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$21tn: hoard hidden from taxman by global elite
• Study estimates staggering
size of offshore economy
• Private banks help
wealthiest to move cash into havens
by Heather Stewart
July
21, 2012
The Cayman Islands:
a favourite haven from the taxman for the global elite. Photograph: David
Doubilet/National Geographic/Getty Images
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.
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