Are you really shocked that the world's despots and the world's rich hide away their wealth in offshore tax havens? Are you really shocked that there are places in the world where you can register a company and open a bank account without too many questions asked? Are you really surprised that rich and powerful Indians have parked some of their wealth in foreign countries? If you are, please do not read further, because I do not want to damage your pristine innocence.
If you are not surprised by any of these however, then the this week's expose of the Panama Papers - a massive tranche of records from a Panamanian law firm - by the International Consortium of Investigative Journalists should make you ponder over some other issues.
At the outset, let me warn of the risk of another round of moral panic. Despite knowing of the existence of tax havens and their place in the world's economic eco-system, we will see some politicians and moral entrepreneurs demonstrate righteous outrage and demand strict action against the culprits. It is quite likely that the government and the larger political system will respond by creating more rules and more regulations that will serve to make life a lot more difficult for the honest, middle-class salary earner. Ironically, making tax rules more complex will create more incentives for honest people to seek ways to protect their wealth, including parking them offshore!
In India, the government has announced the formation of a special multi-agency group, including RBI and tax officials, to investigate Indian nationals named in the Panama Papers. This will be a complex task, not least because the leaked data is huge in size, extends over three decades and no doubt includes both legitimate and illegal transactions. Even as they complete this tedious investigation, we should hope that the government does not succumb to overzealous populism and create tax laws that can easily undermine initiatives to rejuvenate economic growth.
That said, let's move on. Here are two angles about the Panama Papers that are really interesting. First, how the expose will play out in the domestic politics of the countries mentioned; and second, how the affair demonstrates the use of information as form of geopolitical power.
Based on the nature of the leadership and its accountability to the public, we can divide the world into three types of countries. The effect of the Panama Papers will be different in each case.
If you are the king of Saudi Arabia or the emir of Abu Dhabi or Qatar, and you are found to have parked wealth in offshore tax havens, your citizens are first yawn and then perhaps wonder why you had to do that when you are the monarch and have no need to pay tax. Royal family members, though, might follow the matter with jealous interest if they perceive an attempt to hide financial dealings from them. In any case, kings and emirs are not accountable to the people, so such leaks are unlikely to affect them much.
Now let's say you are Vladimir Putin or Xi Jinping, an autocratic leader within a system where you are nominally accountable to the people, but in reality hold the balance among a small number of oligarchs. It's unlikely that you will be toppled, but you'll have to get off the high horse and widen the network of compromises you make to stay in power. If you get this wrong, you might be toppled (especially in China), which is why you'll try to block all news and discussion about this matter. And when you do step down, you run the risk of your successors coming after you armed with this information. So you might not want to step down, or try to make a deal where you step down in return for a promise that you won't be prosecuted after that.
Where the Panama Papers will bite most is in countries where leaders are elected and accountable to the citizens at large. The Prime Minister of Iceland was the first casualty, having to step down within a couple of days of the newsbreak. Our next door neighbour, Prime Minister Nawaz Sharif of Pakistan, is now vulnerable to some extent. The President of Argentina might face some rough weather. David Cameron, the British Prime Minister, is unlikely to suffer more than political embarrassment on account of this late father's dealings.
In India, we have the nearly farcical situation of the only politician being named thus far is a former small time leader of Lok Satta (of all parties!), which anyway had expelled him in 2014. Our politicians and their wealth managers don't use Panamanian lawyers, and probably have more sophisticated (or then again, less sophisticated) methods of storing tax-evaded money.
That leads us to the second angle: the ability to selectively leak data is a source of geopolitical power. We do not know who leaked the Panama Papers. It might be a whistleblower motivated by spite, revenge, justice, truth or money. Then again it might be state-actor, an intelligence agency of a state deliberately leaking information that can shake up its adversaries. It is easy for the latter to pass off as a whistleblower, leaving none the wiser. Governments of the world have no doubt noticed the value of the capacity to hack into the databases of lawyers, accountants, doctors, shippers, business facilitators and suchlike. Expect them to invest in this sector in the years to come.
(Nitin Pai is director of the Takshashila Institution, a think tank and school of public policy. These are his personal views.)Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.