The most extraordinary casualty of the Panama Papers leak so far must be Iceland’s prime minister Sigmundur Gunnlaugsson, who has resigned following revelations about undeclared offshore bank investments in his wife’s name. You’d have thought he would have been more careful. Iceland is one of the few countries in the world to have prosecuted bankers and politicians, including former prime minister Geir Haarde, for involvement in the 2008 financial crash.
It speaks to the powerful lure of financial gain that Mr Gunnlaugsson was prepared to take such risks to save a few pounds in tax and keep his share portfolio secret. It may be par for the course for Tory prime ministers, like David Cameron, to have benefitted from offshore trusts and various complex financial arrangements. But if even Icelandic politicians cannot be trusted to keep their noses clean, who can?
It’s a timely reminder of the risks facing small countries as they try to carve a place in the big, bad world of global capitalism. Would an independent Scotland have been immune to the blandishments of high finance and the machinations of wealthy individuals and their lawyers?
After all, our party of government once aspired to emulate the banking and tax policies of the “arc of prosperity”, including Iceland and Ireland, before it turned into the arc of insolvency after 2008. Former First Minister Alex Salmond was every bit as enamoured of financial high rollers as the Icelanders. He was as keen on low taxes as Ireland, which has also featured prominently in the Panama Papers. Mr Salmond placed tax competition (cutting corporation taxes) at the heart of SNP economic policy.
As First Minister in 2008, he became something of a cheer leader for the Scottish banks, having once been employed by Royal Bank of Scotland. He defended HBOS business practices before the full picture of its recklessness emerged. He also supported the takeover ambitions of RBS, which is facing billions in fines for its involvement in sub-prime in the United States.
Now, Alex Salmond is certainly not corrupt – he wouldn’t have spent his life leading the SNP out of the wilderness had he been seriously interested in hard cash. His support for the Scottish banks was about patriotism. He wanted to back winners, Scottish winners. He wanted them to bring as much business as possible to Scotland.
But that is where the whole slippery slope begins. Would any leader of an independent Scottish government have been able to withstand the lobbying power of huge organisations such as RBS, which at its height had a balance sheet larger than the GDP of the entire UK? It figures prominently in the Panama Papers as having used Mossack Fonseca to set up heaps of shell companies.
Actually, size is not really an issue. Big countries like Britain are just as likely to be suborned as smaller nations by big capital; perhaps more so. Westminster is a playground for powerful private lobbyists. Some small countries, like Denmark and Norway, are rather good at avoiding the dark side. But the price of probity is eternal vigilance. And in one worrying respect the Scottish Government has already taken a step down the road to perdition.
The First Minister has insisted that it would be “daft” to impose her promised 50p tax rate on wealthy individuals because they would “alter their behaviour”; in other words they would use various means to avoid paying it. This makes a clear statement about the Scottish Government’s approach to tax avoidance: “Relax guys, it’s business as usual”.
Could an independent Scotland have become a tax haven? It’s certainly possible. Indeed, as the Herald reported this week, Scotland has already been listed as a tax haven by eastern European business advisers. Independent Ireland is certainly on: it regularly features in Forbes magazine’s “top 10 tax havens”. The Scottish Government might well have argued that the best way to get one over on England was to undercut it on tax: cut air fares, slash corporation taxes, keep income taxes low and watch the money roll in.
The Scottish Government is desperate to attract foreign investment, which brings us to Ms Sturgeon’s difficulties with the China Railway No3 Engineering Group. She rather hastily signed a £10 billion memorandum of understanding with a consortium involving this company without performing due diligence. Its parent company turned out to be linked to bribery allegations of such magnitude that the Norwegian state oil fund refuses to do any business with it.
This hardly counts as a serious scandal in the post-Panama climate. There is no suggestion of money laundering or aggressive tax avoidance schemes. The Scottish Government insists that, since no money changed hands, there wasn’t even any real need for due diligence. Nevertheless it is highly embarrassing for Ms Sturgeon’s name to appear on this piece of paper next to a firm with such a questionable record.
And this is not just “SNPBad” propaganda got up by a hostile press. Every government needs scrutiny. Imagine how this story would have played had the SNP been in opposition when it broke. SNP MPs would have been quick to condemn Labour for engaging in dodgy deals, citing scandals of the past like the so-called “deal in the desert” involving Tony Blair and Muammar Gadaffi in 2007.
Perhaps the most worrying aspect of the China contract is not the memo itself but that it was reportedly the SNP-supporting Stagecoach business tycoon, Sir Brian Souter, who first broke news of it in the Chinese media. Politicians have to keep businessmen at arm’s length. Remember Mr Salmond’s eagerness to do business with Donald Trump, until the excitable real estate developer scored a bogey on the Menie Estate. Then there was the tea and tunnocks at Bute House with Rupert Murdoch of News Corp.
Mr Salmond was also criticised when First Minister for touting for business with the government of Qatar, which has been under scrutiny for human rights abuses. Come to think of it, we are largely in the dark about debts and obligations that may have been taken on by the Scottish Government after the sale, for one pound, of the steel plants at Dalzell and Coatbridge to tycoon Sanjev Gupta.
Now, the First Minister would rightly point to a few motes in Labour eyes. It was Jack McConnell who first opened negotiations with Donald Trump. Labour hasn’t been averse to doing business with the Qatari government. Tony Blair was so close to Rupert Murdoch that, according to one account, the newspaper tycoon almost became a member of the Labour cabinet.
Mr Blair was also implicated in the cash-for-honours scandal, under which wealthy Labour supporters were urged to make loans rather than donations so that their financial contribution didn’t have to be fully open and above board. And of course, since he stood down as prime minister, he has become a hugely wealthy player in the international banking world.
But this is the point. As the Iceland affair demonstrates, we cannot rely on politicians, no matter how morally upstanding, to withstand the temptations of enrichment for themselves, their parties or their country. No one wants Scotland to become another playground for the idle rich. The way to avoid that is to have fair taxation, transparency and relentless scrutiny of links between business and government.
If Scotland is to become independent, we need to make clear that, while this country may be open for business, it won’t tolerate monkey business.