(MintPress) — Offshore accounts across the globe are swelling with upwards of $32 trillion deposited by the world’s wealthiest hoping to escape paying taxes, according to a new report from Tax Justice Network, an international group that campaigns against tax havens.
Moreover, the report calls this wealth, amassed under various offshore abuses, including unreported capital flows and under-taxed corporate profits, “a huge black hole in the world economy”.
The study aimed to calculate and provide estimates for the size, growth and distribution of untaxed private wealth protected and serviced by the global offshore industry, a summary reads, while concluding, “The subterranean system that we are trying to measure is the economic equivalent of an astrophysical black hole.”
Some conservative groups in the U.S. are crying foul at the study’s finding though, at the same time GOP presidential hopeful Mitt Romney has admitted his private equity firm, Bain Capital, had set up offshore accounts in the Cayman Islands to help wealthy investors avoid paying U.S. taxes.
Measuring the black hole
The amount of money in offshore accounts, found by the report to be greater than previously estimated by experts, is equivalent to both the U.S. and Japanese GDP combined.
“In terms of tackling poverty, it is hard to imagine a more pressing global issue to
address,” said James Henry, the author of the study, who points out that because of these offshore accounts, many nations are losing out on tax revenue that could go a long way toward assisting them in fixing their financial problem.
The study, which looked at data from the World Bank, International Monetary Fund, United Nations and central banks, found that approximately 10 million people worldwide have offshore accounts, with 100,000 people owning half of those secreted assets.
Looking at 139 developing countries where money is held in tax havens by these private citizens, the study estimated that in the last three decades, the richest citizens of these 139 countries had amassed $7.3 trillion-$9.3 trillion of “unrecorded offshore wealth” by 2010.
According to John Christensen, Director of the Tax Justice Network, “The enormous scale of wealth held offshore shows how the gains of globalisation have accumulated in the hands of a tiny, tiny elite,” he told MintPress in an interview from London.
Christensen said he was shocked by the amount of money uncovered by the study, the “sheer scale of the figures” was not something that experts had previously projected. In 2005, the last time projections were given, the organization guessed that the offshore accounts held about $11.5 trillion. He also added that many of the practices used to hide the funds are plainly illegal.
“What’s shocking is that some of the world’s biggest banks are up to their eyeballs in helping their clients evade taxes and shift their wealth offshore,” Christensen said. “We’re talking about very big, well-known brands – HSBC, Citigroup, Bank of America, UBS, Credit Suisse – some of the world’s biggest banks are involved … and they do it knowing fully well that their clients, more often than not, are evading and avoiding taxes.”
Speaking on the significance of the report, Christensen said, “It is unacceptable that such a huge issue is almost totally unresearched by organisations like the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and World Bank. They don’t even publish useful statistical data for independent researchers to work with. As a result the entire tax haven economy, which is now an intrinsic part of global financial capitalism, is able to fester in the dark with scarcely anyone paying it serious attention.”
Political implications in the US?
However, some conservative groups in the United States, the world’s richest country, are downplaying and even disputing the findings of the report.
According to an article in the Wall Street Journal, Dan Mitchell, a senior fellow at the libertarian Cato Institute, compared the report’s findings to some estimates of climate change.
And Andrew Quinlan, president of the Center for Freedom and Prosperity, a group that promotes international tax competition and financial privacy, was quoted as saying, “Tax Justice Network and other opponents of tax competition assume that all earnings belong first to governments, which is why they seek to prevent even legal wealth management techniques if they result in less money for spend-happy politicians.”
There is already speculation that the issue may add fuel to the flames of political disputes in the U.S., especially given recent controversy surrounding Republican presidential nominee Mitt Romney.
Romney, who has been asked by Democrats to release his tax returns and declined the request, recently said that Bain Capital, his private equity firm, set up offshore accounts in the Cayman Islands to help wealthy investors avoid paying U.S. taxes.
Romney’s admission
Romney, in an interview last week with Robert Costa of the National Review, said, “The so-called offshore account in the Cayman Islands, for instance, is an account established by a U.S. firm to allow foreign investors to invest in U.S. enterprises and not be subject to taxes outside of their own jurisdiction,” which refers to taxes imposed by the U.S. government.
“So, in many instances, the investments in something of that nature are brought back into the United States. The world of finance is not as simple as some would have you believe. Sometimes a foreign entity is formed to allow foreign investors to invest in the United States, which may well be the case with the entities that Democrats are describing as foreign accounts,” Romney said.
“He’s basically admitting here that the Bain funds are set up in the Cayman Islands to help people avoid tax,” said Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice, told the Huffington Post recently. “If you want to cheat on your taxes, boy, they’re making it really easy.”
As the Cayman Islands don’t report information on their investors’ accounts to other nations, “such sub-companies don’t merely help foreign investors avoid U.S. taxes, they help investors avoid paying taxes in other nations, as well. The ploy can even help American taxpayers invest in U.S. companies without accruing a tax bill with the IRS,” the report said. The establishing of personal offshore entities can therefore be helpful to Americans seeking to avoid paying U.S. taxes on investments in American firms, while they pose as foreign investors.
“We are up against one of society’s most well-entrenched interest groups. After all,
there’s no interest group more rich and powerful than the rich and powerful, who are
the ultimate subjects of our research,” Henry writes in conclusion to the report. “The first step, however, are the estimates. The way is hard, the work is tedious, the data mining is as mind-numbing as any day below surface at the coal face, and the estimates are subject to maddening, irreducible uncertainties. Nevertheless, as usual, some things may be said.”
Meanwhile, the Associated Press released a report this week indicating the amount of people living in poverty in the U.S. is on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and fraying government safety net.
While census figure from 2011 are slated to be released detailing this just days ahead of the upcoming presidential elections, a recent survey of more than a dozen economists, think tanks and academics, both nonpartisan and those with known liberal or conservative leanings, found that the poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent, marking the highest poverty level since 1965.