We may fulminate against a corrupt nexus connecting multinational capital and a deep state, but identifying clear illegality is more difficult. The collapse of the Anglo-Irish trials shows ‘white collar’ crime is difficult to prosecute. This is because much of what is widely considered immoral behaviour falls short of criminality.
The generally accepted distinction here is between tax evasion and tax avoidance, the latter of which can be technically compliant. Transactions exposed in the Paradise Papers were, it may be assumed, largely in the category of tax avoidance.
A number of Irish Times journalists participated on a transnational investigation conducted by the International Consortium of Investigative Journalists (ICIJ), yielding evidence of companies and individuals – including U2’s Bono – channelling of assets or income through countries with low taxation regimes. These transactions were undertaken, in many instances, on the advice of one or other of the ‘top 5’ accountancy firms in the world.
A particular specialism of these firms is to advise clients how to transfer assets between jurisdictions so as to avoid tax liabilities. Highly-educated individuals develop esoteric legal instruments and mathematical models that would defy the comprehension of most of us.
Such expertise also calls for intimate knowledge of the practical workings of a particular fiscal agency in a given country. This may lead to ‘Regulatory Capture’, which has been observed across a range of sectors including Pharma and Transport.
It could cover a situation where an individual gains experience in the state sector – working for NAMA say – leaves his job and then takes up employment in an accountancy or other advisory firm. Direct conflicts of interest, which could give rise to illegality, are naturally avoided; so-called gardening leave may even be demanded in some cases. But intimate knowledge of the workings of state institutions – and perhaps continued social relations – is of great value when it comes to a firm advising a client on how they should go about doing business anywhere, including Ireland.
Niamh Callaghan describes ‘regulatory capture’, as being where: ‘one operator in the market uses its influence or resources to extract a regulatory decision, or lack of decision, for their own benefit rather than the benefit of society as a whole’. It is a form of lobbying that is not subject to legal controls and disclosure requirements, for the benefit of a particular company or sector.
With these lenses I perused a recent opinion article in the Irish Times by Padraig Cronin of the accountancy firm Deloitte, one of the ‘top 5’ accountancy firms mentioned in the Paradise Papers. It is also noteworthy that the Irish Times Opinion Editor John McManus worked with the ICIJ.
As a long-time observer, and recent contributor, to this page I see an attempt to strike a balance between left and right views, although this occurs in a newspaper with a structural reliance on generally multinational commercial advertisers. This inevitably affects editorial positioning, favouring broad acceptance of the fiscal status quo, including our low corporation tax regime.
One can imagine that Deloitte contacted the Irish Times and argued that the editor, in the interest of balance, should carry an article representing their views, which would provide a balance to the paper’s coverage.
In the article that was accepted, Vice-Chairman Padraig Cronin begins by counselling that business operates best when there is legal certainty. On the surface, this is reasonable, but he also implies that no government should endeavour to change our fiscal regime. His rationale is: ‘Ultimately, the private sector creates jobs and opportunities, with government policy being the key enabler.’
The characterisation of government as “enabler”, and the private sector creator as “creator” of jobs and opportunities is a profoundly ideological statement, disregarding the creative work the state does in a whole range of sectors. A teacher is surely a creator of jobs and opportunities for a student, however deficient our Leaving Certificate regime.
In many of the most developed European states disproportionately large state sectors exist, and no business without a private security force could operate without a state holding a monopoly on violence in a given territory. Private enterprise may have an important role in harnessing human creativity, but a state can generate economic activity without private enterprise, however inefficiently, whereas private enterprise requires a state to operate.
Mr Cronin justifies the ‘various complex but legal methods used by businesses and individuals to minimise their tax bills’, meaning the bespoke advice on tax avoidance that firms such as his own offer at a rate no ordinary person could afford. The rule of law that underpins these methods is then referred to as ‘a key foundation stone of democracy’.
There is, however, a distinction between the Rule of Law and positive law. The idea of the Rule of Law was conceived in Classical antiquity by philosophers such as Plato, Aristotle and Cicero, who said: ‘True law is right reason in agreement with nature; it is of universal application, unchanging and everlasting; it summons to duty by its commands, and averts from wrong-doing by its prohibitions.’ Positive law, on the other hand, is any law, however unjust, which is passed by a legislature, carried out by an executive and upheld by a judiciary.
Mr Cronin also contends that ‘it is the role of an elected government to fulfill the wishes of an electorate as regards what the laws (including on taxation) should be’; followed by: ‘it would undermine the democratic model if corporate behaviour were judged not against how well it complied with the law, but against more subjective criteria and opinions.’
This is disingenuous, to say the least. The vast majority of voters in elections have little idea of how different tax codes work, which is why these specialists can charge such high fees for their services. Moreover, any bill that passes through Dail Eireann is the legacy of not only Dail committees, but also the oversight of civil service draftsmen and the influence of lobbyists; we also know that voting populations are easily manipulated, especially by those with deepest pockets.
Democracy, to quote Churchill is the ‘least worst system’, so let’s not pretend otherwise. In Ireland, as many environmentalists find, it takes an exhausting level of effort to bring stories that do not reflect well on big business to public attention.
Yet another contradiction emerges when Mr Cronin urges the government to make a long-term commitment to follow recommendations of the ‘OECD-sponsored base-erosion and profit-shifting (Beps) process’. These are non-binding legal instruments which purport to close off tax loop holes in participating states. Leaving aside the democratic oversight he previously urged, he argues that to ‘ensure it obtains a fair share of the increased tax take of this state must move at the same pace as other countries while maintaining its competitiveness as a location.’
He is now saying it is the OECD’s advice we should heed, and we may assume there is no better organisation than a top-5 accountancy firm to guide any client on what will emerge from the research of this transnational agency. But an important caveat is added: “while maintaining its [Ireland’s] competitiveness as a location”. A pro-business (or really pro-multinational) exception, maintaining our low rate of corporation tax, is thus lodged in his submission alongside (or perhaps at variance with) OECD recommendations.
The next paragraph speaks directly to Taoiseach Varadkar, calling for an examination of our tax strategy, presumably insofar as it relates to the “competitiveness” exception rather than adhering to OECD recommendations. Has democratic accountability asserted itself over OECD recommendations again?
In the most brazen passage of the article he writes: ‘If we do not do so we might all be “getting up early in the morning to work hard” but others could be eating our lunch.’ Cronin seems unaware that that is precisely the purpose of taxation: to ensure the poorest can eat lunch even if they are out of work, or homeless.
A coded message then seems apparent when he says: ‘Ireland now needs to determine how it will play to win within the evolving Beps framework’. What exactly does “playing to win” mean in this context? I suspect it relates to regulatory capture; dangling long-term incentives to officials of the Irish state in their negotiations with officials from other jurisdictions in order to manipulate a favourable tax regime.
Cronin returns to the theme of certainty in the closing paragraphs, calling for the government to set out a road map to 2030 that would bind future administrations: ‘sticking to it would send a powerful message to the business community that it should feel it is safe to get on with business and underpin economic growth’.
An earlier appeal to democracy is forgotten once again when he argues: ‘knee-jerk reactions by governments are bad for business, certainly with a knock-on negative impact on economic growth. We need to avoid these’. In other words: democracy is fine when it works to our advantage.
I also wonder who he means by “we”? Is that the Irish people living in a period of stark income inequality, or is he referring to the plutocratic circles in which he presumably moves?
Less damningly, he refers to research by OECD showing that a greater focus on consumption and property taxes would be more equitable than increasing income tax, again ‘while maintaining a competitive corporate tax regime’. Disregarding the bias of someone who undoubtedly enjoys a six-figure income there is merit to higher property taxes, particularly on unoccupied properties, while Carbon and Sugar taxes are eminently sensible. But he appears to be advising that low corporation tax regime should be defended at all costs.
He concludes with a slightly forlorn request that companies playing: ‘by these rules should be allowed to get on with business without fear of criticism.’ He seems to saying: stop investigating our activities because what we are doing is legal.
Accountancy firms such as Deloitte have been subjected to stinging criticism in the UK over the Paradise Papers, and not just by Labour leaders. Vince Cable, leader of the Liberal Democrats, said: ‘Some years ago it emerged the big banks were facilitating tax avoidance and a code of conduct was introduced. It’s surprising and regrettable that accountants have seemingly failed to take the hint and carried on regardless.’
Even Justine Greening, the education secretary, acknowledged on BBC’s Question Time: ‘As we close down these [tax avoidance] schemes, accountants and lawyers will try and find out new ones, and that is why this business is never really complete.’
The evidence which has come from the Paradise Papers regarding Deloitte and other accountancy firms does not appear to involve illegality. For a firm such as Deloitte to advise a client to commit a criminal offence would be bad for business, and in any case, often unnecessary. This should be the case in Ireland where a multinational-friendly fiscal regime is already in place, but even then companies such as Apple have managed to pay virtually no corporation tax. Regulatory Capture, along with the best professional minds, allows firms such as Deloitte to develop greater acquaintance than even the government on the import of the state’s tax codes.
The rewarding of individuals in the state sector who work on behalf of private interests is almost untraceable. The pay-off may come much later in the form of a directorship or other sinecure. It might never arrive. But, we can assume that within the state sector a certain ideological conformity underpins the perseverance of sacred cows such as a low corporation tax regime, protection of which seemed to have been the government’s one red line during the bank bailout negotiations.
Whether a different Ireland can be built, one that is not a tax haven for multinationals, is rarely considered. A substantial, though diminishing, upper middle class does well under the current regime, while both of the main political parties favour the current model. I wonder can we imagine another kind of Ireland.