The release of the Panama Papers, unearthing the treasures of the wealthy and the powerful hidden in tax havens and fictitious companies, has reignited the debate on the amoral nature of global capitalism.

According to recent reports, five major US banks, saved through tax dollars in the aftermath of the global financial crisis because they were too big to fail, continue to be in the same situation. While the banks can go under, taking the economy with them, their fat-paid executives and the likes have, in the words of President Obama, "got enough lawyers and enough accountants to wiggle out of responsibilities that ordinary citizens are having to abide by."

Panama, it must be remembered, was forcibly carved out of Colombia by the United States in the service of big business. At the Vatican on last Friday, the self-declared social democratic presidential candidate Bernie Sanders lamented that top one per cent of the world have amassed more wealth than the bottom 99 per cent own collectively. He concluded: "At a time when so few have so much, and so many have so little, we must reject the foundations of this contemporary economy as immoral and unsustainable."

Ironically, Adam Smith, considered the father of capitalism, would agree. His famous work, An Inquiry into the Nature and Causes of the Wealth of Nations, was a treatise on political economy and NOT a textbook on economics preached by the Tea Party in the United States. Nor is it the manifesto of the Adam Smith Institute in the UK that boasts to be "at the forefront of making the case for free markets". The Institute has on its payroll some high profile Pakistani economists as well.

Smith did talk of free trade, self-interest and free market, but from a political economy perspective. He was explaining what he called a "commercial society". But there is much more to society than commercial exchange. This he had dealt with in his earlier less-known work, The Theory of Moral Sentiments. Humans are not just homo economicus. Moral norms and ethical principles make the society fair and decent. Carlyle’s description of economics as ‘dismal science’ and Ruskin’s dismissal of it as gospel of Mammon applies more to modern economics than to Adam Smith’s political economy underpinned by moral sentiments. Among his well-known canons of taxation was the cannon of equity: "citizens should pay the taxes in proportion to the revenue which they respectively enjoy under the protection of the state."

The offshore accumulation revealed in Panama Papers violates this canon of progressive taxation. The widespread practice ought to be seen in the background of the "scientific" discourse of an amoral economics that focuses on what is, not what ought to be. Why have huge sums of money left all types of economies -- least developed, developing and developed -- with impunity?

Free flows of finance are sanctified by neoliberal economics that found free trade to be an insufficient vehicle for globalisation. Countries are judged for their competitiveness by the degree of freedom to move capital in and out. It is now common knowledge that the financial crisis of 2008 was the direct outcome of the absence of a regulatory regime at the global level and thoughtless deregulation of the financial sector domestically. The anti-money laundering measures at the national level are a post 9/11 phenomenon. Their effectiveness varies among countries. There is nothing in the nature of a global regime.

Global competitiveness is also judged in terms of the tax regimes, as finance moves from high tax jurisdictions to low tax jurisdictions. The offshore (and some onshore) locations are literally what they are stated to be -- tax havens. Tax avoidance may be unethical, but it is a perfectly legal method to shun your social obligation.

Parking money offshore through an intricate process of setting up a chain of companies is tax avoidance taken to its absurdest limits. Tax evasion is the deliberate breaking of rules, while tax avoidance is bending the rules in one’s favour. The most sought after accountants and tax consultants are those who specialise in minimising tax liability.

The Panamanian law firm Mossack Fonseca is just one player in this great game. There are many more. Mossack Fonseca swears that it has not violated any law and that the various guidelines were strictly followed in setting up accounts for its clients. Other firms would make a similar claim. What Mossack Fonseca admits is that it neither knows the source of these accounts nor the purposes of their use.

The scale of the offshore operations can be judged by the fact that Mossack Fonseca alone has a listing of around 214,000 offshore companies. One Pakistani family from KPK has accounts in double figure. An idea of the amount of money in these accounts can be had from the US Treasury estimate of $300 billion of illicit proceeds flowing annually in such accounts. Some companies are stated to have funneled even the IFC’s investments into the offshore accounts. The organisation is an affiliate of the World Bank Group.

Tax avoidance essentially amounts to benefiting from loopholes in tax laws. One does not necessarily need to look offshore if there is an incomplete law. For instance, income taxation in Pakistan leaves out agricultural incomes. Most farmhouses owned by urban-industrial class are a cover to avoid income tax on nonagricultural incomes. Similarly, remittances by overseas Pakistanis are not taxed. Resident Pakistanis ship locally purchased dollars abroad, only to bring them back to avoid paying income tax.

Three issues are involved here. First, and the foremost, is the moral issue. This largely relates to the elected officials who must come out clean by setting up institutional mechanisms to investigate any wrongdoing.

Second, national tax laws leave room for tax avoidance. Tax reform in developing countries and learning from thousands of leaked documents in developed countries is the way forward.

Third, rules of the international financial game leave much to be desired. Panama Papers dominated the debate on taxation at the recently concluded spring meetings of the IFIs. There are proposals ranging from holding a global tax summit to preventing tax havens from developing to investigate individuals, companies and governments involved in tax shelters.

The most important is the requirement to indicate the beneficiaries. Christine Lagarde, the head of the IMF, does not expect any miracles. Others fear that any new measures may become a tool in the hands of the global power brokers to dislodge governments of their disliking. A moral weapon runs the danger of being deployed immorally.