The recent leak from a Panama law firm tops the headlines in newspapers across the globe. Several Nordic banks occur in the leaked material though the extent and nature of their involvement remains to be seen. Despite this, some banks already face heavy criticism. How justified is the critique?

Since the financial crisis, politicians have set down in legislation that the financial sector must always act in the best interest of their client. Banks helping wealthy clients evade taxation is probably not what they meant, but policymakers should take a long and close look at themselves and the agenda they have imposed on the financial sector since 2008. Because facilitating tax evasion can be seen as a form of ultimate loyalty to the client and to the law, as the banks cross moral and ethical boundaries in order to satisfy the customer. So when they clamp down on institutions that help in tax evasion, politicians are sending mixed signals and have a lesson to learn.

But so do financial institutions. We can already hear some of them claim that they have only acted in accordance with the law. However, I believe that there are landmarks other than regulation that need to be respected.

Tax is a pillar to society. And if we say that the financial sector has a responsibility to society, one which is ethical rather than legal, in providing services that are essential for the functioning of our economies – then why should the sector not also help to prevent tax flight? Yes it is true that the customer bears the brunt of the responsibility, but the banks cannot claim that they are pure middle-men and shrug their shoulders. One can indeed act in accordance with the law but in breach of moral values.

Because the heart of the matter is trust. For a financial sector where trust is a fundamental asset for its very business, the cost of unethical behaviour is simply too high. Sure, tax planning can range from fairly non-controversial services aiming at helping complex transnational businesses handle their activities to full-blown tax flight with the only purpose of denying the state its justified income. No matter one’s opinions towards tax evasion as such, the fact is: helping wealthy clients make use of loopholes in tax regulation might not always be illegal, but it is almost always deemed to be immoral.

The erosion of trust that follows even from creative but legal tax evasion by financial institutions has a cost also for ordinary finance employees, who are the ones facing disappointed customers. Institutions cannot justify their actions simply with the fact that they have followed the law. The erosion of trust in the public eye is nevertheless significant. That has negative effects on finance employees, who get to face disappointed and angry clients. It also undermines consumer faith in our financial institutions, and affects society’s stance towards the sector as a whole. These effects in turn risk leading to even more rules and regulations than we already have today and which are costing vast amounts for the financial sector to comply to, and which increases administration and thus the stress level of finance employees.

There are no immediate responses to where the line should be drawn when providing tax planning advice and services to clients. The law is one boundary that should always be respected, but it should be done taking other aspects, such as ethical considerations, into account. And the best thing would be if financial institutions themselves took initiative to work more actively to establish and communicate an ethical compass, preferably in cooperation with other stakeholders and society. We seem to need a sector-wide discussion on ethics and finance more than ever, in order to reinforce trust in finance.