Quora Answer: Are Political Leaders Corrupt if They Hide Assets Using Offshore Shell Companies in Tax Havens

The following is my answer to a Quora question: “Are leaders of countries corrupt if they hide assets using offshore shell companies located in tax havens?” 

There is corruption in the ethical sense, and there is corruption in the legal sense; they are not necessarily the same.  An act may be ethically corrupt, but legal.  In this case, political leaders hiding assets overseas may be operating within the confines of the law, but the intent of the act is ethically corrupt.  We need to consider why they feel the need to hide assets overseas. 

In many cases, political leaders were business leaders before running for office.  In such a case, having assets overseas would make business sense, from access to markets to ease of doing business, to spreading risk, especially if the home country is unstable.  That being said, when they run for office, it is expected that they declare these assets overseas.  The only plausibly legitimate reason why they need not declare their assets is because there is an unstable political environment, where a legitimately installed government may be overthrown.  This is not something anyone in developed economies consider, but it is a real concern in places where the change of government is neither peaceful, nor strictly legal. 

In many cases, political leaders sequester funds overseas to avoid taxes, or to hide their gain from office, which is often illegal.  Any such disclosure of how they have benefited from their time in office would be politically embarrassing.  In such a case, it is both legally and ethically corrupt.  In all cases, it would make sense that they would put these assets under legal entities in low tax jurisdictions.  In addition to the tax advantages, these places also promise privacy, and a compliance regime that does not require public disclosure.