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Tax Justice Network’s James S. Henry says authoritarian regimes account for over $11 trillion of “missing” offshore financial wealth from emerging economies

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JAISAL NOOR, PRODUCER, TRNN: I’m Jaisal Noor for the Real News Network. On Monday, May 9 the International Consortium of Investigative Journalists is releasing the Panama Papers database, which they’re calling the largest ever release of searchable secret offshore companies and the people behind them. The Panama Papers have shown a spotlight on how the world’s rich take advantage of offshore tax regimes and much more. Now joining us from Sag Harbor, New York is James Henry. James, a leading economist, attorney, and investigative journalist who’s written extensively about global issues and investigated and examined the Panama Papers themselves. Thanks so much for joining us, James. HENRY: You’re quite welcome. NOOR: So, among the revelations coming out today are that wealthy Latin Americans are using secretive, tax free New Zealand shelf companies and trusts to help channel funds around the world and that’s based on local reporting in New Zealand. Can we start off by talking about those revelations, that the government there the prime minister has promised to look into these claims? HENRY: The government takes these issues seriously and we’ve called for a review of disclosure rules for foreign trusts by trust expert John Shewan. As I’ve been saying for some time now, if there is any need for change in this area the government will consider it and if necessary, take action. NOOR: Give us your reaction. HENRY: Well New Zealand is only the latest. You always see the country to have discovered the lucrative business of offering secret trusts especially in companies to form investors who wanna hide their money off shore. And it’s not as if this money is all ending up in New Zealand. Most of it is being channeled back elsewhere. A lot of it’s coming out of China, a lot of it Latin America as well. You know, it only takes a couple of lawyers in one of these first world shelters to specialize in this stuff and it just exploded. I think New Zealand, which has traditionally prided itself on the rule of law, strong liberal traditions, is a little bit chagrined at this but it’s not alone. You know the United States has states like Delaware and Wyoming and Nevada that have made a huge business out of providing secretive trusts and companies that no one knows the owners of. The UK and its spider net of havens around the world does exactly the same thing, and in the Panama Papers we saw the British Virgin Islands supplying about 100 thousand of the 210 thousand companies that this one Panamanian law firm was setting up to do exactly this kind of thing. And there are others players like Switzerland that have made an enormous business out of this traditionally, so you know, this is an old story, what’s new about it is just the sheer scale of it and we’re now beginning to understand just how big of a deal it is. NOOR: Meanwhile, the Guardian is reporting, quote, more than 12 trillion has been siphoned out of Russia, China, and other emerging economies into this secret world of offshore finance, new research has revealed. You did that research, talk to us about your unique findings here. HENRY: Well our 2012 report for Tax Justice Network highlighted the overall industry of 21 to 32 trillion of offshore wealth, about 10 to 15 percent of world financial wealth being invested through offshore vehicles like companies and trusts and bank accounts. This latest study updates the numbers for the developing regions to 2014 and arrives at a figure of 12.1 trillion which is compared to about nine trillion for those exact same countries back in 2010. So, the industry is growing, and a lot of the growth is coming out of places like China and Russia which top the list, countries without sound protection for investors, a lot of concern about capital flight about political risk, and oddly enough, those folks are able to find protection by moving their money through offshore haven vehicles, back in most cases to the first world, where those protections exist. So, this really highlights the importance of the rule of law in this problem. It also highlights the unusual fact that emerging countries actually turn out to be net lenders to the first world when you add up 12.1 trillion off offshore hidden wealth and add another 8.7 trillion of official reserves, most of it invested in US treasuries and first world securities and then net out the gross external debt of the developing countries about 8.1 trillion. You end up with about 12.6 trillion of net loans, mainly to first world countries in effect, that in this in the form of this offshore wealth from the developing regions. So this is one of the most common, has one of the most interesting pathologies of the world system. We have poor countries financing, or developing countries, I’d say there are some rich countries in that group, basically making loans to the rest of the world. That’s exactly standing development of economics on its head, because traditionally we thought of the developing world as recipients of foreign capital with much higher rates of return but in this case the wealthiest people are investing in very low-return assets offshore. NOOR: And you also have written to us that the top 30 source countries are dominated by authoritarian regimes which account NOOR: And you also have written to us that the top 30 source countries are dominated by authoritarian regimes which account for 94 percent of the 12.1 trillion of the missing offshore financial wealth and you say that there are things the western governments can do about this if they work together. Talk more about that. HENRY: That’s right. Well, since most of the capital here we’re talking about actually ends up being invested in places like the United States, Switzerland, and the UK, it is our responsibility to create this distortion in the world economy but emerging market also have a responsibility to make their own investors feel more secure when they invest at home. And so, that’s a big workload. The Panama Papers I think, this study is a compliment to them because it compliments that approach to investigative journalism because it really puts flesh on the skeleton of the overall system and lets us know how big it is and how fast it’s growing. And it also underscores the fact that kleptocracy in addition to tax dodging and organized crime, is making use of this offshore haven system. I’ve compared it to the Star Wars bar scene where you see the tax dodgers and the kleptocrats and the arms dealers and the drug dealers and the people engaged in financial fraud, all sitting around the same facilities which in this case is financial secrecy. You know, I think first world countries ought to get their act together. We’ve known about this a long time and there’s a lot of things that we can do to make this a much more transparent world and also to penalize the big banks and law firms and accounting firms that are the enablers for much of this activity. NOOR: And finally James, I wanted to circle around back to the release of the Panama Papers database, which might be the largest ever release of researchable secret offshore companies and the people behind them. You know, I’m checking out the front pages of the New York Times and the Washington Post, there’s hardly a mention of this. Do you think that this deserves more attention? And I wanted to bring up the point again we’ve discussed, you know there aren’t that many Americans that have been found in this database so far, at least been reported, will this help shed further light? Will this help spark change from the system? HENRY: You know, the US media has been disappointing on this. The major press wasn’t involved in the release. They had conditions for their involvement, which the International Consortium couldn’t meet. Basically we had to rely on 370 journalists around the world to analyze this stuff, and I think part of the explanation is not only the “not invented here” mentality and the primo-news-media, but also there’s a real influence at those institution, kind of a disturbing influence, by what I would call not exactly neoliberal economists, because you have people like Krugman at the Times, but they’ve always kind of minimized the importance of this offshore activity and it’s hard to understand but you know that’s just the case. We’re not waiting around for them to get onboard. I mean, a lot of the path breaking work has to be done by young, aggressive journalists at places like Fusion Network and the Guardian. We’re basically–We’ve got more than enough work to do. The release of this database is important because it will open it up to lots of academic researchers, lots of people who can see things in the data that the journalists just haven’t been able to see at a kind of global network level. This is really about global haven industry thats grown up since the ‘70s, not just one law firm in Panama. More than 500 banks were involved with channeling business to that law firm, for example. And if you think opening up just this one law firm would reveal so many things, think about what would happen if we had a really truly international investigation of all this. I think it’s about time for that. NOOR: James Henry, thanks so much for joining us. HENRY: Thank you. NOOR: Thank you for joining us at the Real News Network.


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James S. Henry is an investigative economist and lawyer, a Global Justice Fellow at Yale University, and a Senior Advisor at the Tax Justice Network. Previously, 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.