With the release of the Panama Papers, revelations about the murky world of offshore banking are coming thick and fast. But how do you explain it all simply? And how do you explain that there are sometimes good reasons for using offshore banking? Reddit user DanGliesack came up with a great way of conveying the complexity in a lovely tale aimed at those who are five years old, and perhaps those a little bit older too.
When you get your pocket money, you put it in a piggy bank. The piggy bank is on a shelf in your wardrobe. Your mum knows this, and she checks on it every once in a while, so that she knows when you put more money in or spend it.
Now one day, you might decide “I don’t want mum to look at my money”. So you go over to Johnny’s house with an extra piggy bank that you’re going to keep in his room. You write your name on it and put it in his wardrobe. Johnny’s mum is always very busy so never checks on his piggy bank. You can keep yours there and it will stay a secret.
All the kids in the area think this is a good idea, and everyone goes to Johnny’s house with extra piggy banks. Now Johnny’s wardrobe is full of piggy banks from kids in the neighbourhood.
One day though, Johnny’s mum does look in the wardrobe and sees all the piggy banks. She gets very angry and calls everyone’s parents to let them know.
Now not everyone did this for a bad reason.
Eric’s older brother always steals from his piggy bank, so he just wanted a better hiding spot. Tammy wanted to save up to buy her mum a birthday present without her knowing. Azim just did it because he thought it was fun.
But many kids did do it for a bad reason.
Elizabeth was stealing people’s lunch money and didn’t want her parents to figure it out. Rhys was stealing money from his mum’s purse. And Bobby’s parents have put him on a diet, and he didn’t want them to figure out when he was buying sweets.
Now in real life, many very important people were just caught hiding their piggy banks at Johnny’s house in Panama. Their mums have all found out. Pretty soon, we’ll know more about which of these important people were doing it for bad reasons and which were doing it for good reasons. But almost everyone is in trouble regardless.
It’s a great analogy.
What is particularly useful is the point at the end, that not everybody has a bad reason for hiding their money this way. As part of its coverage of the Panama Papers, Fusion have produced a handy list of reasons you might use a shell corporation offshore.
Some legitimate reasons might be:
- To keep trade secrets - preventing competitors spotting that you are investing in the materials to manufacture a new product line.
- To stop yourself being ripped off - service suppliers like hotels or catering might try and charge a premium if they know they are dealing with a big name company or celebrity.
- To keep yourself safe - if you are supplying services like translation to foreign military and diplomats in a warzone, it might be advisable to keep that untraceable.
Some less legitimate looking reasons might be:
- When it appears there may be a potential undeclared conflict of interest - like, for example, with the prime minister of Iceland.
- When the company is registered just at the moment the country you are president of is facing a military threat.
- When as British prime minister you’ve publicly said that tax avoidance is “morally wrong” but it turns out your family has been running an offshore fund that avoided ever having to pay tax in Britain.
- When it looks like your company might have been used by dictators to buy weapons.
We’re not sure how you explain those things to a five-year-old though. Maybe just stick with the piggy bank bit.
With thanks to DanGliesack whose Reddit comment we have adapted, and the Fusion Investigative Unit which produced the shell corporation graphic. Panama Papers reporting team: Juliette Garside, Luke Harding, Holly Watt, David Pegg, Helena Bengtsson, Simon Bowers, Owen Gibson and Nick Hopkins.
