James Henry: Global tax revenue lost to tax havens is between USD $190 billion and $255 billion per year, assuming a 3% capital gains rate and a 30% capital gains tax rate
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.
The recent release of work by a collaboration of journalists around the world about tax havens—and one estimate: the amount of money hidden away in tax havens could be as much as $32 trillion. That’s 10 to 15 percent of global wealth.
Now joining us to talk about this is James Henry. He’s a leading economist, attorney, investigative journalist. He served as chief economist at the international consultancy firm McKinsey & Company. He’s now chair of the Global Alliance for Tax Justice.
Thanks very much for joining us.
JAMES HENRY, ECONOMIST, LAWYER, AND INVESTIGATIVE JOURNALIST: Quite welcome.
JAY: So this isn’t new. I mean, anyone who’s been out collecting taxes, if you work for a government, a journalist that follows this even a modicum knows that this has been happening, this tax haven thing has been happening for years. You rarely hear it talked about in official circles. All the discourse in the United States back and forth about closing loopholes, both from President Obama and even from some Republicans—you almost never heard a word about closing down individual tax havens. You heard a little bit about corporate. Not much. But this is a massive scale. So, first of all, this release of the thousands of names of people using these tax havens has given us another new glimpse into this world. But are we even yet seeing the scale of it all?
HENRY: Well, this was a good snapshot. I think it’s the largest release we’ve ever had collectively. And the importance of it is that it spans many different countries at once. This release by ICIJ, the journalist collaborative, has brought together 86 journalists in 46 countries, last count. And they’re coming up with really juicy stuff from the Suhartos in Indonesia to the daughter of Marcos in the Philippines, to Denise Rich in the United States, who actually has now become a citizen of Austria, but she had a trust worth something reportedly on the order of $144 million in the ’90s. Canadian senator who, it turned out, had a Cook Islands trust.
JAY: Apparently there’s 450 Canadians on this list.
HENRY: Yeah. So, all told, there’s about 130,000 client accounts here and millions of pieces of data that they’ve been analyzing for 18 months and they’re still analyzing. So for the next—.
JAY: Why aren’t there more American names on this list? There’s Denise Rich—Mark Rich’s ex-wife is there, I think maybe a couple other names.
HENRY: Yeah. I mean, this isn’t random.
JAY: [crosstalk] you’re seeing from other countries.
HENRY: Right. This is not a random sample of the world’s offshore haven clients. This came from two corporate registry service providers in—one of them in the BVI, another one from Singapore.
So most Americans would not be using Singapore or Tortola for their offshore companies and trusts, let alone their bank accounts. As we saw in the UBS case, you know, that was a big Swiss bank, the largest Swiss bank, coming directly to the United States and recruiting very wealthy clients to go directly to Switzerland with their secret stashes abroad. So, you know, many Americans would bank more directly with banks in other countries rather than putting money in BVI or Singapore. So I don’t think it’s a random sample. We still have 4,000 American names that turned up on this list just for those two havens, and there’s about 73, 75 offshore havens on the planet, so this should be looked upon as just, you know, relatively small sample of the total population. But it is evidence that the estimates we’ve been making for the size and growth of this industry have some firm support at the investigative level.
JAY: And this is—the estimates you were doing were somewhere between $22 trillion and $32 trillion [crosstalk]
HENRY: Twenty-one to thirty-two trillion of financial wealth as of the year end 2010. And it’s been growing since then. And that excludes a lot of crossborder wealth like real estate, which is held often through offshore companies. I mean, you have—much of the City of London is held through British companies, offshore companies.
JAY: And many of these tax havens are actually under British control—the Cayman Islands, Bermuda, Isle of Man. Britain plays a big role in all of this industry.
HENRY: Yeah. It’s called “the spider net” among people who’ve been studying this, the British havens, I think, almost as a conscious policy. In 1950s and ’60s, Britain had all these islands around the planet. They couldn’t support them anymore from the home country. They decided, what are they going to do? Well, let’s make them into tax havens and let them generate income from laundering money or setting up providing trusts and companies. So you have some of the original leaders in this industry, like the Cayman Islands and Bermuda and BVI, Hong Kong, Singapore, Cyprus, are all former British colonies.
But I don’t think we should ignore the fact that the other major destination havens, players like Switzerland and indeed New York also make a big living out of this enterprise. So it’s a pretty competitive business, but it’s a global industry that’s [crosstalk]
JAY: New York being a tax haven not for Americans, but for Mexicans or people from other countries.
HENRY: That’s right. If you’re a nonresident alien, you have the ability to live in New York up to, you know, at least three months a year. And if you’re investing here in bonds or in stocks or in bank deposits, the U.S. tax law has been made very friendly. So you’re not going to pay much, if anything, in the way of income tax on those offshore deposits, and the U.S. Treasury is not going to tell Mexican tax authorities. Mexico does have a worldwide income tax, but we’re not going to tell them what your interest and dividends income is here.
We just signed a tax treaty, actually, with Mexico that tries to—you know, promises down the road to provide more information to the Mexican tax authorities. Back in November that was signed. But it’s going to take a long time before they actually start realizing any of this data.
JAY: I mean, that’s part of the point, isn’t it? Like, the United States has global income laws. You’re supposed to declare your income from all sources and declare even if you own companies outside the United States. But if the banking institutions in the various countries that are the tax havens don’t have any obligation to tell the various governments who’s got their money stuck there, there’s hardly any way for the IRS to know. And [crosstalk]
HENRY: Well, the U.S. has been moving toward insisting on what’s called automatic information exchange by major financial—foreign financial institutions that do business here and have American clients.
And so we have this kind of schizophrenic attitude. If you’re a wealthy Mexican, we’re not going to tell the Mexican tax authorities. But we want foreign banks that are—you know, like UBS, who are doing business in the United States to report in on what their U.S. clients are being paid.
So what’s going to happen now that the United States has insisted on this kind of reporting for Americans is that as—the prime minister of France just spoke up and said that he wanted that extended to all of Europe. So there would be basically the same requirement for American banks in Europe. It’s called the FATCA requirement. So a European FATCA is probably on the horizon here.
In general, we need to do much more in the way of automatic information exchange across countries to make sure that this income on all this offshore wealth is not falling through the cracks, because it’s really unfair given the fact that most of it belongs to a tiny fraction of the world’s population. We’re talking about the top 0.1 percent of the world’s population owning most of this offshore capital.
JAY: I mean, if countries were to try to claw back the taxes that should have been paid on all of this wealth, one would think it’d go a long way to paying down deficits and debt.
HENRY: Well, the U.S. Treasury estimates they lose about $100 billion a year of revenue just to individual offshore tax evasion. On the corporate side, we also see major players like Google and Microsoft and Pfizer, you know, offshoring their intellectual property to places like Bermuda and dramatically reducing corporate income tax. So if we get those practices under control, I think it’s worth at least a couple of hundred billion a year, potentially, to the U.S. Treasury. And even a fraction of that would help us with the—you know, avoid things like sequestration, you know, which is worth about $85 billion this year.
So, yeah, we’re talking about an activity that does need more attention on the part of the G20 and the G8. Both of those are meeting in the next three months.
I think all these titillating cases are wonderful entertainment, you know, to find out that someone had a foreign bank account. But basically at the end of the day it’s kind of the same old story. And we know enough—we’ve known enough, actually, for a very long time to come up with some very specific policies that fix this problem.
JAY: Now, if the IRS is saying $1 billion they’re losing in tax revenue as a result of offshore tax havens—.
HENRY: Hundred billion.
JAY: A hundred billion.
JAY: Well, if it’s $100 billion, is that mean that’s $150 billion of fraud? Because if you’re an American, you’re supposed to be declaring it.
HENRY: Well, as Dennis Healey once said, the difference between tax evasion and avoidance is the width of a prison wall. I mean, these games that people are playing are in most cases, I think, clearly illegal. You know, it’s illegal for Americans to have foreign bank accounts and now offshore companies without declaring them to the IRS. It’s illegal not to pay income tax on your worldwide income. And so, you know, there’s really no such thing as an offshore trust for an American that doesn’t owe income tax.
So, you know, this is—I think the journalists involved here have been reluctant to say that what the people they’ve identified are doing is illegal, but that’s probably for libel reasons. I think in general most of this activity does involve outright illegality where the home country has a worldwide income tax, like we do have in the United States, like Mexico has, like Greece has. So that’s a pretty clear situation.
JAY: Alright. Thanks for joining us, James.
HENRY: You’re welcome.
JAY: And thank you for joining us on The Real News Network.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.