International evasion wrecks corporate tax solvency – officials leverage power to normalize their crimes

Results Table reports the neutralization techniques used by Latin American CEOs involved in the Panama Papers scandal. Column one to column four present the results, and column five shows the aggregated totals. Starting with column five, it should be noted that denial of responsibility was the neutralization technique most often used by Latin American corporate tax avoiders (31%), followed by condemnation of the condemners (16%) and denial of injury (12%). The use of these three types of neutralization techniques has been reported previously in general studies on white-collar crime (Klenowski ; Klenowski et al. ; Piquero et al. ) and in studies on tax crime (Kroneberg et al. ; Thurman et al. ). In this study, however, denial of responsibility appeared far more often than the other neutralization techniques. In particular, corporate tax avoiders denied responsibility by claiming that they are or were not involved in crime or illegal behavior because the reported companies (created by Mossack & Fonseca) no longer existed. This rationale, however, fails to explain why these firms existed in the past and how they were used as instruments for reducing tax liabilities then. Furthermore, tax avoiders claimed that the companies did not have operations or assets (denial of injury), implying that they were shell companies (often used for reducing tax burdens). To illustrate, consider the statements of an Argentinian football star, who had been convicted previously of tax crimes in Spain, regarding the Panamanian firm Mega Star Enterprises Inc.: Table 3 Neutralization techniques used in the case of corporate tax avoidance It is false and insulting that the media accuses me of creating a tax evasion schema [condemnation of condemners]. Mega Star Enterprises Inc. is completely inactive [denial of responsibility]. The company did not have assets or bank accounts [denial of injury]. This company was part of an old family holding created by legal advisors of the family [claim of normality]. (Ruiz et al. , my translation) Another high-ranking state politician from Colombia said: Today, I do not have a relationship with any Panamanian company nor with any other active foreign company [denial of responsibility]. In 2009, we created a company called Davinia for security and confidentiality reasons [defense of necessity]. The company did not have bank accounts or produce any income, loans or other type of lucrative operations [denial of injury]. I do support the work of journalists, but I really regret that they are conflating criminals with honest people [condemnation of condemners]. (Connectas , my translation) A well-known Peruvian journalist that used Chester Investments Assets Ltd., incorporated in the British Virgin Island, to produce his popular TV show in Peru, expressed discontent with his journalists’ colleagues: I do not have anything to hide. I have not done anything illegal [denial of responsibility]. The funny part is that the media has not found anything illegal. They have written headlines that are really bad intentioned [condemnation of condemners]. (La República , my translation) In Ecuador, a high-ranking politician affirmed: I strongly reject the false publications from the media that question my honor and integrity. I will demand that the newspapers disseminated the stories retract the slander [condemnation of condemners]. (JITO/AFP , my translation) Because corporate tax avoiders may be “forced into a position where they must defend themselves and others like them” (Maruna and Copes : 260), I conducted a separate analysis on the neutralization techniques used by those who condemn (or do not condemn) the media (condemnation of the condemners). Table presents a descriptive analysis of the neutralization techniques used by those who condemned the condemners/the media (column 1) and those who did not do so (column 2). The results reported in Table , Column 1, suggest that those who condemn the media (39%) did not give additional explanations or accounts of their offenses beyond the two neutralization techniques previously mentioned (denial of responsibility (29%) and denial of injury (10%)). Table 4 Neutralization techniques used by tax avoiders that condemn the condemners/the media In contrast, those who did not condemn the media (Table , Column 2) tended to use a range of neutralization techniques and used them more extensively. Here, appeal to higher loyalties (11%), denial of negative intent (11%), claim of entitlement (11%), and claim of normality (10%) received higher responses. This revealed that those who did not condemn the media employed different neutralization techniques that put forward how innovative structures are used when conducting international business/investments and how they rely on legal pragmatism when operating in tax paradises. These two dimensions have been identified by Ruggiero () as part of the “experimental logic” that the powerful uses to justify their criminal activities. For instance, a former high-ranking public official from Colombia explained the existence of the Panamanian company Navemby Investments Group Inc. as follows: Navemby was created in 2007 and was the majoritarian investor of the Colombian firm Konfigura Capital S.A. Navemby was created to operate as holding to develop investment projects in various Latin American countries [appeal to higher loyalties]. Navemby was registered in Panama because most of the investments were in dollars and the Colombian regulations does not permit bank accounts in dollars [denial of necessity of law]. I want to clarify that Konfigura never send money to Navemby [denial of injury]. We only received resources from Navemby, the investment capital entered to the country fulfilling all norms, including tax regulations, and doing the respective registers in the tax office and the central bank [denial of negative intent]. (El Espectador , my translation) A former politician and pastor of a Christian church in Guatemala said: We created an offshore entity to buy the land where we built the church [appeal to higher loyalties]. We bought the land very cheap because the owner was having problems and the land was about to be reclaimed by the bank. The bank advised us to put the land under the name of an offshore company because there could be legal problems [claim of normality]. Additionally, there were problems. It was very good to have an offshore entity so the church was not involved in legal problems [denial of responsibility]. In 2015, I created a foundation for inheritance purposes [appeal to higher loyalties]. None of this is against the law [denial of negative intent]. (Redacción Crítica , my translation) A Mexican businessman claimed that: We used the offshore company in the British Virgin Islands to buy a yacht [appeal to higher loyalties]. All my financial transactions have strictly adhered to the law [denial of negative intent]. (Martínez , my translation) Another Mexican executive stated: I have fulfilled all my tax obligations according to Mexican law [claim of normality]. I have not evaded any taxes [denial of negative intent]. I created Ucetel, incorporated in the Bahamas, because I wanted to buy an apartment and membership in a diving club located in the Bahamas [appeal to higher loyalties]. (Gaceta Mexicana , my translation) Behind the so-called experimental logic suggested by Ruggiero () rests the idea that powerful individuals create their own “truth” as they use different neutralization techniques to justify crime—in this case corporate tax avoidance—as a routinized and legal practice when conducting international business/investment. Below, I discuss how the different neutralization techniques used by corporate tax avoiders contribute to create “a truth” reserved only for the powerful. Corporate tax avoiders appeal to higher loyalties when claiming that their innovative investment practices seek to protect the economic expansion of owners of capital by adopting necessary international (legal/illegal) structures to operate their business (here, the higher bidder is capital accumulation/creation of more wealth). This view coincides with Ruggiero’s observation that innovation “allows individuals to pursue legitimate ends (money and success) while using illegitimate means” (: 68). While Ruggiero borrows the idea of innovation as an intelligent deviation from economists (Mill ), he also recalls that innovation is one of the adaptations of Merton’s sociology of deviance, whereby people experiencing certain strains seek to accumulate wealth (as a symbol of success) by using illegal means (Merton ). Corporate tax avoiders also use the claim of negative intent when arguing that their business activities do not intend to produce injury, but if and when they do, such injuries arise from negligence rather than from intentional injury. Here, Ruggiero notes that because the crimes of the powerful “are hard to detect and responsibilities are difficult to apportion” (Ruggiero : 67), such crimes are essentially condoned because they leave the issue of social harm unattended. Corporate tax avoiders invoke the claim of entitlement to demonstrate that their corporations have the authority to conduct international business in tax paradises without others reacting to it as they simply operate in international jurisdictions where rules are different. For Ruggiero (: 70), the crimes of the powerful “invoke legal pragmatism…. inspired by an experimental logic” because they are aware of their illicit behavior. Finally, corporate tax avoiders appeal to the claim of normality to argue that they always respect laws and that they even fulfill national tax obligations promptly as other citizens do. Ruggiero (: 126) notes that normalization emerges when powerful offenders inform the community of their practices and their views because they wish to create custom and habit by influencing societal norms. By doing so, they seek acceptance and sympathy because their ultimate purpose is to regularize (or normalize) their criminal practices.