There is an exclusive luxury ocean liner with tens of thousands of cabins. The “Panama papers” leak provides a porthole into just one of those cabins.
Depending on how you do the sums, up to 15 percent of total global wealth is stored in tax havens—that’s £23 trillion, and a lot of yachts and underground garages in Chelsea tax free.
The amount in tax havens has tripled since 2005.
Overall the world’s assets should equal its debts. But they don’t—and the reason is moving money.
In 2014, at least £5.4 trillion of the world’s financial wealth was simply “missing”.
So, a British citizen can hold Google stock in a Swiss bank account. The US can then record that stock as a debt—as a foreigner owning US stock. Switzerland does not record it at all, since the stock is not a debt nor an asset of anyone Swiss. Because it is in a Swiss bank account and involves shares in a foreign company it is not considered to be an asset of the British citizen.
It’s a trick only available to the rich. On a huge scale.
Since the 1990s subsidiaries of US corporations declare 58 percent of their profits in tax havens.
As US financial analyst Howard Silverblatt said, “Every dollar saved on taxes is one less dollar you have to earn on sales. It’s real money.”
Across the globe there has been a race to the bottom to cut taxes on profits.
Racing horse stud farms and yachts, as well as being the playthings of the rich, are convenient ways of moving vast amounts of money.
When millions of dollars are found buried in the walls of a global drug dealer this is a sign of excess wealth and criminality. When it is trillions more in tax avoidance it is legitimate business. Or even a private matter.
Governments compete to lower taxes to attract bosses. Onshore scams are as important as offshore ones. They are the reason Rupert Murdoch is really rich, and why Apple is American but makes its stuff in China.
Rich individuals and companies use a myriad of mechanisms to avoid tax.
Many of the world’s tax havens are British-run overseas territories, such as the Cayman Islands, Bermuda and British Virgin Islands, and crown dependencies such as Jersey, Guernsey and the Isle of Man.
The ultra-wealthy, banks and corporations’ hidden wealth amounts to 44 percent of world economic output. That is £3,300 for every person on earth.
One serious tax avoidance technique is transfer pricing, a dubious area where purchases and sales take place within the same company.
Items are sold from subsidiaries of the firm in high-tax countries to others in low-tax ones, so cutting the amount of tax paid. A US senate inquiry found one company selling toothbrushes to itself for £4,026 each.
Profits are declared in the countries with the lowest tax rates and debts are declared elsewhere.
Then there are inversions. Inversions mean that the parent company “lends” money to the big firm. The big firm then deducts the interest payments it makes to the parent company, reducing its taxable profits.
Private equity firm Bridgepoint Capital plays this game with Care UK, which has a significant stake in Britain’s care homes and other health care services.
Bridgepoint harvested £90 million in interest payments from Care UK in 2013 while the firm posted operating losses of £9 million and slashed workers’ pay in Doncaster by up to £7,000 a year.
Barack Obama used the Panama scandal to conveniently help him stop the Pfizer Astra Zeneca tax avoidance merger last week. The ongoing saga is about firms finding the cheapest place to declare tax. The fragility of the world economy means two things. Bosses are reluctant to invest back into production, but the stolen money that is profit is accumulating.
They put it offshore to avoid tax, but it is to some extent stuck there.
Economic growth in China has meant a number of things for the global economy. One result was billions of dollars going through Hong Kong into offshore markets.
For capitalism as a whole, the point of laundering money is to wash it with clean money. The money goes from banker to gangster, from hedge fund to arms dealer and back.
And the bankers, hedge funds and capitalists own far more than the petty criminals.
The sellers of snake oil
A junior member of the Mossack Fonseca law firm sat in the Bahamas office in 2010. He had an email marked urgent saying that a delay in changing company registration was “ridiculous”.
The Heritage Oil and Gas Ltd Company wanted to avoid paying £286 million in capital gains taxes to the Ugandan government. This would have been paid on the £1 billion sale of its 50 percent interest in Uganda’s oil fields.
Mossack Fonseca changed its corporate home to the tiny island of Mauritius, where it could avoid Ugandan taxes.
And £286 million is considerably more than the government of Uganda’s entire annual health budget.
Tony Buckingham set up Heritage Oil and he owns a third of it. Buckingham has given £100,000 to David Cameron’s Tory party.
Heritage had sold its stake in the oil fields to Tullow Oil.
They ended up in the courts disputing who, if anyone, should pay some tax to the Ugandans.
It emerged that the British Foreign Office had leaked official documents to Tullow while lobbying on the company’s behalf.
Tullow’s boss, Aidan Heavey, donated more than £10,000 to the Tories.
Dodging starts at home for Britain’s top bosses
London is the money laundering capital of the world.
According to the National Crime Agency, “Hundreds of billions of US dollars of criminal money almost certainly continue to be laundered through UK banks, including their subsidiaries, each year.”
Some £122 billion worth of property in England and Wales is owned by offshore companies. Some 36,342 properties covering 2.2 square miles of London are owned by shell companies while rents for ordinary people go through the roof and working class estates are demolished.
In 2011 alone, £3.8 billion worth of property was bought by British Virgin Islands-registered traders.
Nine of Britain’s biggest companies illegally failed to disclose their ownership of almost 150 offshore subsidiaries based in tax havens in 2012.
Companies House said that enforcing the law would be too “resource intensive”. It will only act if a specific complaint is made.
The nine companies were— Aberdeen Asset Management, Ashmore Group, Babcock International Group, Croda International, Meggitt, Wm Morrison Supermarkets, Pennon Group, Rexam and Whitbread.
147 multinationals really are all in this together
Those who control the wealth of the planet are interconnected economically to an incredible degree.
One study of 43,060 multinational companies revealed a core of 1,318 companies with interlocking ownerships.
Each of the 1,318 had ties to two or more other companies, and on average they were connected to 20, either through shareholders of directors. They represented 20 percent of global operating revenues.
But the 1,318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms—the “real” economy—representing a further 60 percent of global revenues.
At the core of the 1,318 companies were 147 even more tightly knit firms. The ownership of all 147 was held by other members of the 147.
That 147 controlled 40 percent of the total wealth in the network of the 43,060 companies.
Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.
Business hypocrites who won’t punish themselves
David Cameron is hosting a conference to clamp down on tax avoidance next month. The IMF is against tax avoidance. Who isn’t?
The same people who are top of the tree of a system based on scams and exploitation say they want to clamp down on tax avoidance.
Capitalism isn’t simply a big casino. But it is the case that casinos’ mafia owners fix the odds in their favour then say they are against cheating.
In the wake of the financial crash in 2008 the big companies consolidated and reorganised the offshore financial industry to make it more efficient.
Drives against tax scams that focus on developing world dictators rather than the bosses at the heart of the system miss the point. Corruption is not bad business—it is how business is done.
Even the biggest banks launder ‘bricks of cash’
Enormous banking institutions such as Deutsche Bank, UBS, the Swiss private bank Clariden, ING, and ABN Amro have actively worked to set up tax evasion schemes for their clients in offshore hiding places.
For instance JP Morgan has 50 subsidiaries in Bermuda, the Bahamas, and others. Two French banks, BNP Paribas and Credit Agricole, specialise in creating “quick” foreign companies in under 48 hours. These are used for hiding money in a rush.
Royal Bank of Scotland owns at least 128 companies in tax havens. And Lloyds TSB has more than 100 firms in tax havens.
In 2012, the British bank HSBC was fined £1.35 billion for having laundered money for Mexican drug cartels.
However, a 2015 leaked document showed the bank subsequently continued similar operations unhindered.
HSBC ran its Swiss private banking arm as a back alley tax evasion service. It handed its clients “bricks” of hundreds of thousands of dollars in foreign denominations to help them avoid taxes.