ve seen controversy erupt when the government announced that a $349 billion emergency fund for small businesses had already been completely depleted … but instead of going to individual American entrepreneurs and companies who need it the most, a significant portion of the low-interest loans have been taken out by large publicly traded companies with +$100 million in revenues. The restaurant chain Shake Shack was even shamed into returning its $10 million loan in anticipation of the negative backlash.
Other critics of the bailouts point out that Congress did not do much to protect American workers, allowing companies to absorb millions in taxpayer funds and then still move to lay off employees. More than a few observers have already compared the pandemic-related stimulus packages to the botched 2008 bailouts of the financial sector, which, rightly or wrongly, are often cited as the seeds of populism which contributed to our current polarization and deep distrust of government.
This anger and appetite for accountability I believe is soon going to turn against offshore finance.
In Europe for example, both Denmark and Poland have officially barred any company using offshore tax havens to be excluded from receiving any emergency pandemic funding. Similar responses have been directed toward cruise ship carriers, the largest of which are registered offshore in places like Liberia, Bermuda, and Panama.
There’s also a movement afoot to claw back some of the lost tax revenue involved in offshore financial vehicles. The International Consortium of Investigative Journalists (ICIJ), the same nonprofit which originally published the Panama Papers, recently published a piece arguing for stronger regulations against offshore finance, quoting one economist who said “Shoring up our public services starts with fighting tax avoidance and tax evasion more aggressively.”
In the long term, as pressure builds to cover the immense deficits produced by this period of unprecedented government borrowing, not only will taxes likely to be hiked up against wealthy individuals and corporations, there’s also likely to be greater pressure for expanded regulation the repatriation of capital.
Already we are observing some media commentary calling for more transparent and compulsory public registries of beneficial owners of all companies and trust, along with automatic public reporting standards between countries. For anti-offshore activists, COVID-19 represents an ideal context in which to present their case – governments have been moved into a central role in the private sector, with more leverage to increase their oversight powers in order to crack down on abuses of each nation’s tax system – provided they are willing or interested in doing that.
The world is not going to be the same after COVID-19, and the offshore financial sector would do well to prepare itself with some internal reforms to address this new set of risks or otherwise face a rerun of the Panama scandals.