By now you’ve probably heard of the so-called Pandora Papers, a leak of 11.9 million confidential records—2.94 terabytes of data—from 14 offshore financial services firms. The International Consortium of Investigative Journalists (ICIJ), which obtained the trove roughly a year ago, spearheaded an investigation that it describes as the world’s largest-ever journalistic collaboration, a project involving over 600 journalists from media outlets around the globe, including the Washington Post and The Guardian.
This latest cache marks the third such leak to the ICIJ, following the Paradise Papers in 2017 and the Panama Papers in 2016. It’s also likely the most complex. While the Panama Papers originated from a single law firm, the Pandora Papers include data from 14 separate offshore service providers.
Compared to the Panama Papers, this leak also includes information on over twice the number of “beneficial owners”—people holding assets in shell companies, trusts and other financial entities registered in tax havens both inside and outside the United States.
The Pandora Papers are a big deal on the international stage. They implicate hundreds of leaders and noteworthy politicians from over 90 countries in a complex world of hidden offshore lucre, made possible by low-tax or no-tax jurisdictions that actively cater to these well-heeled wealth hoarders. Among them are figures like Jordan’s King Abdullah II, Kenya President Uhuru Kenyatta, former U.K. Prime Minister Tony Blair and Czech Prime Minister Andrej Babis.
While only a few American names show up prominently this time (we’ll get to that in a bit), the Pandora Papers are yet another indictment of a global financial system that does very little to curb the use of inventive offshore accounting to shield the wealthy from paying their due in tax—leaving the public burden in the hands of those without access to these “innovations.”
So what do the Pandora Papers tell us about philanthropy, particularly in this country? Although much attention has rested on wealth secreted away by international leaders, this leak hits home in a number of ways. Here are five things this ongoing story tells us about how elite wealth operates, both offshore and right here in the United States.
1. The U.S. is a tax haven
The typical narrative about tax havens and offshore wealth assigns that role to jurisdictions that are, well, offshore—places like Panama, the British Virgin Islands, Hong Kong, the Seychelles, Switzerland and the like. But the Pandora Papers hammer home the fact that while global elites do use those havens freely, quite a few also turn to friendly jurisdictions within the U.S. to hide away their wealth.
South Dakota showed up prominently in the Pandora Papers as a secrecy destination, along with states like Delaware, Texas, Florida and Nevada. The Washington Post recently did a deep dive into how South Dakota, in particular, became such an alluring destination for wealth hoarders, chronicling the state’s longstanding efforts to make relevant laws as permissive as possible while reducing transparency requirements to near-zero.
Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies and author of “The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions,” has sought to highlight the role of U.S. tax havens in this latest leak. He has pointed out, for instance, that South Dakota “leads the pack” in dynasty trusts, which extend a trust’s lifespan far past its ordinary limit to let wealthy families sequester away money for generation upon generation.
Not all U.S. states are wealth-hoarding destinations, but those that are have often promoted themselves as such, fostering a lucrative trade within their borders that operates hand-in-glove with state politicians. Our decentralized federal system makes this possible, while limiting what D.C. can do to curtail it.
As for U.S. billionaires, whose fortunes continue to skyrocket amid the pandemic, hiding money away offshore may actually be more trouble than it’s worth. As the Post’s Pandora Papers coverage noted, “Financial experts said the uber-rich in the United States tend to pay such low tax rates that they have less incentive to seek offshore havens.”
Not long ago, we saw how that plays out for some of the nation’s top billionaires when another leak put their tax records in the hands of investigative outlet ProPublica. The gist? The “true tax rates” of top U.S. billionaires, including big-time philanthropists like Warren Buffett, can be very low—sometimes under 1% low.
2. Very little of this is illegal
One of the reasons U.S. billionaires get away with paying so little is because they can. The same goes for many of the public figures in the Pandora Papers. For a foreign dignitary, hiding millions away through offshore trusts and shell companies may be duplicitous or morally questionable, but it’s rarely illegal.
The scandal lies in the fact that world leaders who’ve presided over human rights abuses, not to mention rampant poverty and corruption back home, can go offshore to squirrel away vast fortunes and spend liberally on property and luxury goods, aided and abetted by local jurisdictions eager to accommodate them.
Here in the U.S., advertising ourselves as a tax haven may also come at a foreign policy cost. “It has become abundantly clear that our national interests are really dependent on keeping that kind of money out, even if it’s not a financial crime,” Josh Rudolph, a National Security Council staffer under both Obama and Trump, told the Washington Post. “We fortify thugs and crooks, fail to uphold our values and fuel popular resentment against America.”
3. Wealth buys privacy as well as security
Of course, some foreign leaders have good reason to want a nest egg hidden away overseas. Some are no doubt motivated by concerns for their financial security, or even their physical safety, should political developments at home force them from their current positions. Weren’t we all just witness to the spectacle of former Afghan President Ashraf Ghani fleeing for his life amid speculation that he’d carried with him briefcases full of cash?
The super-rich Americans we write about here at IP might not have quite the same concerns, but security is always one big benefit of wealth, and the impulse to save for a rainy day doesn’t just end with the middle class.
What the Pandora Papers highlight is the fact that in addition to security, wealth can buy privacy. It’s been noted that even in cases where transparency wouldn’t come at any great cost, individuals named in the leak intentionally obscured their dealings. Call it the rich people’s privacy instinct.
What’s striking about this from a philanthropic perspective is just how much the Pandora Papers revelations jive with what we know about opaque giving. In the rarified world of family offices, asset management and big donor-advised funds, privacy and secrecy are a key part of the package. The question is whether privacy is so inalienable a right that unelected mega-donors deserve its full benefits, even as their giving influences policy and shifts the public debate.
4. This speaks to a wider transparency and trust problem
It’s kind of comical that so much of what’s in the Pandora Papers centers on trusts, because trust is exactly what those activities are further eroding. Several years back, not too long after the ICIJ took the Panama Papers public, my colleague Mike Scutari covered the Omidyar Network’s attempts to tackle the global deficit of trust in key social institutions. “Low levels of trust in society makes it harder to solve any number of big problems, since citizens are less likely to provide key institutions with the support and resources they need to advance solutions,” Scutari wrote.
The United States hasn’t fared well on the trust metric in recent years. Edelman’s 2021 Trust Barometer places the U.S. in dire straits when it comes to citizens’ trust in key institutions, a figure that declined even further during COVID-19. And worldwide, Edelman reports, nations face an “epidemic of misinformation and widespread mistrust of societal institutions and leaders around the world.”
Multiple factors are contributing to this apparent trust crisis, rampant misinformation among them. But not to be ignored is a general lack of transparency among the global elite, a state of affairs that people inevitably conflate with corruption and even conspiracy. Although those hiding money away in the offshore secrecy economy may be playing by the rules, the activities documented in the Pandora Papers still carry the scent of corruption by dint of their secrecy, and from that flows mistrust.
Unfortunately, the same can be said about a lot of philanthropic giving flowing through opaque channels like DAFs. As permissive campaign finance rules make it easy for donors and corporations to grease the skids on policy and even election outcomes, unaccountable 501(c)(3) giving also contributes to an atmosphere of distrust that is hamstringing U.S. democracy—even when it’s not directly boosting anti-democratic narratives.
5. This isn’t the whole story
The fact that so few U.S. figures appear in the Pandora Papers isn’t just a function of this country’s lax taxation of the wealthy. Another reason is that no American firms were among the service providers whose documents were leaked. One can imagine scores of U.S. super-rich breathing a sigh of relief that their secret money hideaways remain unseen, at least for now.
In fact, several prominent Americans do appear in the papers. One is billionaire philanthropist Robert F. Smith, who was involved in a massive tax evasion case last year alongside Robert Brockman. Mohawk Industries’ Jeffrey Lorberbaum is another U.S. billionaire whose name has come up.
Ongoing stories about trillions hidden away to avoid taxes—which are one of life’s inevitabilities for the rest of us—reflect a continuing need for grants to the investigative outlets that bring them to light, and to those advocating for reform. They also prompt hard questions about how society fails to regulate the wealthy, including their philanthropy.
Alliteration was probably the main reason the ICIJ went with the name “Pandora.” But by invoking the mythological figure, whose box spewed evils forth into the world, there’s an implication that with knowledge comes responsibility. One hopes that from responsibility, action will follow.