Published:
Thursday, 26 Jul 2012 | 4:56 AM ET
LONDON
(Reuters) - A global campaign to tax trillions of dollars hidden in
offshore tax havens has made revolutionary progress, an official leading
the drive said, rejecting suggestions that the super rich are running
rings around Western authorities.
Pascal
Saint-Amans, director of a unit at the Organisation for Economic
Cooperation and Development, also cast doubt on estimates that the
havens are illicitly sheltering wealth equivalent to several hundred
times the fortune of Bill Gates.
Leaders
of the G20 group of leading Western and developing nations launched the
campaign three years ago, aiming to claw back billions in lost tax
revenue at a time when many governments are trying to cut huge budget
deficits.
Saint-Amans
said his gut feeling was that before the G20's initiative at its 2009
London summit, people could hide their wealth in offshore havens without
any risk of legal reprisals.
"Now
you are at risk and that's a major change. That's a revolution,"
Paris-based Saint-Amans told Reuters in a telephone interview. Even if
money is transferred abroad, rules improving transparency have made it
easier for the taxman to find it, said Saint-Amans, whose unit is tasked
with leading the Western efforts to fight tax evasion.
The
Tax Justice Network, a campaign group, estimated last weekend that as
much as $21 to $32 trillion of financial assets are sheltered in
offshore tax havens, representing up to $280 billion in lost income tax.
That
total wealth would dwarf the fortune of Microsoft Corp cofounder and
philanthropist Bill Gates. In March Forbes magazine ranked Gates second
on its global rich list with total wealth of a mere $61 billion.
Saint-Amans
suggested the TJN estimates might be overstated. "I was wondering where
the equivalent of 450 Bill Gates are hiding from everyone. It looks
like the equivalent 20,000 unknown billionaires in the world or 200,000
people with net worth of 100 million," he said.
The
Scorpio Partnership, a consultancy that analyses the global private
wealth management industry, estimates the amount of money held offshore
by people worth at least $1 million at a more modest $8-$9 trillion.
NO MAGIC NUMBER
Saint-Amans,
who heads the OECD's Centre for Tax Policy and Administration,
acknowledged his organisation makes no equivalent estimate. "I would
rather spend the resource improving the legal framework and putting an
end to loopholes than trying to find the magic number," he said.
In
a statement accompanying its research, TJN criticized the OECD and
other international bodies for not doing enough to track offshore
wealth, saying it was scandalous that institutions devoted so little
research to the issue.
G20
leaders agreed at their London summit to crack down on tax evasion and
banking secrecy, and asked the OECD to publish lists of tax havens
according to how cooperative authorities there are on releasing
information about offshore wealth holdings.
There
are now 89 countries on the OECD's "white list" of jurisdictions that
have implemented internationally agreed tax standards. These
jurisdictions have between them signed more than 800 agreements on
exchanging information with authorities other countries, Saint-Amans
said.
"Until 2009,
countries said being secretive is justified and fair. The change in the
world is nobody says that any more, so that is a big change," he said.
Western
tax authorities have individually stepped up efforts to net more money
hidden abroad by their own citizens through a series of amnesties
targeting people with accounts in jurisdictions such as Switzerland and
Liechtenstein.
At
the same time they have turned up the heat on citizens suspected of tax
evasion. This has included using details of Swiss accounts originally
stolen from HSBC by a former IT employee that found their way into the
hands of tax authorities around Europe.
Britain's
HMRC tax office expects an amnesty offering leniency to people with
accounts in Liechtenstein if they come clean to raise about 3 billion
pounds, while a similar deal on Swiss accounts will bring in up to 7
billion pounds.
Campaigners
argue that such initiatives will achieve only limited success because a
financial industry designed to ensure confidentiality across multiple
jurisdictions makes it impossible to shut down tax fraud or money
laundering.
"Anybody
who's serious about holding money offshore ... will hold it through a
trust," said Richard Murphy, a chartered accountant and director of Tax
Research, a think-tank.
"You'd
have the trust in one territory, the company in another territory, its
directors in another territory and its bank account in a fourth
territory. So making an application for information is not very simple."
TOO COMPLEX TO BE WORKABLE
Murphy
dismissed the OECD's progress in cracking down on tax havens, arguing
that implementation of information exchange between territories is
limited in practice and the process too complex to be workable.
"They've
set up a system where it's virtually impossible to apply for
information ... The OECD claiming they are making progress is like
checking the stable door has been shut way after the horse bolted. Not
just the horse, the entire stable has bolted," he said.
The
TJN research on offshore wealth - authored by James Henry, a former
chief economist at consultant McKinsey & Co - highlights the "often
unsavory role" played by banks in catering to rich individuals who want
to hide money offshore.
Large private banks with offshore businesses reject the idea they aid tax evasion.
"Our
Code of Conduct explicitly says not to assist clients in activities
intended to breach their tax obligations," said a spokesman for Swiss
bank Credit Suisse <CSGN.VX> who declined to comment specifically
on the contents of the TJN report
But
recent crackdowns by tax authorities in countries such as Britain, the
United States and Germany have proved embarrassing for Swiss banks.
German
tax authorities are investigating roughly 5,000 German clients of
Credit Suisse while French officials have searched the homes of UBS
<UBSN.VX> employees.
At least 11 Swiss banks suspected of helping wealthy American clients dodge taxes are currently subject to a U.S. investigation.
Saint-Amans
said the OECD's efforts have focused on engaging with governments
rather than imposing more supervision on financial institutions. The
complexity of the industry, he said, meant that greater information
exchange was the best way to tackle people using banking secrecy to
break the law.
"I'm
not sure that nationalizing the banking industry throughout the world
is the solution. The fact you have private practitioners being involved
in a sophisticated environment is why you need to favor transparency and
exchange of information," he said.
Efforts
to increase disclosure and combat both tax evasion and money laundering
by international bodies such as the OECD and the Financial Action Task
Force (FATF), a Paris-based inter-governmental body, have focused on
self regulation.
"We've
tried to ensure that what we're talking about is not to create some
draconian system where we put a policeman in every financial institution
which would be impossible to do," said a senior source at the FATF,
which was set up to combat money laundering and terrorist financing.
Nick
Matthews, anti-money laundering and offshore financial industry
specialist at Kinetic Partners, said purging the world's financial
system is "incredibly difficult".
"Clearly
tax evasion leads to money laundering and is a crime but you would have
money laundering even if there was no tax, because you still have
proceeds from crime or corruption polluting the financial system," he
said.
"That is why I
say that no bank would ever stand up and claim that they are not being
used to launder money. They appreciate that they are only as strong as
their weakest link."
(Additional reporting by Katharina Bart and Martin de Sa'Pinto in Zurich; editing by David Stamp)
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