A curious aspect of the Panama Papers expose is the extent and complexity of the effort that has gone into unraveling relevant information from massive amounts of electronic data. The International Consortium of Investigative Journalists arguably received the biggest collection of leaked data in the history of journalism which spanned millions of documents, many of these in the form of scanned images.
More on that effort can be found here (http://tinyurl.com/hej66zd).
In short, this whole exercise required time, patience, and lots of resources; which is exactly one of the reasons why tax havens exist and manage money with near impunity.
The purpose of this piece, however, is to prophesize that in the future both tax avoidance and tax evasion activities will face headwinds not only from a swathe of legislation but also from the advent of structured data.
Consider the following three developments:
There is an inexorable movement towards using the XML-based information standard, eXtensible Business Reporting Language (XBRL) for company filings to business registries. A host of countries are adopting this standard which makes information easy to search, retrieve as well as link to other pieces of related data. Having said that, please note that no well-known offshore tax haven such as the Channel Islands or Mauritius has adopted a structured way of accepting information from offshore entities. However, this is bound to change in the coming years.
(The XBRL consortium’s viewpoint in this context can be found here: http://tinyurl.com/huw2v76)
Secondly, cross-border transactions are coming under the ambit of rules such as FATCA (Foreign Accounts Tax Compliance Act mandated by the US IRS) and CRS (Common Standard on Reporting and Due Diligence for Financial Account Information, proposed by the OECD and mandated by the G 20). Under the FATCA and CRS (both have a lot of similar features but have significant differences as well) cross border transactions have to be reported with the beneficiary information using a structured data format. India, for example, has started complying with these along with a host of other countries. The FATCA and CRS are XML-based standards and while not as robust as XBRL, are providing information amenable to system-based diagnostics.
Finally, there is also an answer to the vexed question of making sense of the maze of corporate entities that invariably take part in cross-border transactions. This answer is through the introduction of an entity bar code called Legal Entity Identifiers (LEI). The LEI is a unique identifier for entities that are counter-parties to financial transactions and is a global standard borne out of an international collaborative effort. The LEI also follows the XML standard. As of the end of January 2016, over 415,000 entities from 195 countries had obtained LEIs. (http://www.leiroc.org/). Suffice it to say that going forward, it should get easier to access and interpret the global flow of financial transactions.
It is not going to be an easy journey since some of these structured data initiatives are voluntary while tax havens exist and thrive with clear economic logic, especially for the needs of well-heeled and influential. However, it is safe to say that we are entering an era of more transparency and faster investigations. The untiring efforts of the investigative journalists that uncovered the wealth of data in the Panama Papers should give an impetus to this as well.