The Pandora Papers were a recent leak of over 11 terabytes of data showing how world leaders, celebrities, and top business executives hid nearly $10 trillion dollars to avoid paying taxes on it.
The hiding went beyond just moving the money to the British Virgin Islands. Money laundering, shell companies in tax havens, and other methods were used to hide all of this money.
Cryptocurrency enthusiasts have discussed how recording transactions on a blockchain like Bitcoin could solve the problems that the Pandora Papers revealed to the public. However, a blockchain solution to the Pandora Papers problem is a fine line that must be walked between financial transparency and a scenario where the government has even more oversight.
With that in mind, this article will cover how Bitcoin can solve the problems raised by the Pandora Papers. We will also explain some of the problems raised by the Pandora Papers.
Problems Brought To Light By The Pandora Papers
The Pandora Papers have brought a lot of problems to the light of the day. These problems were one of those things that everyone sort of knew happened, but no one had any hard evidence of the problems.
Anyway, the problems include the following:
- Wealthy people move their money to tax friendly jurisdictions.
- Money laundering by creating shell companies that earn fake revenue.
- Anonymous shell companies that make tracking ownership very difficult.
These problems are suspiciously aligned with the government’s problems. Our point is that the government wants to track money in order to tax it, so a solution to this problem solves a problem for the government more than the average person.
More importantly, any solution to the Pandora Papers will result in the average person receiving more government scrutiny while the wealthy people can afford to pay a small army of accountants and lawyers to move the money around.
With that in mind, any solution offered by Bitcoin to the Pandora Papers must be carefully weighed against the so-called solution being used as a tool by the government to further track citizens.
Now that the big caveat has been revealed, we can discuss how Bitcoin might be used to prevent issues raised by the Pandora Papers.
Bitcoin as a Solution to The Pandora Papers
Bitcoin has three characteristics that make it a perfect solution to the Pandora Papers. These characteristics are ironic because Bitcoin was released as a way to free the world of the banking system, but the government could use these characteristics to further strengthen its position.
Bitcoin, and blockchain technology as a whole, is immutable. This means that the record cannot be changed.
Once something is written on the blockchain; it exists on the blockchain forever.
The benefits of this are that watchdog groups and the government can easily go through the blockchain to search for suspicious transactions that happened years ago.
Even more importantly, the immutability of the blockchain will hold up in court. Basically, the immutability of the blockchain leaves a paper trail that cannot be shredded or deleted.
If you do something illegal on the blockchain, then you cannot cover it up.
The Bitcoin blockchain is public. This does not fully apply to all blockchains (ie. Monero).
This allows any group with the appropriate resources to track transactions on the blockchain. There are already companies like Chainalysis that track the Bitcoin blockchain for government agencies and cryptocurrency exchanges.
Anyway, the publicly available wallet balances and transactions make operating in secret extremely difficult.
Sure, there are ways around this by using small amounts and keeping wallet identities private. But we would argue that it’s borderline impossible to keep yourself anonymous on the Bitcoin blockchain against a group like Chainalysis, especially against motivated parties like the government.
The openness of the blockchain is one of the biggest blows to people attempting to partake in illegal activities like those described in the Pandora Papers. You simply cannot remain on the Bitcoin blockchain against a powerful government (ie. US) for it to be a very effective tool for avoiding a multi-billion dollar tax bill.
We touched on this point in the previous sections, but it’s worth repeating because this makes the Bitcoin blockchain perfect for stopping something like money laundering.
It is simply a terrible idea to launder money with Bitcoin because everything is so easy to track. It’s also immutable, so the government can dig through the blockchain at any point to find evidence against you.
The trackability aspect of the blockchain really seals the deal for preventing illegal activity on the blockchain.
This is in direct contrast to a blockchain like Monero that is effectively impossible for anyone to track. The transaction history on Monero is obfuscated by sending dummy tokens to dummy accounts.
Basically, trackability is impossible on Monero, which makes it perfect for illegal activity.
How a Bitcoin Solution Would Work
A Bitcoin solution to money laundering and tax evasion would actually be fairly simple.
If everyone uses Bitcoin, then tracking money laundering would be as simple as tracking the addresses of large wallets for suspicious transactions. Suspicious transactions could include any of the following:
- Transactions with Bitcoin tumbling services.
- The same amount of Bitcoin moving from wallet to wallet (attempting to anonymize it).
- Bitcoin going to wallets associated with businesses in tax havens or other flagged wallets.
Those are just three quick examples of suspicious transactions. In fact, Chainalysis offers services that track Bitcoin in all the above scenarios. The services offered by Chainalysis are almost exclusively used by cryptocurrency exchanges and world governments.
The only difference is that everyone must be forced to use Bitcoin for it to actually work at preventing illegal activity like tax evasion. The reason everyone must adopt Bitcoin for this to work?
Bitcoin is terrible for laundering money because it is so trackable and public. We know peddlers of FUD always mention how Bitcoin is used for money laundering and tax evasion, but that simply is not the case.
It has already been shown multiple times that banks are willing participants in tax evasion and money laundering. Banks in Switzerland, The British Virgin Islands, Hong Kong, and other small island countries have all gained a reputation as turning a blind eye to obviously illicit activity.
Banks like JPMorgan, HSBC, Standard Chartered, and Deutsche Bank all allow trillions of illicit funds to flow around the world through their accounts. These funds include those gained from mafia bosses, dictatorships, and sanctioned countries like Iran.
This has not really been the case with Bitcoin. If it has been the case with Bitcoin, then it certainly has been kept a very well guarded secret. And that seems improbable given how easy companies can track the blockchain.
Bitcoin is clearly the future of finance. However, it does come with some level of risk.
The risk should be pretty clear from what we have outlined – it’s much more transparent than banks.
Sure, everyone can see your activity on the blockchain, but governments can also use this to easily track you. They can also arbitrarily decide that you are committing money laundering or breaking some other law.
Despite this, Bitcoin is still likely a more fair system because it brings out all the secrets. It would be impossible to launder funds in tax havens with Bitcoin.
Overall, the solution that Bitcoin offers is a net positive for society, but it can definitely be used for nefarious purposes by the government.