Global super-rich hiding $21trn in tax havens

At least $21 trillion of unreported private financial wealth was owned by wealthy individuals via tax havens at the end of 2010.

This sum is equivalent to the size of the United States and Japanese economies combined, according to a study released on Sunday.

There may be as much as $32 trillion of hidden financial assets held offshore by high net-worth individuals, says the report, The Price of Offshore Revisited, which is thought to be the most detailed and rigorous study ever made of financial assets held in offshore financial centres and secrecy structures.

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The report says it considers these numbers to be conservative. This is only financial wealth and excludes a welter of real estate, yachts and other non-financial assets owned via offshore structures.

Earlier this year, CBI Director AP Singh had claimed that around $500 billion of illegal money belonging to Indians is deposited in tax havens abroad. Largest depositors in Swiss banks are also reported to be Indians, he had said.

Singh had added that India, in particular, "has suffered from the flow of illegal funds to tax havens such as Mauritius, Switzerland, Lichtenstein and British Virgin islands".

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The research for the Tax Justice Network by former McKinsey & Co Chief Economist James Henry draws on data from the World Bank, the IMF, the United Nations, central banks, the Bank for International Settlements, and national treasuries, and triangulates his results against data reflecting demand for reserve currency and gold, and data on offshore private banking studies by consulting firms and others.

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Other main findings of this wide-ranging research include:

i) the end of 2010, the top 50 private banks alone collectively managed more than $12.1 trillion in cross-border invested assets for private clients, including their trusts and foundations. This is up from $5.4 trillion in 2005, representing an average annual growth rate of more than 16 per cent.

ii) The three private banks handling the most assets offshore on behalf of the global super-rich are UBS, Credit Suisse and Goldman Sachs. The top 10 banks alone commanded over half the top 50 asset total - an increased share since 2005.

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iii) The number of the global super-rich who have amassed a $21 trillion offshore fortune is fewer than 10 million people. Of these, less than 100,000 people worldwide own $9.8 trillion of wealth held offshore.

iv) If this unreported $21-32 trillion, conservatively estimated, earned a modest rate of return of just three per cent and that income was taxed at just 30 per cent, this would have generated income tax revenues of between $190-280 billion - roughly twice the amount Organisation of Economic Cooperation and Development countries spend on all overseas development assistance around the world. Inheritance, capital gains and other taxes would boost this figure considerably.

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v) The report's focus subgroup of 139 mostly low-middle income countries, traditional data shows aggregate external debts of $4.1 trillion at the end of 2010. But take their foreign reserves and unrecorded offshore private wealth into account, and the picture reverses: they had aggregate net debts of minus $10.1013.1 trillion.

In other words, these countries are big net creditors, not debtors. Unfortunately, their assets are held by a few wealthy individuals, while their debts are shouldered by their ordinary people through their governments, according to the report.

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"This new report focuses our attention on a huge 'black hole' in the world economy that has never before been measured - private offshore wealth, and the vast amounts of untaxed income that it produces, says Henry.

"This at a time when governments around the world are starved for resources, and we are more conscious than ever of the costs of economic inequality.

"Using several independent estimation methods, and the most comprehensive data set ever assembled, we have been able to triangulate on the size and growth of this black hole. Despite taking pains to err on the conservative side, the results are astonishing," he says.