(The auther of this report, James Henry, will be on my radio show just after 5:40ET today. The streaming audio can be foundhere.)
Tax Justice Network
July 22, 2012
July 22, 2012
At least $21 trillion of unreported private financial wealth was owned by wealthy individuals via tax havens at the end of 2010. This sum is equivalent to the size of the United States and Japanese economies combined. The research comes amid growing concerns about the enormous gulf between rich and poor in countries around the globe.
There may be as much as $32 trillion of hidden financial assets held offshore by high net worth individuals (HNWIs), according to our report The Price of Offshore Revisited, which is thought to be the most detailed and rigorous study ever made of financial assets held in offshore financial centres and secrecy structures.
James S. Henry, TJN Senior Adviser and main researcher for The Price of Offshore Revisited, said: “This new report focuses our attention on a huge ‘black hole’ in the world economy that has never before been measured – private offshore wealth, and the vast amounts of untaxed income that it produces. This at a time when governments around the world are starved for resources, and we are more conscious than ever of the costs of economic inequality.”
Other Key Findings:
· At the end of 2010 the Top 50 private banks alone collectively managed more than $12.1 trillion in cross-border invested assets for private clients, including their trusts and foundations. This is up from $5.4 trillion in 2005, representing an average annual growth rate of more than 16%.
· The three private banks receiving the most assets offshore on behalf of the global super-rich are UBS, Credit Suisse and Goldman Sachs. The top ten banks commanded more than half the top fifty’s asset total – an increased share since 2005.
· Fewer than 10 million members of the global super-rich have amassed a $21 trillion offshore fortune is. Of these, less than 100,000 people worldwide own $9.8 trillion of wealth held offshore.
· If this unreported $21-32 trillion, conservatively estimated, earned a modest rate of return of just 3%, and that income was taxed at just 30%, this would have generated income tax revenues of between $190-280 bn – roughly twice the amount OECD countries spend on all overseas development assistance around the world. Inheritance, capital gains and other taxes would boost this figure considerably.
· For our focus subgroup of 139 mostly low-middle income countries, traditional data shows they had aggregate external debts of $4.1 tn at the end of 2010. But take their foreign reserves and unrecorded offshore private wealth into account, and the picture flips into reverse: they have aggregate net debts of minus US$10.1-13.1 tn. In other words, these countries are big net creditors, not debtors. Unfortunately, their assets are held by a small number of wealthy individuals, while their debts are shouldered by their ordinary people through their governments.
We consider these numbers to be conservative. This is only financial wealth and excludes a welter of real estate, yachts and other non-financial assets owned via offshore structures.
Nicole Tichon, director of Tax Justice Network USA, said, “Recent investigations into the world’s largest banks have shown that financial secrecy is the means to bad ends. It protects criminals of all stripes. And the loss of tax revenues to both developed and developing countries has left widespread job loss, budget cuts and basic services in its wake.”
Henry draws on data from the World Bank, the IMF, the United Nations, central banks, the Bank for International Settlements, and national treasuries, and triangulates his results against data reflecting demand for reserve currency and gold, and data on offshore private banking studies by consulting firms and others.
Accompanying this research is another study by TJN, entitled Inequality: You Don’t Know the Half of It, which demonstrates that all studies of economic inequality to date have failed to account properly for this missing wealth. It concludes that inequality is far worse than we think.
TJN interviewed eight of the world’s most respected economists specializing in economic inequality. They all confirmed a huge under-reporting problem in this area.
TJN’s research explains that if an asset is hidden in an offshore bank account, trust or company, and the ultimate owner or beneficiary of the income or capital therefore cannot be identified, then this asset and the income it produces cannot be counted in inequality statistics.
Nicholas Shaxson, author of the book Treasure Islands: Tax Havens and the Men Who Stole The World, said, “A pinstripe infrastructure of accountants, lawyers and financial institutions has painstakingly put together a global offshore system for hiding a large chunk of the world’s wealth and income from view. They have been spectacularly successful. Now that we can at last see the true scale of this monster, we will have to get used to the idea that inequality is much worse than we ever thought.”
John Christensen, director of the Tax Justice Network, said, “Inequality has reached epic proportions. It threatens economic and social stability – but none of the big institutions such as the IMF, the World Bank, the Bank of England or the Fed, with their many thousands of highly paid economists – have ever taken useful and serious steps to measure all this offshore wealth. Without this, we could never understand the true, gargantuan scale of the inequality challenge we face. This is an astonishing abdication of responsibility on their part.”
Although some inequality studies try to compensate for the missing offshore assets, all experts interviewed for this TJN paper, agreed that no study comes even close to compensating sufficiently.
The Tax Justice Network promotes transparency in international finance and opposes secrecy. We support a level playing field on tax and we oppose loopholes and distortions in tax and regulation, and the abuses that flow from them. We promote tax compliance and we oppose tax evasion, tax avoidance, and all the mechanisms that enable owners and controllers of wealth to escape their responsibilities to the societies on which they and their wealth depend.