The Panama Leaks scandal has rocked the world, but though one head of government has been forced by it to leave office, and others have been affected because linked, it has shown also that democracy has not handled the underlying problem, the inability of the capitalist system to handle campaign finance. It is also worth pondering that none of the names on the list of those indulging in having an interest in an offshore company belong to the USA, not because Americans are more punctilious about paying taxes or avoiding corruption, but because they have their own tax havens.

Pakistan has been hard hit, as many high-profile personalities, including the Prime Minister, have links established with offshore companies.

The opposition PTI has demanded a forensic audit by a foreign company, even though Panama Leaks itself has shown that the West itself has an Achilles’ heel, for not only has the Icelandic PM resigned, but the British PM is under pressure to do so. Mian Nawaz and David Cameron have this in common, that their offshore troubles took place because of a father, or children. However, in both cases, there is not the problem of illegality, but impropriety. The impropriety consists in the association with an offshore company, which is supposed to exist because of a desire to avoid taxes.

There is also the possibility arising that the owner of an offshore company would not like any probe into how the funds were earned in the first place, or to what end they will be devoted. Apart from the proceeds of corruption, there is any money laundering, or drug money. Clearly, no one registers an offshore firm unless he has something to hide.

It might seem tangential, but the Panama Leaks also include companies set up by Mexican and Colombian drug cartels. At the same time, the USA has been untouched, with the world’s worst-kept secret– that the USA is the world’s biggest tax haven– coming up, with the states of Delaware, Wyoming and Nevada widely identified as the states where offshore companies are routinely based to save on taxes. Putting money into tax havens indicates that the person putting the money has got money he does not want explained.

This ties in with one of the most damaging problems of modern democracy, one which it has not so far been able to solve: campaign finance. It is somehow appropriate that the Swiss Leaks should coincide with the most expensive exercise of the electoral calendar, the quadrennial US presidential election. Its cost has crossed $1 billion, and candidates not only devote large amounts of time to raising funds, but their ability to attract funding determines whether they will stay in the race or not.

Why do people donate to political campaigns? Partly because they believe in the policies the candidate is promoting, but also because they want to gain proximity to the candidate. Some do so for a feel-good factor, others because they hope to extract favours from the candidate if he is elected. This writer still recalls those businessmen who offered to contribute to Mian Nawaz Sharif’s campaign in 1988, with their only condition being to meet him. These persons did not want anything beyond the ability to ask Mian Nawaz to help them when elected. As it is, he not only became Punjab Chief Minister a second time, he also offered to form the federal government, something he did less than two years later. Obviously, with not just the power to make laws, but also with control over the executive machinery, Mian Nawaz was in a position to benefit his friends.

With all of this funny money flying around, it’s no wonder that some of it happens to be dodgy. Protection money. Hush money. However, money that cannot be declared. Politicians need this money, but they also cannot afford to have it seen. Otherwise they will lose their power. Therefore, the laws have to be tailored to find ways for them to keep access to funny money. Even for those who have inherited broad acres, the choice is stark. Sell one’s lands and play politics independently, or take funny money and thus be beholden to special interests.

It is argued that an Islamic system would prevent this not by any new legislation, but because it would not allow the democracy that makes legislators the creatures of the special interests that give them money. More pertinent would be the fact that Islam does not provide for the kind of legal person that allows the formation of offshore companies. Even if one notes that the Islamic economic system provides immutable taxes, none of which is the income tax most tax havens are trying to avoid, there is still the impossibility of a legal person. If there are funds, their real owner, a determinate human being, is the only person allowed to operate them. The usual modus operandi, with shares held in a company, and the company owning property, or even a bank account, is rendered impossible.

A related issue is that these loopholes are allowed to exist because those who need the loopholes, the tax havens, have the right to make laws. Those who believe that the legislatures must have the right to make laws should keep in mind that legislators will make provision in the laws which allow them to carry out such avoidance. In the Islamic paradigm, the laws can only be made by the Almighty, not by the human legislatures. What happens when legislatures can be seen whenever legislators vote on pay raises for themselves. There is a strange unanimity with only cursory debate. Even the Constitution provides that such expenditure is charged, not voted. In other words, the assemblies do not vote on an MNA’s salary, or the President’s, or the superior court judges’. They do vote on that of a naib qasid or a baildar, as well on the funds to be spent on bills or stationery. Executive control is exercised through the control over funds, and the control of the executive is given to whoever can ensure the passage of the budgets. It should be noted that the charged expenditure, while not voted on, is laid before the concerned House and can be debated.

However, the Panama Leaks show that democracy might work, but it also has problems. The wish in Pakistan to meet ‘international’ standards is shown as futile, because those standards are shown as low. While the desire to end corruption is part of that for democracy, both the creation of illegal wealth, and of tax havens, are inherent in the system. The most severe indictment of the system comes from the general belief that nothing will come of these revelations. That implies that violations cannot be punished. The reaction that such incremental steps will ultimately change the system for the better, shows that they won’t, because the inherent bias towards making self-serving rules cannot be stopped.