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, 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.
Study: $21 trillion hoard hidden from taxman by global elite
Private banks help wealthiest to move cash into havens
Posted 21 July 2012 - 03:59 PM
Posted 22 July 2012 - 12:17 AM
You think people would have realised something was odd when rich people kept asking them to donate to charity...
Posted 22 July 2012 - 12:33 AM
Posted 22 July 2012 - 12:50 AM
that tax evading bullshit has gotta stop obviously.
Posted 22 July 2012 - 01:06 AM
you really think that capitalism can just keep going for the next few decades?
there will be no more revolutions of such kind, everyone loves capitalism when it's working to their favor.
that tax evading bullshit has gotta stop obviously.
Posted 22 July 2012 - 01:22 AM
it can keep going forever i think.
Yeah, infinite growth on a finite planet. Sounds like it could work. And don't you think this tax evading is some sort of spill-over effect of capitalism? Capitalism has been good, but I think it's starting to run it's course and showing its inherent flaws. Today it seems more like society is being changed to the benefit of the economy rather than economy being changed to the benefit of the society, the way it should be.
Posted 22 July 2012 - 01:40 AM
(plus i don't think that the concept of infinite growth is within the basic understanding of capitalism either.)
i guess there are numerous ways you could look at tax evading, to me it's a crime that people do and it can be fought against.
Posted 22 July 2012 - 01:56 AM
The other article at the Guardian was interesting as well:
The struggles of the authorities in Egypt to recover the vast sums hidden abroad by Hosni Mubarak, his family and other cronies during his many years in power have provided a striking recent example of the fact that kleptocratic rulers can use their time to amass immense fortunes while many of their citizens are trapped in poverty.
The world's poorest countries, particularly in sub-Saharan Africa, have fought long and hard in recent years to receive debt forgiveness from the international community; but this research suggests that in many cases, if they had been able to draw their richest citizens into the tax net, they could have avoided being dragged into indebtedness in the first place. Oil-rich Nigeria has seen more than $300bn spirited away since 1970, for example, while Ivory Coast has lost $141bn.
In fact, some experts believe the amount of assets being held offshore is so large that accounting for it fully would radically alter the balance of financial power between countries. The French economist Thomas Piketty, an expert on inequality who helps compile the World Top Incomes Database, says research by his colleagues has shown that "the wealth held in tax havens is probably sufficiently substantial to turnEurope into a very large net creditor with respect to the rest of the world."
In other words, even a solution to the eurozone's seemingly endless sovereign debt crisis might be within reach – if only Europe's governments could get a grip on the wallets of their own wealthiest citizens.
Posted 22 July 2012 - 10:49 AM
Posted 22 July 2012 - 10:56 AM
Posted 22 July 2012 - 11:07 AM
It's a bit of a funny list because it uses absolute numbers and doesn't say anything about the relative amount with respect to the entire country. Anyways, China and the US are top of the pops, obviously.
Edited by goDel, 22 July 2012 - 11:07 AM.
Posted 22 July 2012 - 11:17 AM
so 1 of 20 households is a millionaire household ?! either i miss something or this is just really counter intuitive..
Edited by eugene, 22 July 2012 - 11:18 AM.
Posted 22 July 2012 - 11:24 AM
Posted 22 July 2012 - 11:55 AM
also on topic of resources consumption, a brilliant and hilarious idea:
Crappy ideas like these make me think of Carl Sagan talking about some other civilizations that probably have existed before but eventually faced self-destruction and remind me of how easy it can be to find the path to such destruction. Especially on earth...
Posted 22 July 2012 - 12:07 PM