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Check Out Who's Hiding $32 Trillion in Offshore Tax Haven Accounts

Politics / Taxes May 02, 2013 - 12:43 PM GMT

By: Money_Morning


More than two million emails that shed light on the biggest tax dodge in history - trillions of dollars hidden in offshore accounts - have been uncovered by the British newspaper The Guardian and the Washington, D.C.-based International Consortium of Investigative Journalists (ICIJ).

Some $32 trillion has been hidden in small island banking hubs which host a bevy of trust funds, shell corporations and other tax havens, the Tax Justice Network estimates.

This money is to the financial world what the Higgs boson and dark matter are to particle physics: It's tough to prove it's there, but the universe doesn't make much sense without it. It's just a matter of connecting the money to the people hiding it.

That's been a tall order... until now.

Everyone's nagging suspicions became decidedly more concrete as the implications of this leak sank in over the weekend.

An Unprecedented Tax Dodge
Next to this bombshell, Wikileaks looks like a first-grader's game of Telephone.

In fact, the leak contains more than 200 gigabytes of data, compared with Wikileaks' two gigabytes.

The information is still being sifted through, even as it's being released to the public, but here's some of what's been found so far:

■American Denise Rich, ex-wife of pardoned tax cheat Marc Rich, has been uncovered as the settlor and beneficiary of two large trusts based in the tiny Cook Islands. The ICIJ found that Denise Rich gave up her American citizenship in 2012. Her citizenship was convenient enough when President Clinton had the authority to pardon her ex-husband.
■French President Francois Hollande, ardent socialist and tireless champion of the 75% marginal tax rate, appears in these documents, mostly by association. His campaign co-treasurer, Jean-Jacques Augier, has been forced to reveal the name of his Chinese business partner in a Caymans-based distribution company. Augier says he used his offshore company to make a large investment in China.
■Australian actor Paul Hogan, of "Crocodile Dundee" fame, has lost about $35.3 million from an account that he used to offshore his "bonza" film royalties. His once-trusted tax adviser Philip Egglishaw ran off with Hogan's sizeable hidden offshore stash.
■French banking scion Elie de Rothschild, of the famous banking family, has been named in the leaks. He was instrumental in setting up some 20 trusts and 10 holding companies in the Cook Islands, all extremely opaque in nature. His heirs have, not surprisingly, refused comment.
■Brigitte Bardot's third ex-husband, Gunter Sachs, a millionaire industrialist, has been revealed as the owner of a huge, obscure wealth-masking machine: trust upon shell company upon holding company, almost ad infinitum, mostly based in the Cook Islands. The ICIJ has constructed an interactive map of Sachs' extensive offshore holdings and business networks. The network is fairly representative of the steps that many on this list have taken to hide their wealth away. You can marvel at its imponderable complexity here.

And these names are barely the tip of the iceberg. The shockwaves have already begun to spread through the corridors of wealth and power all over the world.

How Much is $32 Trillion?
It bears repeating: $32 trillion has been stashed away, off the books, by corporations and wealthy individuals.

Let that sink in for a moment. The implications are stupefying. The real effects of this are far more subtle, and pernicious, but this makes for a fun thought exercise - even setting aside the fact that only some percentage of this huge sum would fairly be taken as tax revenue.

The "CIA World Factbook" estimates the nominal Gross World Product is $71.83 trillion as of 2012. If you shine a light on that $32 trillion, and put it back on the books, the entire planet's total product jumps by more than 44%. Every country on Earth would get a $163.2 billion windfall. High-speed rail and space programs for everyone!

If all $32 trillion was added to government coffers, that would be enough to give every man, woman and child alive on Earth today a roughly $4,600 "stimulus" check.

Maybe we could all enjoy a two-week vacation in the British Virgin Islands. After all, it seems to be the destination of choice for monied types...

A Bright, Sunny Hub for Dark Business
The British Virgin Islands appear to be at the epicenter of this huge offshore stash.

The small Caribbean islands specialize in tourism and financial services. Along with far-flung places like Liechtenstein, Sark in the English Channel, the Cook Islands in the South Pacific, the Caymans and others, the British Virgin Islands are home to thousands of shadowy front companies, trusts and funds that host the bulk of this $32 trillion stash.

As of 2000, the last year verifiable data was available, roughly 400,000 companies were listed in the BVI offshore registry. The number certainly has increased. Some of these countries remain underdeveloped, their citizens impoverished, even though they have high per-capita GDPs, and trillions flow to and from their shores.

Tax havens like these tend to have in common secretive banking laws and loose residency requirements, which make them appealing to those with money to hide. In once extreme case, The Guardianlocated an erstwhile British subject, Sarah Petre-Mears, who was the "nominal director" of nearly 1,200 companies across the world.

Less a captain of industry and more a shill for dodgy investors, Petre-Mears ran companies fronting everything from porn sites to time-share vacation properties. She used dozens of different addresses across the globe, with most turning out to be post office boxes and mail drops.

The consequences of this enormous tax dodge are hard to calculate. How does one reckon who's entitled to what? Which country's tax rate do you use - Canada? Azerbaijan? Slovenia?

There's almost certainly an impact to national budgets, from highway construction to military spending to social programs.

It's safe to say that whenever anyone anywhere feels the sting of budget cutbacks, whether a brigadier-general in South Africa or a primary school teacher in England, they'll have a world-class selection of tax cheats in part to blame.

Journalists are still sifting through the data contained in this massive leak, but as they go along, there're no telling who will appear in the data - and those people are running out of time and places to hide.

Source :

Money Morning/The Money Map Report

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03 May 13, 17:48
Hidden Accounts Dying: What happens next?

Recent revelations about people who hold offshore accounts in certainly heightened interest in tax policy. The really important story will be "What happens next?"

This has several facets:

1) How many of these accounts are tax compliant and how many represent tax evasion?

2) How vigorously will the authorities prosecute the tax evaders?

3) What resources and skill sets do the government tax authorities have to follow-up?

4) Can whistle blower legislation be used to arm a private sector army of tax evasion hunters to supplement government tax authority efforts?

5) What will be the response of the wealthy to this event and what will be the impact of that response on government resources?

Let me expand on this last question.

A wealthy individual (aka Golden Goose) who feels they pay too much tax has three basic strategies that they can follow:

Option 1) "Play the Game Better": This means using all the LEGAL methods of avoiding tax under the laws of the relevant taxing jurisdiction(s). This option has the advantage that the individual does not need to overcome life inertia with major life or business disruptions. The disadvantages are that there is only limited tax reduction which can be accomplished with this option AND the government constantly moves the goal posts. This results in decreased future tax savings as loopholes/ exemptions disappear and the on-going costs of adjusting your previous strategy and structure;

Option 2) "Leave the Game": For most taxpayers, this involves becoming non-resident. For Americans this requires giving up their US citizenship or resident alien status. Generally it means bringing forward the payment of capital gains. This is not necessarily a bad thing for the following reasons a) interest rates are low to borrow money to pay any tax immediately owing on a deemed disposition; b) no longer have any tax liability to your current tax home from this point forward; c) do not have to worry if government decides to increase income, capital gains, gift or estate taxes OR bring in new taxes like mansion or wealth taxes. The major disadvantage is that the individual has to go through a one-time effort to overcome their life inertia. As there are MANY places in the world that the wealthy could move their tax residence which allows them to minimize their future tax payments without compromising their personal or business lifestyle, the future benefits could easily outweigh the one time effort;

Option 3) "Cheat the Game": In years past, it was cheap and easy to engage in tax evasion. The morally challenged who were considering this option, did not seriously consider that they would ever have to pay the penalty of discovery. However the penalties of executing Option 3, are now real and unattractive.

The obvious impact of the Golden Geese no longer considering cheating the game, is that they will be focusing on the first two options. Initially, more Golden Geese will be taking advantage of legally available tax avoidance strategies. Obviously the government will respond by closing various currently legal opportunities. With cheating off the table and playing the game better having a decreasing value, the attention of the Golden Geese will focus on leaving.

As they discover that the cost and difficulty of leaving the game is not really that high (now that they have seriously examined it), you will see an ever increasing number of wealthy taxpayers leaving their current tax system.

Since in most G9 countries the top 1% account for just over 1/3rd of all personal taxes collected, even a slight increase in the number of Golden Geese who leave the tax system will have a dramatic impact on future tax revenues. The real question will be how will various governments legislatively respond to all of this.

There will be naive efforts to try and lobby for a global "level tax playing field". This effort is doomed from the outset, because of the prisoner's dilemma. Even efforts to try to impose standards for government fiscal policies across the eurozone weren't possible. Try making a broader effort over a vastly increased number of independent countries, all of whole are trying to keep and attract Golden Geese to their shores, is hopeless.

Therefore the real action will take place domestically as governments examine their options. If they decide to increase the cost of leaving (the American approach), they will see the same result the US experienced. Specifically, RECORD numbers of Golden Geese leaving, before the cost gets even higher. If a government were smart, they would rather bring in policies that would attract more Golden Geese to their tax system. This means making if more attractive than the system that they are currently considering leaving. Just as a small number of departing Golden Geese has an asymmetric negative impact on total tax revenues, the attraction of even a relatively small number of Golden Geese will have a disproportionate positive impact.

I don't know if I am showing my geekiness by being so intellectually interested in the bigger implications of these various events, but I truly feel that there are a variety of things from Cypriot bank account seizures; to Putin's demand for no more offshore accounts; to outing of tax evaders which have caused a tipping point to be reached. It is increasingly obvious to me, that we are experiencing a major disruption to the standard government revenue model which has been in place for the past century. Namely, a progressive tax system. Whether you think such a system is "fair" does not change that fact that it is inherently unstable because of an extreme over reliance on a small number of Golden Geese for such a huge portion of total tax revenues.

Previously governments could a implement policies that continue to add to the tax burden to Golden Geese. If a Golden Goose reacted by cheating the game, they could prosecute them. If a Golden Goose reacted by trying to play the game better they could change the rules. However, in a globalized world where Golden Geese can set up their personal and business lives in many jurisdictions other than that of their birth, governments will now see a reaction to their increased burdens on the Golden Geese that will immediately and dramatically cause a drop in total tax revenues. Recognition of the paradigm shift is the first step. Properly reacting to the paradigm shift is ultimately the most important step.

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Biggest Debt Bomb in History