August 28, 2016

Why the G20 and Other Efforts to Address Tax Havens Are Failing

Only international schemes and the organization of ordinary people can counter the interests of the most powerful global industries, says economist James Henry
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James S. Henry is a leading economist, attorney and investigative journalist who has written extensively about global issues. James served as Chief Economist at the international consultancy firm McKinsey & Co. As an investigative journalist his work has appeared in numerous publications like Forbes, The Nation and The New York Times. He was the lead researcher of the recently released report titled 'The Price of Offshore Revisited.'


Why the G20 and Other Efforts to Address Tax Havens Are FailingDHARNA NOOR, TRNN: Welcome to the Real News Network. I'm Dharna Noor joining you from Baltimore.

It's been almost four months since the International Consortium of Investigative Journalists released the Panama Papers, a massive leak which showed how prominent politicians, businesspeople, and celebrities hide their wealth in tax havens. Since the release, countries have been trying ways different ways to go after these tax revenues, and a recent Oxfam study estimates that in developing countries $638 billion in profits were deposited in tax havens in 2014, amounting to $172 billion lost in revenue. On September 4 and 5 the G20 meeting in Hangzhou, China is expected to reaffirm a series of new transparency and disclosure agreements between G20 countries in order to help crack down on tax havens.

Joining us from Sag Harbor, New York to discuss all this is James Henry. James is a leading economist, attorney, and investigative journalist who has written extensively about global financial issues. Thanks for being on the Real News again, James.

JAMES HENRY: Good to be with you.

NOOR: So I understand that you recently returned from a trip to Iceland, where you'd been invited to participate in a commission about what to do about tax havens. As some might remember, the former prime minister of Iceland, Sigmundur David Gunnlaugsson, was one of the first casualties of the Panama Papers when he was forced to resign because he had used Mossack Fonseca, which is the law firm in Panama, to stash money abroad. Tell us a little bit about this Icelandic effort that you were invited to join, and what it hopes to achieve.

HENRY: Well, in the wake of the Panama Papers revelations, which show the former prime minister had offshore accounts that were not declared, the current government is under a lot of pressure to come up with a list of things to do about this. So I was invited over to help with the commission that they've formed to figure out what policy response they should have. There's October elections coming up. The existing incumbents are nervous about the rise of the Pirate Party, which now is polling 25-30 percent in the polls. Not because of economic issues. I mean, Iceland has 2.2 percent unemployment, and it's growing at 4 percent. But because of these corruption and transparency issues. A lot of people are upset at the current situation.

NOOR: And there was another commission set up by the government of Panama in order to work on improving financial transparency in the country. The Nobel Prize-winning economist Joseph Stiglitz was on it, but he recently resigned. He said the government was not committed to making the commission's final report public. What do you make of all this? Will the effort in Panama result in any positive developments in the aftermath of the Panama Papers leak?

HENRY: I think the Panama Papers commission was doomed to fail from the very start. Panama has, you know, thousands of law firms and accounting firms and banks that are heavily dependent on the offshore haven industry. And so it was predictable.

Iceland's very different. Iceland is independent of the financial services industry. They suffered from the finance curse in the early 2000s. Three of their biggest banks were victims of that. They took advantage of the situation, made a lot of lousy loans and [inaud.] incredible levels of misbehavior. But they learned their lesson. And they're going back to doing real businesses. Tourism is booming. The fishing industry is healthy. And they're experiencing a real growth boom having given up this heavy reliance on the banking industry.

So I think the Panama commission is really looking at some serious reforms.

NOOR: But what do you make of Stiglitz resigning, saying that they weren't committed to transparency?

HENRY: I think he should have known that from the start. I mean, Panama's commission is not the way to investigate this. We really need a global commission that will take a look at this independently. Iceland is doing some good independent work. They've turned up the fact that one of their largest corporate investors, Alcoa, doesn't pay very much tax in the country. And you know, it's because of--not because of offshore havens like Panama, but because of their own EU partners. Luxembourg and the Netherlands are providing facilities to allow multinationals to avoid tax.

So there's plenty of room for work on this, but it's unlikely that a haven like Panama is going to be able to investigate itself. That should have been evident from the start.

NOOR: You're saying that a global movement is needed. So let's talk about G20. As I said before, that's one of the largest efforts underway to combat this, and G20 has agreed to a number of financial disclosure agreements in order to help each other track down tax evasion. There's a number of countries involved in the G20 conference. What do you think of this effort? Will that be enough?

HENRY: Well, that's just the beginning. The G20 is about to ratify agreements on automatic information exchange and some other measures to clean up corporate avoidance among multinationals. But nothing that the G20 is going to do this year under China's domain is really going to fix the problem of offshore tax havens. You know, there's a lot of further work to do.

And I think once the U.S. elections are over, we have a, hopefully a president who's in favor of continuing to reform the system. We will have much more progress to be made. The G20 really can't make progress on this until U.S. havens like Delaware are part of the story.

NOOR: You say that G20 won't be enough to combat the issues of global tax evasion. Can we talk about just how serious global tax evasion is? Can you give us a brief rundown of the effects it has on economies around the world?

HENRY: Sure. I mean, there's multiple problems that havens create. One is offshore tax dodging, like the $200 billion a year of lost revenue from multinationals that are parking assets, intellectual property assets in places like Ireland and Bermuda and the Netherlands, and Luxembourg. Not paying any taxes on it, paying themselves royalties tax-free.

There's another $200-300 billion a year of avoided tax or evaded tax from individuals, wealthy people who are part of the 0.1 percent of the world's population. If you estimate that at least $24-34 trillion of offshore private wealth, beyond the reach of tax authorities, is kept in the world's 90 havens. And so that's the second problem.

And then there's the kind of financial chicanery and hypocrisy which has been facilitated by financial secrecy provided by these havens. Just recently we estimated that the developing world now owns about $14 trillion of offshore wealth, much of it coming from kleptocracies like Russia and China. So it's ironic that China is chairing the G20 at the time that they're one of the biggest sources of capital flight right now. Wealthy Chinese officials and businesspeople have been in the last couple years especially sending more than $1 trillion offshore.

So this is a problem that's a complicated political mess, and it's--you're up against some of the largest, most powerful industries in the world. The banking industry and accounting profession, law firms, they're deeply involved in this. So it's really a global haven industry for big business. And they have a lot of political influence.

So the only way to organize around this is to cross borders, to have pressure for international commissions, clean up the global haven industry. And just to continue organizing ordinary people, to understand how outrageous this situation has become.

NOOR: And could ordinary people, if equipped with this knowledge, stand up to, you think, the sort of global and international issue of tax havens?

HENRY: We've always done that in the past. Every movement that I can remember that made any social progress, from demolishing slavery to the progressive income tax itself, civil rights, these have all been created not by top-down politicians imagining these movements themselves, but from the bottom, from the grassroots up. When ordinary people get involved they can work miracles.

NOOR: Thank you so much. James Henry is joining us on the Real News Network.

HENRY: Great. Good to be with you.

NOOR: And thank you for joining us on the Real News Network.




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