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Pirate Banking: $21 to $32 Trillion in Estimated Tax Haven Money, Managed by Big Global Banks

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An interview on Real News Network with James Henry of the Tax Justice Network covers his newly released report “The Price of Offshore Revisited” in which he estimates the size of the “offshore” market as somewhere between $21 and $32 trillion as of December 2010. Note that this total includes only financial assets, and thus omits real assets (real estate, gold, artwork, yachts) that are held via trusts or corporate entities in tax havens.

If you are in finance, the broad outlines of this story are familiar. Much of “private banking”, particularly the Swiss variety, is to serve as a bolthole for money that the wealthy are trying to keep out of the hands of the taxman (or have looted from their country’s treasury). Henry estimates that 90% the total funds in “offshore” accounts is not reported to tax authorities. But US firms have become fierce competitors in this business. In the 1980s, Citibank became a major player in the Latin American market. And the current ranking of private banking operations puts Goldman as number three, behind UBS and Credit Suisse. And the results are perverse. Developing countries, which in theory should be the targets for investments by advanced economies, are instead often capital exporters as the wealthiest locals move their funds into tax havens.

Henry points out that while the US has started trying to crack down on the Swiss, it’s refused to help in making US banks engage in similar reporting to countries that, like the US, tax their citizens on global income. And that’s because, as Nicholas Shaxson discussed in his book Treasure Island, the US is now the leader in “offshore,” having displaced the UK.


More at The Real News

The underlying report is very readable and also highlights how little has been done to shed light on this topic. It’s not hard to imagine why.


More at The Real News

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36 comments

    1. Glen

      No, there’s not that many rich people, it’s just that if you make a million a year nowadays, you are not that rich compared to these people.

      That’s why it’s so easy to snooker people making $250K a year into thinking they’re being targeted as “rich people” when they’re actually just meat puppets for the real rich people.

    2. Robin Hood

      There’s not really that many rich people, but 20-30 trillion is still a lot of money.

      And every year I read the little check box on my 1040 asking me if I have a foreign bank account and if I check yes I have to divulge where and the account numbers and if I’m getting a quarter point of interest on it. I’m sure all hell would break loose if I perjured and shorted the IRS $5 or $10 dollars.

    3. Jack Lohman

      Some day, the politicians in these tax havens are going to claim this “illegal wealth,” as they do in Russia, and the rich people will be left with nothing. Or their security team will turn bad. We haven’t heard the end of it.

      But troublesome is that our corrupt congress is in the game, and they get their share of the booty to leave the holes in the law. We need a 100% turnover.

      See http://moneyedpoliticians.net/2012/07/30/over-2-1-trillion-now-in-off-shore-tax-havens/

  1. Sundog

    Cheers for the shout to Nick Shaxson. “Treasure Islands” is required reading.

    I want to recommend Raymond W. Baker’s book “Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free Market System” published in 2005.

    American by birth, Harvard MBA, Baker did business in Africa for years and then went in a scholarly direction to write this book. It’s up there with Tim Weiner’s “Legacy of Ashes” regarding depth of research and ongoing relevance. Very readable, too. Baker directs Global Financial Integrity, a think tank focused on illicit finance.

  2. Kyrie Eleison

    Taxes are already ridiculously low, and still it all keeps getting stuffed offshore.

    So I really don’t see where they are coming from saying that they need to be cut further. How can you cut from something that doesn’t even exist?

      1. Kyrie Eleison

        Sure, why not.

        How many more people are they going to kill and how much more are they going to steal before people finally decide they’ve had enough of their BS?

        I suppose this doesn’t just apply to the Kochroaches.

    1. Capo Regime

      Clearly if they are avoiding taxes they are not ridiculously low. What would be the “righ”t rate in your mind? Taxes are fairly high in the U.S. f course the investment banker should be held to the same account as the dentist but that does not mean the taxes are low. Rgulation on the rich is lax for taxes and well everything else.

      1. Kyrie Eleison

        It seems like you are arguing your own point.

        I don’t think it’s the average wage-earner burying funds overseas, do you?

        Again, if the upper echelon have all these loopholes, and regulation is so lax, why bother being such a tryhard to hide it all?

        I think if you took a look at the historical trend, the effective tax rate of today is way closer to what it was in the 20′s compared to the 40′s through the 60′s. So yes, it is low.

        Perhaps the “right” rate in your mind is similar to that of Charles?

        1. Capo Regime

          No. You stated taxes where ridiculously low–onus is on you to proffer what the right rate should be. For me? The right rate should be zero.

          1. Kyrie Eleison

            There is no onus on me to do anything except provide evidence to the point I had made:

            When looking at the historical trend of the top tax rate, currently it is ridiculously low.

            Perhaps the onus is on you to proffer why it should be zero?

          2. enouf


            Kyrie Eleison says:
            August 4, 2012 at 3:59 pm
            There is no onus on me to do anything except provide evidence to the point I had made:

            When looking at the historical trend of the top tax rate, currently it is ridiculously low.

            Perhaps the onus is on you to proffer why it should be zero?

            Simple; because ‘Tax is Theft’

            Love

      2. Mel

        I really don’t understand this cunning plan y’all have for getting the expenses of your republic paid by people who have no money. Every time you go out for a five-star dinner, you invite a homeless person along, and right after dessert you go off to the bathroom and never come back? It amounts to the same thing.

        1. Kyrie Eleison

          If you made the homeless invitee cook the meal, serve it up, and then do all of the cleaning afterwards, in addition to being stuck with the bill at the end, then I can see how it would be an accurate analogy.

          With all that energy being spent doing all the work, and knowing he’ll be on the hook for it at the end, I’m not sure if he would even be able to enjoy what little of the dinner he is allowed to eat anyways.

          Makes a good case for doing something nasty to the soup back in the kitchen, no?

    2. Capo Regime

      Where is it that taxes are ridiculously low? This is a global issue and many nations have pretty high taxes. Much of it is also flight capital. Its not just U.S. Money. And in fact, taxes globally are not low, otherwise this behavior would not be rampant. Taxes are low in tax havens by definition. Issue is that compared to past (what with data systems and so forth) enforcement should be easier. You are confusing the issue of optimal rates vs enforcement.

      Again, on what basis are taxes ridiculously low? What evidence? Now for thought exercise lets assume that all this wealth was fully taxed when it became a capital gain. Given what is going on in government today do we have any basis to believe that the tax revenue would be used in any better than it is used now? My populist streak relishes socking it to the rich, but then what? The governments buy better drones or cronyism becomes more extravagant to cover the tax bill?

      1. Kyrie Eleison

        I have said time and time again what I am basing my assessment on, the information is widely available, yet even if the horse was led to water I highly doubt it would drink.

        I am referring to the situation as it stands in the U.S., since I am from there, and it is in context with the article under discussion.

        It seems to me that TPTB are going to do whatever they want anyways with the money the way it stands, so if it’s going to be rich men playing rich men’s games then I would prefer that the rich men bear the cost for it, instead of sticking it to the poor either directly via taxation or indirectly via overindulgent borrowing.

        Thoreau dabbled in tax evasion, he wound up in jail, and was eventually bailed out. It was a political statement, sure, but otherwise did it not accomplish much.

        Are you advocating some sort of boycott en masse, where all the working people “stop the engine of the world” so to speak? Once all the prisons and the camps are filled, then what?

  3. foppe

    Salmon was extremely dismissive of the report a week or so ago, citing such brilliant reasons for this stance as that “there’s a good reason why countries tax income and not wealth: for all that I personally think that a wealth tax is a very good idea, I can’t think of any country in the world, other than the USA, which could effectively levy such a thing.”
    Convincing, non? Have cake, eat cake, be seen as “non-partisan”.

    1. Yves Smith Post author

      Easy to be dismissive if you haven’t tried doing the work yourself. Henry explains in the report why this data is hard to get (by definition!) and why he thinks his estimates are conservative. His total is only 10% of global wealth, as estimated by one of the major banks (IIRC Credit Suisse). When you consider that 40% of the reported wealth in the US and China is now held by the top 1%, and you see even worse skews in some developing economies (Chile, for instance), this does not strike me as nuts. And Henry said he wanted this to be a forcing device, he challenged others to come up with better #s.

  4. Doug

    Another excellent book on this is Africa’s Odious Debts by Leonce Ndikumana and James Boyce

    1. citalopram

      Terrible advice. It’s entirely passive and assumes that voting is a change agent, which is not. It also assumes that votes are counted accurately, and that no voting fraud occurs ever.

  5. rps

    I’m wondering if this $21-$32 trillion is virtual/electronic assets or actual hard assets? If the assets are ‘electronic’ then the $$$ doesn’t actually exists other than on a bank of computers. This virtual wealth can easily be tapped into by the US gubermint. Hell, the US policy of covert operations to invade sovereign countries can easily access all the tax dodgers info. Then again, congress doesn’t want to be caught with their hands in their offshore cookie jar.

    1. Mel

      True. Grabbing those assets wouldn’t be different from other acts of grabbing that *have* been carried out. All a matter of willpower. It might be misleading to think the offshore assets might be fictitious. They’re denominated in the same dollars that hard assets are valued in, so whenever they choose they can come out and outbid anyone else for those same assets. How much election can you buy for 1/3 of the gross world product? (Answer: More than anyone actually needs. Barring a bidding war, nobody would have to spend that much.)

      1. Robin Hood

        From the article…”Note that this total includes only financial assets, and thus omits real assets (real estate, gold, artwork, yachts) that are held via trusts or corporate entities in tax havens.”

        This reminds me of an old Neil Stephenson novel, Interface, where a shadowy global organization protects their wealth thru any means they choose. And when you think about it, a tiny piece of 20 trillion can buy a lot of competent hit men. I’m beginning to think that may also explain government’s incompetence in being unable to find $20 trillion in bank records.

        They were making a big deal about numbered Swiss bank accounts, but this is US and other euro-british banks we are talking about. And I read that the FBI is quite proficient in tracking down terrorist money.

        I think this is a great selling point for nationalizing banks, however. I’m pretty sure the FDIC does not insure offshore accounts, especially of the fraudulent variety. So after nationalizing a multinational bank, all you need to say to these clients is “If it ain’t there, it ain’t there”.

    2. Yves Smith Post author

      This is all financial assets. Does not include real estate, physical gold, etc.

  6. rps

    This is the modern version of sovereign invasion. The virtual invaders and wealth pillagers of 21st century societies don’t even have to step onto the shores of the conquered sovereign nations. We’ve been conquered electronically with the booty removed via electronic one’s and zeros. Undoubtedly these 21st century vikings, saxons, and normans believe its all a video game without the devastating consequences such as the downfall of civilizaations. In otherwords, they are physically removed from the societies that they rape and pillage. The 21st feudalism model is an electronic game that impacts the rest of us. Very interesting indeed. What if these computer systems of wealth hoarding, destruction,and stealing go dark? We’ve existed without computers for thousands of years.

  7. The Wandering Pig

    A beautiful left-leaning website (with the necessary mainstream blogs to check what the enemy is up to) is http://www.ibmm.org.uk

    Hard to understand why assassinations are down given the number of white-collar crooks.

  8. The Gizmo51

    Perhaps one day we will get to decide the type of “free market” we will have: Greenspan’s no regulations anything goes policy or transparent and enforced regulations. Size of government is not as important as efficiency of government although it should not be any larger than necessary. Term limits and limiting lobby money would slow down the corruption and waste. The government makes it too easy to spend other people’s money or fight other people’s wars for that matter. Used to be one person, one vote. Now it’s one person if you can qualify, one vote, and one million dollars or more.

  9. wafranklin

    In the late 1980s a Brazilian multi-millionaire advised me that people like him, from other countries, because the US was a “tax haven” and extremely safe. I confess I had never ever thought that the case, but yes, it is still indeed true, only lots of others got in the business.

  10. Alex Morfesis

    henry is understating the issue…very conservative…

    I have been sniped at for not previously explaining how us Gross Economic Product is

    30 trillion per year…not the 15 trillion GDP number…

    http://www.census.gov/econ/smallbus.html

    but everyone likes to live their own little meme…

    most people suggest interest rates were 17%+ under Jimmy Carter when it was actually ronnie raygun…

    but even uglier…in an atlantic monthly anti obama piece
    it turns out the president who created the most jobs
    since world war 2, per year was….drumroll please…

    jimmy carter…hard to believe…

    http://www.theatlantic.com/business/archive/2012/08/the-3-charts-that-prove-obama-will-be-crushed-in-the-election/260682/

    globally, probably there are 100 trillion in assets beyond the grip of the tax man…

    although in theory, the US controlled assets are tax defered…

    gotta love that free float mechanism of derivatives and “captive insurance”

  11. Bud

    A good reason for maintaing offshore assets is diversification against country risk, not tax avoidance.

    It’s also a rich man’s game by deliberate design of the tax laws and draconian penalties for failing to dot every ‘i’ and cross every ‘t’.

    As governments go broke, pols party on with spending and simply gouge deeper into the national pie to extract their “fair share” to lavish on voters so they can remain in office. It isn’t your money, after all. The only question is how much of their money the politicians and bankers who own them will allow you to keep.

    Taxing the rich at higher rates keeps the country going a few more days as the debt load continues to climb without any hope it will ever be paid off. Sooner or later, creditors figure this out. Then what, mates?

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