On Sunday April 11, Ecuadorians are scheduled to vote in a runoff election for president. The candidates are Guillermo Lasso, a 65-year-old elite banker, and Andrés Arauz, a 36-year-old progressive former central bank official. There is no doubt that the outcome will have a profound impact on the nation’s future; the candidates have sharply distinct visions for moving Ecuador out of the pandemic and an ongoing economic slump. But while the race has received scant international attention, it has global implications.
It is easy for many in the United States to overlook Ecuador, a small Andean nation of less than 18 million tucked between Peru and Colombia. Beginning in 2016, however, the country took leadership in a global campaign against the use of offshore tax havens. The upcoming election will be key in determining if that leadership will continue.
In 2016, the leak of the Panama Papers exposed the extent to which the world’s rich and powerful had used offshore tax havens to launder money, evade taxes, and hide their wealth. The leak ensnared politicians and business executives the world over, including numerous heads of state. The prime minister of Iceland was forced to resign after his hidden assets were revealed. Virtually no country was left untouched—including Ecuador; Lasso, it was revealed, owned a bank in Panama.
Tax evasion is a global concern. Last year In the United States, 55 of the largest corporations paid no federal taxes. The use of tax havens is estimated to cost governments between $500 billion and $600 billion each year. Low-income countries lose more to offshore tax havens than they receive in foreign assistance from developed countries. That is money that could be spent on education, health care, infrastructure, and other critical needs.
In the wake of the Panama Papers leaks, the world’s richest nations did not initiate any major reforms. Ecuador, however, did.
Four years ago, during another election in which Lasso competed, Ecuadorian voters approved a referendum barring politicians from holding assets in offshore tax havens. It was the first vote of its kind anywhere in the world. In 2018, the government acted on voters’ desires by formalizing anti–tax haven rules into law. Not only were public officials prohibited from holding assets in such jurisdictions; so were electoral candidates.
These reforms are critically important today, as Ecuador heads into its second-round presidential vote. Lasso has utilized tax havens and other low-tax jurisdictions for years; Arauz, by contrast, helped design Ecuador’s groundbreaking reforms against tax havens when he was a director at the Central Bank.
Despite such sharp differences, there has been almost no attention to this issue in Ecuador’s major media. Imagine if the five-year scandal over Donald Trump’s tax returns had gone unnoticed in major US outlets. The silence is all the more remarkable given that Lasso himself has admitted that he owns a bank in Panama. While he claims it is not a violation of the law, his opponents argue that it is precisely that: In 2014, even before the Panama Papers, Ecuador passed legislation prohibiting banks or their shareholders from owning subsidiaries in tax havens such as Panama.
Capital flight facilitated by offshoring is a global problem, but it is especially relevant in Ecuador’s recent history. Banks and the bankers who owned them—like Lasso—played a large role in the 1990s economic crisis that saw poverty rates skyrocket in Ecuador. In the 2000s, under then-President Rafael Correa, the government introduced new taxes on capital leaving the country, raising significant revenue to help rebuild the economy, dramatically lower poverty rates, and avoid economic crises that can arise from a shortage of dollars (the dollar has been Ecuador’s national currency since 2000).
Ecuador was one of the first, and one of the most heavily affected, countries to experience the coronavirus pandemic. A new wave has now forced the nation to declare emergencies in a number of provinces. After years of fiscal austerity, the current government of Lenín Moreno has an approval rating in the single digits. Whoever wins next week’s election will assume the leadership of a state less able to respond to the health disaster than it would have been in 2017 when Moreno was elected, before the harsh cuts to public services that he implemented.
To ensure that the Ecuadorian government has the resources necessary for a robust response to the pandemic, and to get people across the country back to work, the country’s elite will have to pay their fair share in taxes.
US policy-makers have also taken recent steps toward cracking down on corporate secrecy in states like Florida and Delaware. New legislation passed late last year will require shell companies registered in the United States to declare the identity of their “beneficial owners” to public authorities. Previously, anonymous corporations had registered in these jurisdictions precisely because the “beneficial owner” was allowed to remain hidden. These changes will make it much more difficult for the world’s elite to hide their money in the United States. Here again there is a connection with the upcoming vote in Ecuador: Business associates of Lasso, and his son, are connected to more than two dozen shell companies registered in Florida that together own more than $30 million in real estate.
No candidate should be allowed to flout the law while running for president. Candidates should be required to disclose any of their own or their families’ ties to offshore shell companies. This particular form of corruption is not only a vital threat to Ecuador’s economy; it is a serious flaw in the international financial system, one that harms most of the world’s economies.