The leak of the so-called “Panama Papers,” millions of documents exposing offshore accounts secretly held by politicians, public figures and businesses, rocked the global financial world this weekend.
According to the International Consortium of Investigative Journalists, the data reveals 12 current or former heads of state hiding massive amounts of wealth in countries with tax havens, with others, including lawmakers, their family members, celebrities and corporations also involved in the underground cash stash.
As those journalists work to process the data, apparently hacked from a Panama-based law firm, a faculty member at Washington University in St. Louis says the case offers proof of the difficulty of government economic intervention.
“The central issue is that the almost unilateral authority these leaders have to control economic activity creates a large incentive to engage in bribery,” said Richard Frankel, the Beverly and James Hance Professor of Accounting at Olin Business School.
“This authority can be reduced by laws that specify requirements before the fact (i.e., rule of law). Essentially, there is no incentive to bribe the umpire if he has little discretion and his judgments can be evaluated by a clear standard,” Frankel said.
Frankel said the apparent scope of the case illustrates the need for increased vigilance when it comes to government involvement in financial and economic matters.
“The authority of individuals can also be reduced by requiring due process involving separate authoritative bodies, when judgment is required. This is why we separate legislation, enforcement and adjudication; however, this process can also be undermined. Finally, and most importantly, the scope of officials to intervene in economic activity should be limited to where it is absolutely necessary. Some intervention is no doubt necessary, but wisdom suggests that it is inextricably linked to corruption. In short, corruption is a cost of economic intervention by government,” Frankel said.
Frankel is available for interviews and may be reached at frankel@wustl.edu
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