Tag Archives: panama papers

Economists unite: Tax havens serve no useful economic purpose

We urge you to use this month’s anti-corruption summit in London to make significant moves towards ending the era of tax havens.

The existence of tax havens does not add to overall global wealth or well-being; they serve no useful economic purpose. Whilst these jurisdictions undoubtedly benefit some rich individuals and multinational corporations, this benefit is at the expense of others, and they therefore serve to increase inequality.

As the Panama Papers and other recent exposés have revealed, the secrecy provided by tax havens fuels corruption and undermines countries’ ability to collect their fair share of taxes. While all countries are hit by tax dodging, poor countries are proportionately the biggest losers, missing out on at least $170 billion of taxes annually as a result.

As economists, we have very different views on the desirable levels of taxation, be they direct or indirect, personal or corporate. But we are agreed that territories allowing assets to be hidden in shell companies or which encourage profits to be booked by companies that do no business there, are distorting the working of the global economy. By hiding illicit activities and allowing rich individuals and multinational corporations to operate by different rules, they also threaten the rule of law that is a vital ingredient for economic success.

To lift the veil of secrecy surrounding tax havens we need new global agreements on issues such as public country by country reporting, including for tax havens. Governments must also put their own houses in order by ensuring that all the territories, for which they are responsible, make publicly available information about the real “beneficial” owners of company and trusts. The UK, as host for this summit and as a country that has sovereignty over around a third of the world’s tax havens, is uniquely placed to take a lead.

Taking on the tax havens will not be easy; there are powerful vested interests that benefit from the status quo. But it was Adam Smith who said that the rich “should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.” There is no economic justification for allowing the continuation of tax havens which turn that statement on its head.

CASE STUDY: MALAWI

Tax revenue that should be helping to fund public services like healthcare and education in Malawi and other poor countries is disappearing at an alarming rate. It’s estimated that Africa loses around $14 billion in tax revenues annually – enough money to pay for healthcare for mothers and children that could save four million children’s lives a year and employ enough teachers to get every African child into school.
In Malawi, it’s impossible to get a full picture of the scale of tax dodging. However, Oxfam calculated that the lost tax revenue from the money revealed to be held by Malawians in HSBC accounts in Geneva in last year’s Swissleaks scandal could pay the salaries of 800 nurses for one year.

Half of Malawi’s 16 million people live in poverty. The health system is seriously under-resourced with shortages of staff and vital medicines. On average there are just three nurses for every 10,000 people. Public spending per primary-school child is among the world’s lowest. Recent cuts to government budgets are making the situation even worse for the poorest who have no way to pay for private clinics and schools.

A link to the signatories …

Putin says Panama Papers part of US plot to weaken Russia

President Vladimir Putin has denied having any links to offshore accounts and described the Panama Papers document leaks scandal as part of a U.S.-led plot to weaken Russia.

Putin also defended a cellist friend named as the alleged owner of an offshore company, describing him as a philanthropist who spent his own funds to buy rare musical instruments for Russian state collections.

Speaking at a media forum in St. Petersburg, Putin said Western media pushed the claims of his involvement in offshore businesses even though his name didn’t feature in any of the documents leaked from a Panamanian law firm.

Putin described the allegations as part of the U.S.-led disinformation campaign waged against Russia in order to weaken its government. “They are trying to destabilize us from within in order to make us more compliant,” he said.

The Washington-based International Consortium of Investigative Journalists said the documents it obtained indicated that Russian cellist Sergei Roldugin acted as a front man for a network of Putin loyalists, and, perhaps, the president himself.

The ICIJ said the documents show how complex offshore financial deals channeled as much as $2 billion to a network of people linked to the Russian president.

Putin said Roldugin, a longtime friend, did nothing wrong. He said he was proud of Roldugin, adding that the musician spent his personal money to advance cultural projects.

Roldugin used the money he earned as a minority shareholder of a Russian company to buy rare musical instruments abroad and hand them over to the Russian state, Putin said.

“Without publicizing himself, he also has worked to organize concerts, promote Russian culture abroad and effectively paid his own money for that,” Putin added. “The more people like him we have, the better. And I’m proud to have friends like him.”

Putin contended that Washington has fanned allegations of Russian official corruption in order to weaken Moscow as the U.S. has become concerned about Russia’s growing economic and military might.

“The events in Syria have demonstrated Russia’s capability to solve problems far away from its borders,” he said, adding that Moscow has achieved its goal “to strengthen the Syrian statehood, its legitimate government bodies.”

Putin said it’s essential to prevent the collapse of the Syrian state to stem the flow of refugees to Europe.

He praised cooperation between Moscow and Washington in efforts to broker a cease-fire, which went into effect Feb. 27. The truce excludes the Islamic State group and the al-Qaida branch known as the Nusra Front.

But while lauding contacts on Syria, he signaled tensions on another issue, accusing the U.S. of breaching its obligations under an agreement to reprocess weapons-grade plutonium.

He said that while Russia has abided by the deal and built reprocessing facilities, the U.S. has opted for a different technology which, he alleged, allowed it to maintain the so-called “return potential” of keeping weapons-grade materials if it wishes to do so.

Putin said that a rift over the issue was one of the reasons behind his decision to snub a nuclear summit hosted by President Barack Obama in Washington.

Offshore accounts hide wealth, avoid taxes

Privacy has a price. For the super-wealthy, it can also have a big payoff. The use of offshore accounts and favorable laws in certain countries can allow rich individuals and families to keep their money hidden from the eyes of tax authorities, regulators and others in their home country.

Here’s a look at how offshore accounts are used, both legally and illegally, in the wake of an investigation by an international coalition of media outlets that shows how the rich and powerful use banks, law firms, trusts and offshore shell companies to hide their assets.

WHAT ARE THESE ACCOUNTS?

They are bank accounts or trusts established in a foreign country that take advantage of local banking and corporate laws to help hide the true identity of the owner of the money or other assets in the accounts.

Often, the person establishes a so-called shell company, which lacks any real operations and exists mainly on paper. In many jurisdictions and some U.S. states, companies can be created without identifying an owner.

The company – with no person linked to it – is listed as the official owner of the trust or account. That allows the wealthy person to control the account indirectly, through the company, and makes it harder for authorities to link the money to the individual.

While shell companies and offshore accounts aren’t illegal by themselves, they can be used to help avoid taxes, facilitate money laundering and conceal corruption.

WHERE ARE OFFSHORE ACCOUNTS HELD?

Those looking to hide assets establish accounts in countries like Panama, the Cayman Islands and Bermuda, where the banking laws are designed to vigorously protect account owners’ identities.

In recent years, the U.S. Federal Bureau of Investigation and the Internal Revenue Service have found millions of dollars in taxable income hidden in secret accounts in the Caribbean.

There also are havens like the Isle of Man off Britain, Macau off China and the Cook Islands in the South Pacific. Some European countries like Switzerland, Luxembourg and Monaco have also served as havens for those trying to avoid taxes, though many nations have tightened banking laws to combat tax cheating.

ARE THERE LEGITIMATE REASONS FOR THESE ARRANGEMENTS?

It’s possible, but don’t bank on it, says Jimmy Gurule, a former assistant U.S. attorney general and undersecretary for enforcement at the Treasury Department. The likelihood is strong that the entity has “no commercial or legitimate purpose,” said Gurule, who teaches law at Notre Dame. The Caymans, for example, “has a well-deserved reputation for being a money-laundering and tax-evasion haven.”

The country’s banking laws made it more difficult for him and his colleagues in U.S. law enforcement to investigate and prosecute cases, Gurule said.

Still, wealthy people who live in countries with unstable political situations, high levels of corruption, or high levels of criminal activity such as kidnapping or extortion could use offshore accounts and the secrecy they provide for protection, and not necessarily to avoid taxes.

ILLICIT USES OF OFFSHORE ACCOUNTS

The anonymity afforded by shell companies and offshore accounts allows them to be used by terrorists and other international criminals to hide and move money.

They’re an ideal vehicle for people “who want to keep their transactions secret to escape law enforcement or civil liability,” said Jack Blum, a Washington attorney who’s an expert on financial crime and international tax evasion.

Terrorist groups’ use of shadowy financial networks has been scrutinized by law enforcement agencies, and the U.S. government has applied sanctions to a number of groups hoping to cut off their access to the U.S. financial system. Lawmakers say they’ve been hindered, though, by a lack of consistency in policies among the various national and international agencies involved in fighting terrorist financing.

EFFORTS TO CRACK DOWN

Congress passed a law in 2010 called the Foreign Account Tax Compliance Act to target U.S. taxpayers who may be hiding money in foreign accounts. The leaders of the Group of 20 – representing 80 percent of the global economy – have recently worked to get its members to adopt stricter reporting requirements to prevent secret dealings. Anti-corruption advocates say legal standards have improved, but are not tough enough.

On Monday Angel Gurria, the secretary general of the Organization for Economic Cooperation and Development, which is working with the G-20 to restrict the use of shell companies, called on Panama to “put its house in order” and implement transparency standards. It was a leak of 11.5 million documents from a Panamanian law firm that specializes in creating shell companies that led to revelations of widespread use of these companies and accounts to avoid taxes.