Posts Tagged ‘Offshore Banking’

Banks poison West’s relations with Ukraine

May 13, 2014

The Maidan protests were an expression of disgust with the ongoing corruption of the Ukraine government, a corruption which has left the country mired in poverty and backwardness.

But as was pointed out in an important article in The American Interest last week, corruption could not have flourished as it did without the cooperation of banks in western Europe and the USA.

American political and business leaders tell the eastern Europeans that capitalism and democracy are the same thing.  Given the type of capitalism that our government has tried to export, it is not surprising that Russians, Ukrainians and others are dubious about our type of democracy.

Imagine you spent the past decade fighting Ukrainian corruption. The model of good governance you looked up to was Britain or Germany. You applied for European Union funds. You were trained by Western foundations and EU funded think-tanks to follow the money stolen by your state.

ukraine.economic.growthBut then you discovered something horrible: the money was flowing right back to the West. Those models of good governance you looked up to turned out to be providing money-laundering services to the very people and institutions stealing your country’s future.

This is what happened to Daria Kaleniuk at Kiev’s Anti-Corruption Action Centre. The director of one Ukraine’s most important NGOs battling corruption spent years investigating how corruption actually works. But the more she learned, the more she viewed both America and the European Union as hypocrites.

Kaleniuk explains:

What we found was that the money stolen in Ukraine was heading into British and European tax havens and hidden using shell companies inside the European Union. This was very uncomfortable to find out. What we felt is the Western elites were being hypocritical to us—preaching anti-corruption but allowing this offshore world to flourish.

Kaleniuk’s outrage is increasingly being felt across Ukraine—and not just in the think-tank world but increasingly in politics as well. Heavily involved in activism during the Maidan protest movement, Ukrainian MP Lesya Orobets is running for Mayor of Kiev on a platform that flirts with nationalist outrage. She is enraged by Western complicity with the offshore black hole into which Ukraine’s national wealth has long disappeared:

What you need to understand is that Western tax havens have resulted in Ukrainian deaths. Take for example the theft of Ukraine’s HIV budget. The national budget for fighting HIV was stolen and hidden in tax havens and in Great Britain. But this has consequences—we are now approaching a 2 percent HIV infection rate in Ukraine, which is near the no-return point of pandemic. This corruption will kill British men too. I hear they come to Ukraine. But they also return home. What will happen if the British do not close down their tax havens? I will be deeply, negatively, impressed.

Talk to any Ukrainian revolutionary and you soon realize that offshore finance is rapidly undermining Western soft power. Take activist blogger and journalist Mustafa Nayem, one of the most charismatic protest leaders in the early stages of the Maidan who first called out the protestors onto the streets. He is exasperated with Western offshore hypocrisy.

Why do they only now investigate the hidden fortunes that were stolen and hidden in Austria and in Switzerland? We told the Europeans and we told their embassies a hundred times this money as stolen and hidden in their countries. And nothing happened. Now that the regime has fallen, they suddenly—in a matter of days—can reveal the stolen money. But why did they not do this before? They are guilty—guilty of leaving us alone with these thieves. They are guilty of allowing them to plunder us.

Behind the scenes, many in the new government feel the same way. But because they are financially dependent on the West when it comes to staving off economic collapse, few American and European diplomats have picked up on what’s really going on.

Talking to revolutionary minister Dmytro Bulatov, it comes up quickly enough: “Ukrainian money was stolen and taken to Austria and Switzerland and British tax havens. But we want that money back.”

via The American Interest.

Allowing European Union and American foreign policy to be held hostage by banking interests is not in the interests of the American people nor any of U.S. allies.  The banks don’t have allegiance to any particular country, including our own.

It wouldn’t take a Marshall Plan to win the friendship of the Ukrainian people.  Just provide some relief from the crushing debt burden piled up by the former regime, and help the Ukrainian government track down the money that has been taken out of Ukraine all these years.

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Inside the hidden world empire of money

April 18, 2013

The International Consortium of Investigative Journalists is in the process of publishing reports on how the world’s millionaires and billionaires escape taxation and the law through the use of tax havens.   Many are from countries in financial crisis that are in the process of raising taxes and reducing government services for working people and the middle class.

The Tax Justice Network, an anti-tax haven organization, estimated that as much as a third of the world’s wealth is held in tax havens, and half of the world’s trade flows through them.  I don’t know the basis for that estimate.  The fact is that the amount is huge, and that there is no accurate way of measuring it.

Tax havens also are havens from the criminal law.  They hide the wealth of corrupt politicians, crooked financiers, narcotics traffickers and terrorist networks, and they are used by nations such as North Korea and Iran to evade international economic sanctions.  At least two supposedly respectable British-based banks, HSBC and Standard Chartered, actively sought money laundering business in Mexico and other countries.

Switzerland was once the go-to country for secret, numbered bank accounts, but now the United Kingdom and its overseas territories are the key players in the secret world financial network.  Tax shelters in territories such as the Cayman Island, the Cook Islands and the British Virgin Islands are linked to banks in the City of London, which itself is a separate jurisdiction with its own government separate from the rest of London.

Vanity Fair magazine reported in its current issue—

It comes as a surprise to most people that the most important player in the global offshore system of tax havens is not Switzerland or the Cayman Islands, but Britain, sitting at the center of a web of British-linked tax havens, the last remnants of empire. 

An inner ring consists of the British Crown Dependencies—Jersey, Guernsey and the Isle of Man.

Farther afield are Britain’s 14 Overseas Territories, half of them tax havens, including such offshore giants as the Caymans, the British Virgin Islands (B.V.I.) and Bermuda. 

Still further out, numerous British Commonwealth countries and former colonies such as Hong Kong, with deep and old links to London, continue to feed vast financial flows—clean, questionable and dirty—into the City. 

The half-in, half-out relationship provides the reassuring British legal bedrock while providing enough distance to let the U.K. say,  “There is nothing we can do” when scandal hits.

***

Britain could close down this tax-haven secrecy overnight if it wanted, but the City of London won’t let it. “We have, to put it provocatively, a second British empire, which is at the very core of global financial markets today,” explains Ronen Palan, professor of international political economy at City University in London. “And Britain is very good at not advertising its position.”

via Vanity Fair

Bill Black, an expert on white collar crime and financial fraud, noted in an interview on the Real News Network that few Americans appear in the ICIJ reports, compared to Russian oligarchs and Central Asian and African dictators.  He said that is because the United States is more aggressive than most of the world’s governments in tracking down and taxing overseas wealth.

American citizens are required to report foreign income to the Internal Revenue Service, and our top income tax rates, especially capital gains, are lower than in most nations, so Americans have more to lose and less to gain than most people by using foreign tax havens.   That is not to say that the United States does not welcome foreign investors who want to escape taxation in their own countries.

American corporations are another matter, Black said.  Divisions of global companies buy and sell to each other, and a smart accountant can easily set things up so that most of the profitable sales are all in low-tax or no-tax jurisdictions, and most of the losses are in high-tax jurisdictions.  But this is outside the scope of the report so far.

I think what’s needed is an international organization similar to the World Trade Organization which would impose economic sanctions on nations whose governments foster money laundering.  However, the direction of international economic agreements, from the North American Free Trade Agreement to the proposed Trans-Pacific Partnership Agreement, is to impose sanctions on nations that impede the free flow of money, whether dirty or clean.

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How the global elite escape taxation and the law

August 6, 2012

Offshore tax havens are a bigger factor in the world economy that I ever dreamed.  Financial assets held offshore, beyond the reach of effective taxation, are about one-third of the world’s total financial wealth.  Over half of all world trade passes through tax havens.  Without tax havens, there might not be a world financial crisis.

Such are the conclusions of a new report completed last month for an organization called the Tax Justice Network by a team of researchers headed by James S. Henry, former chief economist for McKinsey & Co., a respected business consulting firm.  Among the facts and figures in the report:

  • An estimated $21 trillion to $32 trillion were held in secret “offshore” tax havens in 2010.  To give an idea of how much that is, the value of the entire U.S. output of goods and services (gross domestic product) in that year was $15 trillion.
  • Some 139 non-rich countries have a combined debt of $4.1 trillion.  But if their citizens’ foreign reserves and secret bank accounts where brought home, those countries would have net assets of $10.1 trillion to $13.1 trillion.
  • If assets held in tax havens, beyond the reach of effective taxation, generated investment income at a 3 percent rate, and if that income were taxed at a 30 percent rate, it would generate $190 billion to $280 billion in tax revenue—about twice as much as the world’s wealthy countries contribute in foreign development aid.

Click to enlarge.

This chart shows where the world’s billionaires put their money.  More than 43 percent of their wealth is hidden in tax havens.  Among the small elite group with more than $30 billion each, nearly 60 percent is invisible.

Click to enlarge.

The above chart shows the 20 countries with the greatest capital outflows.  These 20 countries account for more than 80 percent of the money flowing out of the 139 non-rich countries.  Where does the money go?  A lot of it comes to the United States, where our laws exempt non-resident aliens from U.S. taxes and permit them to hide their income from their home governments.

Some of the people who use tax havens may be honest business owners who fear that their hard-earned wealth will be confiscated by a corrupt dictator.  But James S. Henry thinks most of the money in tax havens comes from the corrupt dictators themselves, along with criminals, money launderers and ultra-rich people who are allergic to paying taxes.  Mitt Romney’s Bain Capital made extensive use of offshore tax havens.  It would be interesting to know the names of the investors in Bain Capital’s various deals.

In the Real News Network interview shown at the top of this post, James S. Henry told interviewer Paul Jay that Treasury Secretary Timothy Geithner provided information to the Canadian government on U.S. bank accounts of Canadian citizens.  When the Mexican government asked for the same information, Geithner ignored them.   Our government supposedly is waging a War on Drugs, but our laws enable drug lords in Mexico and other countries to stash invisible wealth in U.S. banks.

The “offshore” tax havens are not just small and obscure nations such as Panama, Liechtenstein and the Cayman Islands.  The biggest tax havens are the United States (not for our own citizens, of course), the United Kingdom and Switzerland.  We are part of the problem, not part of the solution.

Click on The Price of Offshore Revisited press release PDF for the Tax Justice Network’s press release and summary of the report.

Click on The Price of Offshore Revisited: New Estimates of “Missing” Global Private Wealth, Income, Inequality and Lost Taxes PDF for the full report.

Click on Tax Justice Network for that organization’s home page.

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