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2012-07-31

Exhaustive Study Finds Global Elite Hiding Up to $32 Trillion in Offshore Accounts

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A new report reveals how wealthy individuals and their families have between $21 and $32 trillion of hidden financial assets around the world in what are known as offshore accounts or tax havens. The actual sums could be higher because the study only deals with financial wealth deposited in bank and investment accounts, and not other assets such as property and yachts. The inquiry was commissioned by the Tax Justice Network and is being touted as the most comprehensive report ever on the "offshore economy." It also finds that private banks are deeply involved in running offshore havens, with UBS, Credit Suisse and Goldman Sachs handling the most assets. We’re joined by the report’s author, James Henry, a lawyer and former chief economist at McKinsey & Company. [includes rush transcript]

Transcript

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We turn now to a new report that reveals how wealthy individuals and their families have between $21 and $32 trillion of hidden financial assets around the world in what are known as offshore accounts or tax havens. The conservative estimate of $21 trillion—conservative estimate—is as much money as the entire annual economic output of the United States and Japan combined. The actual sums could be higher because the study only deals with financial wealth deposited in bank and investment accounts, and not other assets such as property and yachts.

The inquiry was commissioned by the Tax Justice Network and is being touted as the most comprehensive report ever on the "offshore economy." It’s called "The Price of Offshore Revisited." The study finds private banks are deeply involved in running offshore havens with UBS, Credit Suisse, Goldman Sachs handling the most assets offshore. According to the report, less than 100,000 people worldwide own almost $10 trillion of the wealth held in tax havens.

To talk about the implications of these findings, we’re joined by the report’s author, James Henry, economist, lawyer, board member of the Tax Justice Network, former chief economist at McKinsey & Company.

Welcome to Democracy Now!

JAMES HENRY: Thanks very much, Amy.

AMY GOODMAN: It’s great to have you with us. Tell us what you found.

JAMES HENRY: Well, the $21 trillion figure is the headline story, that’s a shock to a lot of people, actually represents about 10 to 15 percent of global wealth. So, from that standpoint, we think it’s a reasonable number. But the interesting thing is that all of this wealth accrues to the top 10 million people on the planet, and a lot of it just to the top 100,000, people with assets over $30 million per household.

The second thing that’s striking about this is the role of the great international banks that we’ve all come to know and love, the ones you described—UBS, Credit Suisse, HSBC, JPMorgan—all these banks—Goldman—big recipients of bailout money from taxpayers, and also deeply implicated in the financial crisis of 2008 to the current period. These are the same folks that have specialized in helping the wealthiest people on the planet take their money offshore and hide it from tax authorities.

AMY GOODMAN: You talk about pirate banks.

JAMES HENRY: Right.

AMY GOODMAN: What do you mean?

JAMES HENRY: Well, I mean that this is the business of taking money and moving it to secret offshore accounts and sheltering it from taxes. For example, if you are a wealthy Mexican investor, you can hold your bank deposits in New York City in Citibank or UBS tax-free. The U.S. government doesn’t collect taxes on bank deposits by nonresident aliens. And it doesn’t tell the Mexican authorities that you’re earning all that money. So, basically, we have designed our tax laws—the United States, the U.K., Switzerland—to become the largest tax havens in the world. The actual offshore islands, like the Caymans, are just conduits to these ultimate destinations.

AMY GOODMAN: People would say, well, we knew that about Swiss banks, but that’s not the same for U.S. banks.

JAMES HENRY: Oh, yeah, absolutely. The leaders in the pack here historically have been U.K. banks, U.S. banks and Swiss banks. And so, you know, we are all upset—our Treasury is trying to get the Swiss private bankers to stop coming to the United States and taking money from wealthy Americans. But our banks have been doing the same thing for decades with respect to Latin America, the Philippines, you know, much of Africa. And that’s a system that the banks have really designed.

AMY GOODMAN: Let’s talk about the continent of Africa and what this means for various countries and, most importantly, the majority of the populations there.

JAMES HENRY: Yeah. Well, for example, Nigeria is supposedly a debtor country. But when you look at all the unrecorded capital outflows that have flowed out of Nigeria, it turns out that Nigeria is actually, like many other developing countries, a net creditor of the richest countries in the world. So if you add up and accumulate all the unrecorded capital flows that have accrued to the Nigerian elite, political as well as private sector, you know, the tiny share of that country’s population owns a vast amount of offshore wealth. So the debt problem is not really a debt problem. It’s a tax problem. Developing countries account for about a third, we estimate, of the $21 to $32 trillion of financial assets that’s offshore.

AMY GOODMAN: Some of the critiques of the report, the investigation you did—this is from CNBC: quote, "The problem, says Dan Mitchell, a senior fellow at the Cato Institute, is that the estimate is based on a series of assumptions aimed at making people 'believe that much of cross-border investing is all about tax evasion and that all this money should go to government, and that this would be a good thing.'" That’s what he says. "The real problem facing governments, Mitchell says, is spending not revenues." Your response, James Henry?

JAMES HENRY: Well, my response is that he hasn’t read the report, basically. We’ve been very careful to estimate the size of this black hole using three different methods. We’ve looked individually at the top 50 banks in the world and have detailed numbers for each one of them. We’ve looked at 139 developing countries where we can get data on how much their unrecorded capital flows were, and we’ve built detailed models of those. And we looked at data published by the Bank for International Settlements. So the numbers are the best ever recorded here.

We’re not suggesting that the—you know, there may not be problems on the spending side, but it’s outrageous for the wealthiest people on the planet to pay zero taxes. And what this does to developing countries, in particular, because they can’t tax income, because they can’t tax wealth, they end up taxing low- and middle-income people with VAT taxes and sales taxes that are regressive. So, basically, what you’re seeing is that globalization is driving a big hole through the nation state system that was designed to raise tax revenue.

AMY GOODMAN: Let’s go to Mitt Romney, because that’s why the whole issue of offshore accounts has come into the big consciousness of the overall American population right now, the presumptive Republican presidential nominee, speaking to Radio Iowa earlier this month about his foreign investments.

MITT ROMNEY: With regards to any foreign investments, I understand—and you understand, of course—that my investments have been held by a blind trust, have been managed by a trustee. I don’t manage them, don’t even know where they are. Those—that trustee follows all U.S. laws. All the taxes are paid, as appropriate. All of them have been reported to the government. There’s nothing hidden there. There’s nothing—if, for instance, you own shares in, let’s say, Renault or in Fiat, you still have to pay taxes, you still have to disclose that in the United States.

AMY GOODMAN: That’s Mitt Romney. James Henry?

JAMES HENRY: Yeah, well, he’s not alone. That’s one estimate—one indication of our report. You know, basically, you’re looking at behavior that’s engaged in by a lot of Mitt Romneys, and, you know, essentially, the United States is facing kind of a stark choice in this election between the first president in history who, you know, has really had offshore accounts like this. You know, a lot of us who are tax experts—and not necessarily Democrats, by any means—just wonder what the heck is he hiding there. There must be something. You know, John McCain released 23 years of his tax reports, tax returns. Romney is still stopping with 2010. So, if there’s no problem, just release the returns.

AMY GOODMAN: I want to go more to Mitt Romney’s—the issue of his hidden wealth. He was speaking to Face the Nation. Senator Dick Durbin of Illinois challenged Mitt Romney to be more transparent with his finances.

SEN. DICK DURBIN: Mitt Romney has failed to make an economic disclosure that every president and candidate for president has made in the last 36 years. Goes back to his father, who disclosed 12 years of tax returns. He’s disclosed one. Secondly, he is the first and only candidate for president of the United States with a Swiss bank account, with tax shelters, with tax avoidance schemes that involve so many foreign countries. And the third is that when it comes down to his Swiss bank account, there is just no way to explain it. You either get a Swiss bank account to conceal what you’re doing, or you believe the Swiss franc is stronger than the American dollar.

AMY GOODMAN: That’s Senator Durbin. James Henry?

JAMES HENRY: Well, I think that he’s absolutely right. We should demand disclosure. This is a situation where you have essentially representation without taxation, not only for individuals, but also for corporations that are able to move their money offshore, conceal it and then come back to Washington and have enormous political impact on the system, spending their money under Citizens United. You know, Romney is just one kind of stellar example of that.

AMY GOODMAN: Name more names of the banks, who people should be watching for. And what do you think should be done about this?

JAMES HENRY: Good example is HSBC. They’re number three on our list, a big U.K. bank. They recently had a deferred prosecution agreement with the Department of Justice for laundering $14 billion of cartel drug money. They got off with a $1 billion parking ticket, and their profits per year are about $20 billion. So, you know, this is the Obama administration basically deciding not to close this bank, even though investigators that I’ve talked to at the bank—who have looked at the bank closely, say this is like BCCI in the ’90s. The only difference is that that was a Pakistani bank, which we decided to close down.

HSBC is just one of the top 10 banks on this list. Collectively, those 10 banks manage about $6.3 trillion of the $12.3 trillion that we located in these top 50 banks. So, you know, the other names on the list, you’ve mentioned—UBS, Credit Suisse, HSBC, JPMorgan, Pictet, Deutsche Bank, BNP Paribas, Barclays. These are the—

AMY GOODMAN: What about large corporations? You talk about intellectual—moving intellectual property offshore—

JAMES HENRY: Yeah.

AMY GOODMAN: —corporations like Google and Pfizer.

JAMES HENRY: Right. Well, in our film, We’re Not Broke, which was a Sundance documentary, we discussed corporate tax evasion. And this is the latest trend in the software industry and also in the healthcare industry, drug industry. Pfizer, Google, Microsoft, companies like General Electric are parking their intellectual property, their brands and software, offshore in places like Bermuda and paying royalties to themselves and essentially parking the profits in these low-tax jurisdictions and not paying any taxes on it. So, Google last year saved about $3 billion by that. So if you have, you know, this core kind of value, intellectual capital, moving offshore to low-tax havens, where it’s never been produced, essentially is a kind of, you know, decapitalization of the U.S. And all of these countries now also parked all these profits abroad to get tax breaks, and then they want a deal when they bring the money back. They want a repatriation tax cut, 5 percent.

AMY GOODMAN: So, what should happen?

JAMES HENRY: Well, we’ve tried this repatriation tax cut in 2004. It didn’t produce any jobs. And we shouldn’t—absolutely shouldn’t get in—the corporate—give in to this lobby. The corporate income taxes and personal income taxes have dropped steadily since the 1980s on high-income corporations. And, you know, at the same time, we’ve seen the growth of this offshore haven. So it isn’t driven by tax rates; it’s driven by greed.

AMY GOODMAN: James Henry, why did you decide to do this report? I mean, you were chief economist at McKinsey, which isn’t so different from Bain, in some ways, a major business consultancy.

JAMES HENRY: Right. Well, I’ve done a few things since then. And I think—you know, I’m on the global board of Tax Justice Network, which is an organization that’s grown up in the last decade to fight offshore havens. And we are dedicated volunteers working on this problem of global tax justice. This is vital to democracy, as well as to the tax system, because if you can’t have fair taxes, you end up having representation without taxation. And I think the poorest countries in the world are forced to rely on very regressive taxes to pay their bills.

AMY GOODMAN: We’re going to link to your report, James Henry, economist, lawyer, board member of Tax Justice Network, former chief economist at McKinsey & Company, author of the report, "The Price of Offshore Revisited."

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