JEDDAH/LONDON – A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($20 trillion) of wealth offshore - as much as the American and Japanese GDPs put together - according to research commissioned by the Tax Justice Network (TJN) entitled "The Price of Offshore Revisited". TJN is an independent organization launched in the British Houses of Parliament in March 2003. It is dedicated to high-level research, analysis and advocacy in the field of tax and regulation. The findings show the gap between the haves and the have-nots is much larger than previously thought, noting that the capital drained from some developing countries since 1970 would be enough to pay off national debts. James Henry, former chief economist at consultancy McKinsey and an expert on tax havens, has compiled the most detailed estimates yet of the size of the offshore economy in the new report. "The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments," wrote James Henry, expert on tax havens and former chief economist at consultancy McKinsey in his report. He showed that at least £13 trillion - perhaps up to £20 trillion - has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high-net-worth individuals. Their wealth is, as Henry puts it, ''protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy''. The report highlights the impact on the balance sheets of 139 developing countries of money held in tax havens that is put beyond the reach of local tax authorities. Henry estimates that since the 1970s, the richest citizens of these 139 countries had amassed $7.3 trillion to $9.3 trillion of “unrecorded offshore wealth" by 2010. Private wealth held offshore represents “a huge black hole in the world economy," Henry said. Tax expert and UK government adviser John Whiting said he was skeptical that the amount hidden was so large, though, urged caution. “I cannot disprove the figures at all, but they do seem staggering. If the suggestion is that such amounts are actively hidden and never accessed, that seems odd - not least in terms of what the tax authorities are doing. In fact, the US, UK and German authorities are doing a lot." He also pointed out that if tax havens were stuffed with such sizeable amounts, “you would expect the havens to be more conspicuously wealthy than they are". The research said the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4 trillion in 2010, a sharp rise from £1.5 trillion five years earlier. The detailed analysis in the report, compiled using data from a range of sources, including the Bank for International Settlements and the International Monetary Fund, suggests that for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world. Oil-rich states with an internationally mobile elite have been especially prone to watching their wealth disappear into offshore bank accounts instead of being invested at home, the research suggests. Once the returns on investing the hidden assets are included, almost £500 billion ($800 billion) have left Russia since the early 1990s when its economy in hidden assets since the fall of the Soviet Union. Nigeria has seen ££196 billion flood out since the mid-1970s. The sheer size of the cash pile sitting out of reach of tax authorities is so great that it suggests standard measures of inequality radically underestimate the true gap between rich and poor. According to Henry's calculations, £6.3 trillion of assets is owned by only 92,000 people, or 0.001 percent of the world's population - a tiny class of the mega-rich who have more in common with each other than those at the bottom of the income scale in their own societies. Henry said his $21 trillion is actually a conservative figure and the true scale could be $32 trillion. A trillion is 1,000 billion. Henry used data from the BIS, IMF, WB, and national governments. His study deals only with financial wealth deposited in bank and investment accounts, and not other assets. The report comes amid growing public and political concern about tax avoidance and evasion. Some authorities, including in Germany, have even paid for information on alleged tax evaders stolen from banks. “From another angle, this study is really good news. The world has just located a huge pile of financial wealth that might be called upon to contribute to the solution of our most pressing global problems," he said. At the end of 2010, the 50 leading private banks alone collectively managed more than $12.1 trillion in cross-border invested assets for private clients, the report added. The three private banks handling the most assets offshore are UBS, Credit Suisse and Goldman Sachs. He said that agreements reached with Liechtenstein and Switzerland will bring in £3 billion and between £4 billion and £7 biion respectively. Less than 100,000 people worldwide own about $9.8 trillion of the wealth held offshore. Leaders of G20 countries have repeatedly pledged to close down tax havens since the financial crisis of 2008, but these plans have not yet come to fruition. Last week the US Senate released a report damning the actions of the UK bank HSBC. The report highlighted evidence of the bank's law security policies leading to money laundering cases. It referenced $7 billion in cash that had crossed the Mexican border into the US and been deposited in HSBC from 2007 to 2008. The report suggests that the billions of dollars could have come from drug sales in Mexico. The probe also shed light on a number of other instances when the bank bypassed US safeguards, potentially bankrolling terrorists and drug lords in the process. The bank had previously had to pay out $1 billion to US authorities for money laundering offenses committed between 2004 and 2010. – SG/Agencies
