Would it seem odd to suggest that Commerce Secretary Wilbur Ross might not mind the media’s probing of possible connections between his stake in shipping firm Navigator Holdings and the Kremlin? In response to questions put to him by the BBC regarding ships Navigator leased to Sibur, a Russian energy company controlled by Kremlin cronies currently under U.S. sanctions, Ross seemed completely unfazed. The sanctions are against a key Sibur shareholder and not against the company itself Ross noted, so there is “nothing improper” about the transactions.
While he’s actually right that the sanctions are against an individual and not the company it is still unclear if he perjured himself during his confirmation hearings. Time will tell if he gets hauled up before the same committee again to answer for the recent revelations about his offshore holdings. No doubt Ross’s array of investments were put under an intense review by a phalanx of legal wizards prior to his Senate testimony and he chose his words very carefully so as to not cross the line. If that is the case he may have nothing to worry about.
On the other hand what might give him fits is if the American media dropped the Russia angle and began to run stories probing the role offshore financial centers, anonymous shell companies, and private trusts play in allowing multi-national corporations and mega-wealthy individuals like Ross to avoid paying a fair share of tax by hiding their wealth. If this type of coverage were to emerge in the same piranha-in-a-barrel frenzy currently surrounding the Russia story it might begin to shift the needle on Capitol Hill so that the opacity built into the financial system—all very legal by the way—might begin to crack. More sunlight means fewer places to hide wealth and more taxes paid. Not likely a proposition Ross covets.
Let’s play a fun mental exercise that helps demonstrate how secret offshore holdings can adversely impact daily life back home. The U.S. generates approximately 25% of global GDP. We’ll assume that a similar percentage of the estimated $10 trillion held offshore is controlled by U.S. corporations and American citizens. That is equal to $2.5 trillion. Let’s also assume that the $2.5 trillion earns 10 percent interest annually, meaning it generates $250 billion in income. The annual tax loss on that amount—at a fairly modest 20 percent tax rate—is equal to $50 billion. To put this lost revenue in perspective, a recent report by the American Society of Civil Engineers estimated that the U.S. has a 10-year $2 trillion gap in infrastructure investment. So, if the U.S. component of offshore wealth were taxed, the Treasury would reap one-quarter of the annual amount needed to help rebuild our tattered infrastructure.
Economists will no doubt cringe at this simplistic, back-of-the-envelope calculation, and rightly so. But we’re not aiming for precision here; merely a ballpark figure to try to put gargantuan numbers into a somewhat more easily understood context. Simply put, taxing offshore holdings would go a long way toward jump-starting a funding process whereby our roads, bridges, and public transit were not teetering on the edge of collapse. This is the very definition of the social contract: people pay taxes and get something from the government in return. When the very few hide their money offshore, the majority have to deal with the consequences.
But while much of the media focuses on Ross’s—real or perceived—Russia connections they are, in the words of Deep Throat in All the President’s Men, missing the big picture. The white-hot focus on the Russia story, while raising extremely important questions about possible connections between one of the most powerful officials in the U.S. government and individuals who may have undermined an American presidential election, sacrifices the possibility of elucidating on the systemic problems related to tax fairness and losses of massive amounts of revenue in exchange for the pursuit of what is, in effect, the episodic nature of the Russia story.
There is no surprise here. Taxes are boring and Russians are dangerous. The Russia-as-destabilizer theme is a good story that includes oligarchs, Cypriot banks, and a federal probe; it grabs eyeballs. Add a car chase or two and you’ve got your Hollywood thriller in one nice little package (Ralph Fiennes as Vladimir Putin, anyone?). Articles on good governance and good policy make eyes glaze over. The journalist who can find the smoking gun (if there is one) in the Russia story will win a Pulitzer. The one who engages in a dogged chase to highlight the hypocrisy of the American tax system and the inanity of legal protection for anonymous shell companies will get a pat on the back.
What will keep the Paradise Papers leak in the news in the U.S. is the specter of Vladimir Putin and the possibility that he helped put Donald Trump in the White House. Without this sugar coating the legacy of the Paradise Papers here, like the Panama Papers before them, is that it would literally be a one-day story. Which would probably be just fine to Wilbur Ross and those who hide their wealth within the shadowy warrens of a close-by tax haven. Unfortunately, while the Russia story is an important one, we ignore the offshore one at our peril.
Tom Cardamone is the Managing Director of Global Financial Integrity, a Washington, D.C.-based organization focused on limiting the flows of illicit money around the globe.
[Editor’s note: The above story has been corrected to reflect that the U.S. sanctions are against a key Sibur shareholder, and not against the company, or majority shareholders.]