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.








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