• Private
banks help wealthiest to move cash into havens
guardian.co.uk,
Heather Stewart, business editor, Saturday 21 July 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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