If we are going to save free markets and liberal democracy from their internal and external foes, we have to show that they benefit everyone. The “Panama Papers” reveal how far that is not the case. Once you are rich enough, you can hire a dodgy law firm to hide your wealth—from the tax authorities, from the criminal justice system, and from the voters. With the money you hide offshore, you can pay bribes and finance election campaigns, making it even less likely that anyone asks inconvenient questions.
For people in Europe’s frontline states, the most striking feature of the leaks is the light it casts on Vladimir Putin’s looting of Russia. His vehemently anti-Western politics have not prevented him taking advantage of this particular excrescence of the capitalist system.
But for countries trying to maintain Euro-Atlantic values in the face of populism at home and revanchism abroad, there is a bigger point: that the Western financial system is now fundamentally flawed.
When joint-stock companies were invented, the aim was a commendable one—to allow partners in a commercial venture to take risks, but with a limited downside. If the business failed, you lost only the money you had invested.
Even that was quite controversial—it creates, in effect, a subsidy from the general public to the directors of a limited liability company. If it does well, they get rich. If it goes bust, the suppliers, customers and employees may end up bearing most of the pain. This is tolerable when companies are engaged in regular commerce. It is a lot more questionable when they are borrowing lots of money and gambling with it.
But nobody said then that incorporation conferred anonymity. The complexity and secrecy of modern corporate structures has crept up on us. Neither lawmakers, nor voters, ever took a clear decision to allow such a lucrative and unfair system to develop.
It is high time to call a halt. I suggest the following simple reform to contract law in the civilized world. Starting next year, for any transaction over $1 million, a deal is legally binding only if the beneficial owner is declared. If you want to buy a refinery in Bulgaria, sell a tanker full of oil in Novorossisk or open an energy-trading firm in Vienna, you should have to say who you are, and you have to be clear who the other person is. Otherwise you have no recourse to courts in London, Stockholm, The Hague or wherever. Try using the courts in Donetsk instead.
That ban will cause no problem to the law-abiding. But it will hugely inconvenience the sort of people who manage their affairs through dodgy law firms in exotic jurisdictions. Publicity makes them vulnerable to money-laundering investigations and public censure.
The next stage is even tougher. From 2018 on, any assets with anonymous beneficial ownership should be frozen. The owner can reclaim them, but only by explaining who he is. Again, that won’t inconvenience the law-abiding.
The third stage is to say that by 2020, these frozen assets will be publicly auctioned. The money will then be held in trust until 2022. After that, it reverts to the state. You can keep your money in Panama or Macau if you want. But if you ever want to spend it, tough.
I never thought I would be writing an article arguing for such an onslaught on property rights. It smacks of Bolshevism—the combination of rage, power-lust, idealism and greed that did so much damage to Russia and then to other countries. Property is a fundamental bulwark of the rights of the individual to operate independently, without fear of the state.
But not to control it and cheat it. But if we do not bring the plutocrats to heel, the result may be real Bolshevism.