Off-shores will not have secrets soon

On Sonday the International Consortium of Investigative Journalists and the Center for Investigation of Corruption and Organized Crime published the results of a joint investigation based on databases of the Panamanian law firm Mossack Fonseca, one of the largest offshore registrars in the world.

The name of this company is directly connected with Azerbaijan, its political establishment. The Panama Dossier has become one of the largest leaks of information on offshore and offshore transactions in their entire history. In this list there are names not only of businessmen of different caliber evading taxes through complicated and questionable operations, but the prime ministers, ministers, parliament deputies, presidents. The list includes well-known names in Azerbaijan, members of the president's family.

 It makes no sense to repeat the published facts about foreign accounts, real estate, islands, yachts, hotels of a famous family. Enough has been written about it. The reaction to the "Panama file" was different everywhere. So, because of this scandal, Spain's Minister of Industry Jose Manuel Soria, Iceland's Prime Minister Sigmundur David Gunnleighsson, resigned. The head of the Chilean branch of Transparency International Gonzalo Delavo, head of the Austrian bank Hypo Vorarlberg Michael Grahammer, also lost his posts.

Of course, Baku also reacted to these materials. They reacted in a manner familiar to the authorities. Journalist Khadija Ismayilova, who, together with her colleagues from the International Consortium of Investigative Journalists, investigated the pumping of multimillion-dollar funds from Azerbaijan to offshore, was imprisoned, and then began the persecution of  the media, dared to publish these materials.

The scandal with the "Panama dossier" highlighted the inferiority of the country's fiscal system, the imperfection of the legislative framework, the adoption of laws for the interests of the ruling elite. At first glance, everything is not bad: the law "On Combating Legalization of Criminally Obtained Money and Other Property and Financing of Terrorism" is in force, civil servants are prohibited from participating in business transactions abroad and having accounts abroad. In fact, the whole matter boils down to the control of money transfers to potentially risky countries where terrorist organizations operate. As for financial flows to other areas, there is almost no information about this.

Unlike the West, Azerbaijan does not have a law on controlled foreign companies, it does not practice state officials to declare their own incomes and property (offshore companies and foreign accounts are not an exception), as well as the incomes and property of their spouses and underage children. As a result, our politicians and officials, with the help of the Panama firm Mossack Fonseca, laundered money earned in a dubious way, avoided sanctions and escaped taxes. They know that an offshore scheme is not only legal protection and removal from local legal proceedings, but also a convenient tool for concealing income and the fact of the participation of a public person in business.

Against the backdrop of this scandal, the Organization for Economic Cooperation and Development (OECD) has prepared common standards for the automatic exchange of tax information, which provides for a transition to a new level of financial and tax transparency. The tax authorities of the OECD countries will automatically exchange information that will include information on investment income (dividends, interest, income from insurance contracts and the sale of financial assets and real estate), the balance of cash on bank accounts, beneficiaries of trusts and shareholders of companies etc.

The Azerbaijani authorities have not  announced  yet their readiness to join the international tax exchange, but 40 states, including the world's most popular offshore jurisdictions, the British Virgin Islands and Gibraltar, have approved a schedule according to which they will begin automatic exchange of information as early as 2017( so-called early adopters.) By the way, Russia declared that it will join the international tax exchange in 2018. In fact, all this means that it will be impossible to use offshore as a "secret pocket" for the world elite. It is obvious that many companies will continue to use offshore jurisdictions to optimize taxes, but it will be impossible to hide the stolen money there.