USA Africa Dialogue Series - £13tn: hoard hidden from taxman by global elite

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go to http://www.guardian.co.uk/business/2012/jul/21/global-elite-tax-offshore-economy

£13tn: hoard hidden from taxman by global elite

- Study estimates staggering size of offshore economy
- Private banks help wealthiest to move cash into havens


Heather Stewart, business editor
Sunday July 22 2012
The Observer


http://www.guardian.co.uk/business/2012/jul/21/global-elite-tax-offshore-economy


A global super-rich elite has exploited gaps in cross-border tax rules
to hide an extraordinary ?13 trillion ($21tn) of wealth offshore ? as
much as the American and Japanese GDPs put together ? according to
research commissioned by the campaign group Tax Justice Network.

James Henry, former chief economist at consultancy McKinsey and an
expert on tax havens, has compiled the most detailed estimates yet of
the size of the offshore economy in a new report, The Price of
Offshore Revisited [http://www.taxjustice.net/cms/front_content.php?
idcat=148" title="http://www.taxjustice.net/cms/front_content.php?
idcat=148], released exclusively to the Observer.

He shows that at least ?13tn ? perhaps up to ?20tn ? has leaked out of
scores of countries into secretive jurisdictions such as Switzerland
and the Cayman Islands with the help of private banks, which vie to
attract the assets of so-called high net-worth individuals. Their
wealth is, as Henry puts it, "protected by a highly paid, industrious
bevy of professional enablers in the private banking, legal,
accounting and investment industries taking advantage of the
increasingly borderless, frictionless global economy". According to
Henry's research, the top 10 private banks, which include UBS and
Credit Suisse in Switzerland, as well as the US investment bank
Goldman Sachs, managed more than ?4tn in 2010, a sharp rise from ?
1.5tn five years earlier.

The detailed analysis in the report, compiled using data from a range
of sources, including the Bank of International Settlements and the
International Monetary Fund, suggests that for many developing
countries the cumulative value of the capital that has flowed out of
their economies since the 1970s would be more than enough to pay off
their debts to the rest of the world.

Oil-rich states with an internationally mobile elite have been
especially prone to watching their wealth disappear into offshore bank
accounts instead of being invested at home, the research suggests.
Once the returns on investing the hidden assets is included, almost ?
500bn has left Russia since the early 1990s when its economy was
opened up. Saudi Arabia has seen ?197bn flood out since the mid-1970s,
and Nigeria £196bn.

"The problem here is that the assets of these countries are held by a
small number of wealthy individuals while the debts are shouldered by
the ordinary people of these countries through their governments," the
report says.

The sheer size of the cash pile sitting out of reach of tax
authorities is so great that it suggests standard measures of
inequality radically underestimate the true gap between rich and poor.
According to Henry's calculations, ?6.3tn of assets is owned by only
92,000 people, or 0.001% of the world's population - a tiny class of
the mega-rich who have more in common with each other than those at
the bottom of the income scale in their own societies.

"These estimates reveal a staggering failure: inequality is much, much
worse than official statistics show, but politicians are still relying
on trickle-down to transfer wealth to poorer people," said John
Christensen of the Tax Justice Network. "People on the street have no
illusions about how unfair the situation has become."

TUC general secretary Brendan Barber said: "Countries around the world
are under intense pressure to reduce their deficits and governments
cannot afford to let so much wealth slip past into tax havens.

"Closing down the tax loopholes exploited by multinationals and the
super-rich to avoid paying their fair share will reduce the deficit.
This way the government can focus on stimulating the economy, rather
than squeezing the life out of it with cuts and tax rises for the 99%
of people who aren't rich enough to avoid paying their taxes."

Assuming the ?13tn mountain of assets earned an average 3% a year for
its owners, and governments were able to tax that income at 30%, it
would generate a bumper £121bn in revenues - more than rich countries
spend on aid to the developing world each year.

Groups such as UK Uncut have focused attention on the paltry tax bills
of some highly wealthy individuals, such as Topshop owner Sir Philip
Green, with campaigners at one recent protest shouting: "Where did all
the money go? He took it off to Monaco!" Much of Green's retail empire
is owned by his wife, Tina, who lives in the low-tax principality.

A spokeswoman for UK Uncut said: "People like Philip Green use public
services - they need the streets to be cleaned, people need public
transport to get to their shops - but they don't want to pay for it."

Leaders of G20 countries have repeatedly pledged to close down tax
havens since the financial crisis of 2008, when the secrecy shrouding
parts of the banking system was widely seen as exacerbating
instability. But many countries still refuse to make details of
individuals' financial worth available to the tax authorities in their
home countries as a matter of course. Tax Justice Network would like
to see this kind of exchange of information become standard practice,
to prevent rich individuals playing off one jurisdiction against
another.

"The very existence of the global offshore industry, and the tax-free
status of the enormous sums invested by their wealthy clients, is
predicated on secrecy," said Henry.


guardian.co.uk Copyright (c) Guardian News and Media Limited. 2012

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