Posted on 23-7-12
£13tn Hoard Hidden From Taxman
By Heather Stewart, guardian.co.uk
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
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
"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.