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Opinion » Comment

Updated: April 5, 2013 17:13 IST

The rich who stash away cash offshore

David Leigh
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The British-controlled Virgin Islands is the most successful among mushrooming secrecy havens that cater to wealthy individuals

Millions of internal records have leaked from Britain’s offshore financial industry, exposing for the first time the identities of thousands of holders of anonymous wealth from around the world, from presidents to plutocrats, the daughter of a notorious dictator and a British millionaire accused of concealing assets from his ex-wife.

The leak of 2m emails and other documents, mainly from the offshore haven of the British Virgin Islands (BVI), has the potential to cause a seismic shock worldwide to the booming offshore trade, with a former chief economist at McKinsey estimating that wealthy individuals may have as much as $32tn stashed in overseas havens.

In France, Jean-Jacques Augier, President Francois Hollande’s campaign co-treasurer and close friend, has been forced to publicly identify his Chinese business partner. It emerges as Hollande is mired in financial scandal because his former Budget Minister concealed a Swiss bank account for 20 years and repeatedly lied about it.

In Mongolia, the country’s former Finance Minister and Deputy Speaker of its parliament says he may have to resign from politics as a result of this investigation.

But the two can now be named for the first time because of their use of companies in offshore havens, particularly in the British Virgin Islands, where owners’ identities normally remain secret.

Collaborative probe

The names have been unearthed in a novel project by the Washington-based International Consortium of Investigative Journalists [ICIJ], in collaboration with the London-based Guardian and other international media, who are jointly publishing their research results this week.

The naming project may be extremely damaging for confidence among the world’s wealthiest people, no longer certain that the size of their fortunes remains hidden from governments and from their neighbours.

BVI’s clients include Scot Young, a millionaire associate of deceased oligarch Boris Berezovsky. Dundee-born Young is in jail for contempt of court for concealing assets from his ex-wife.

Young’s lawyer, to whom he signed over power of attorney, appears to control interests in a BVI company that owns a potentially lucrative Moscow development with a value estimated at $100m.

Another is jailed fraudster Achilleas Kallakis. He used fake BVI companies to obtain a record-breaking £750m in property loans from reckless British and Irish banks.

Includes Indians

As well as Britons hiding wealth offshore, an extraordinary array of government officials and rich families across the world are identified, from Canada, the United States, India, Pakistan, Indonesia, Iran, China, Thailand and former communist states.

It is not suggested that any of those listed here have behaved unlawfully. Offshore entities can be held legitimately: the only aspect those listed have in common is that they have used a jurisdiction which provides them with secrecy.

The data seen by the Guardian shows that their secret companies are based mainly in the British Virgin Islands.

It is estimated that more than $20tn acquired by wealthy individuals could lie in offshore accounts. The U.K.-controlled BVI has been the most successful among the mushrooming secrecy havens that cater for them.

The Caribbean microstate has incorporated more than a million such offshore entities since it began marketing itself worldwide in the 1980s. Owners’ true identities are never revealed.

Even the island’s official financial regulators normally have no idea who is behind them.

The British Foreign Office depends on the BVI’s company licensing revenue to subsidise this residual outpost of empire, while lawyers and accountants in the City of London benefit from a lucrative trade as intermediaries.

They claim the tax-free offshore companies provide legitimate privacy.

Neil Smith, the financial secretary of the autonomous local administration in the BVI’s capital Tortola, told the Guardian it was very inaccurate to claim the island “harbours the ethically challenged.”

Data cache

He said: “Our legislation provides a more hostile environment for illegality than most jurisdictions”.

Smith added that in “rare instances ... where the BVI was implicated in illegal activity by association or otherwise, we responded swiftly and decisively.”

The Guardian and ICIJ’s Offshore Secrets series last year exposed how U.K. property empires have been built up by, among others, Russian oligarchs, fraudsters and tax avoiders, using BVI companies behind a screen of sham directors.

Such so-called “nominees,” Britons giving far-flung addresses on Nevis in the Caribbean, Dubai or the Seychelles, are simply renting out their names for the real owners to hide behind.

The whistle-blowing group WikiLeaks caused a storm of controversy in 2010 when it was able to download almost two gigabytes of leaked US military and diplomatic files.

The new BVI data, by contrast, contains more than 200 gigabytes, covering more than a decade of financial information about the global transactions of BVI private incorporation agencies. It also includes data on their offshoots in Singapore, Hong Kong and the Cook Islands in the Pacific.— © Guardian Newspapers Limited, 2013

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Everybody knows that black money is transferred in tax havens
of other countries.This news is repeated without providing any details
or taking any deterrent action. is it to encourage the practice or to
stop it?As long as it gives only news value, no one is bothered about
it. In other words the system has come to stay unhindered.

from:  E.sivasankaran
Posted on: Apr 6, 2013 at 14:36 IST

My word! $32T is roughly 46% of the world GDP. These people have no shame? How can someone legitimately earn this amount of money in a life time? It seems obvious and logical to me that this wealth represents nothing but plunder of ordinary humans' toil and natural resources on a planetary scale. The structure and world laws are biased and bent to the will of these uber-human thieves, who have never studied the meaning of the word 'justice' or 'shame'. May the Gods help this planet.

from:  Ashwin
Posted on: Apr 5, 2013 at 15:21 IST

Yesterday's revelations about people who hold accounts in the British
Virgin Islands certainly heightens interest in this area. The really
interesting story will be "What happens next?"

This has several facets:

1) How many of these accounts are tax compliant and how many represent
tax evasion?

2) How vigorously will the authorities prosecute the tax evaders?

3) What resources and skill sets do the government tax authorities
have to follow-up?

4) Can whistle blower legislation be used to arm a private sector army
of tax evasion hunters to supplement government tax authority efforts?

5) What will be the response of the wealthy to this event and what
will be the impact of that response on government resources?

Let me expand on this last question.

A wealthy individual (aka Golden Goose) who feels they pay too much
tax has three basic strategies that they can follow:

Option 1) "Play the Game Better": This means using all the LEGAL
methods of avoiding tax under the laws of the relevant taxing
jurisdiction(s). This option has the advantage that the individual
does not need to overcome life inertia with major life or business
disruptions. The disadvantages are that there is only limited tax
reduction which can be accomplished with this option AND the
government constantly moves the goal posts. This results in decreased
future tax savings as loopholes/ exemptions disappear and the on-going
costs of adjusting your previous strategy and structure;

Option 2) "Leave the Game": For most taxpayers, this involves becoming
non-resident. For Americans this requires giving up their US
citizenship or resident alien status. Generally it means bringing
forward the payment of capital gains. This is not necessarily a bad
thing for the following reasons a) interest rates are low to borrow
money to pay any tax immediately owing on a deemed disposition; b) no
longer have any tax liability to your current tax home from this point
forward; c) do not have to worry if government decides to increase
income, capital gains, gift or estate taxes OR bring in new taxes like
mansion or wealth taxes. The major disadvantage is that the individual
has to go through a one-time effort to overcome their life inertia. As
there are MANY places in the world that the wealthy could move their
tax residence which allows them to minimize their future tax payments
without compromising their personal or business lifestyle, the future
benefits could easily outweigh the one time effort;

Option 3) "Cheat the Game": In years past, it was cheap and easy to
engage in tax evasion. The morally challenged who were considering
this option, did not seriously consider that they would ever have to
pay the penalty of discovery. However the penalties of executing
Option 3, are now real and unattractive.

The obvious impact of the Golden Geese no longer considering cheating
the game, is that they will be focusing on the first two options.
Initially, more Golden Geese will be taking advantage of legally
available tax avoidance strategies. Obviously the government will
respond by closing various currently legal opportunities. With
cheating off the table and playing the game better having a decreasing
value, the attention of the Golden Geese will focus on leaving.. As
they discover that the cost and difficulty of leaving the game is not
really that high (now that they have seriously examined it), you will
see an ever increasing number of wealthy taxpayers leaving their
current tax system.

Since in most G9 countries the top 1% account for just over 1/3rd of
all personal taxes collected, even a slight increase in the number of
Golden Geese who leave the tax system will have a dramatic impact on
future tax revenues. The real question will be how will various
governments legislatively respond to all of this.

There will be naive efforts to try and lobby for a global "level tax
playing field". This effort is doomed from the outset, because of the
prisoner's dilemma. Even efforts to try to impose standards for
government fiscal policies across the eurozone weren't possible. Try
making a broader effort over a vastly increased number of independent
countries, all of whole are trying to keep and attract Golden Geese to
their shores, is hopeless.

Therefore the real action will take place domestically as governments
examine their options. If they decide to increase the cost of leaving
(the American approach), they will see the same result the US
experienced. Specifically, RECORD numbers of Golden Geese leaving,
before the cost gets even higher. If a government were smart, they
would rather bring in policies that would attract more Golden Geese to
their tax system. This means making if more attractive than the system
that they are currently considering leaving. Just as a small number of
departing Golden Geese has an asymmetric negative impact on total tax
revenues, the attraction of even a relatively small number of Golden
Geese will have a disproportionate positive impact.

I don't know if I am showing my geekiness by being so intellectually
interested in the bigger implications of these various events, but I
truly feel that there are a variety of things from Cypriot bank
account seizures; to Putin's demand for no more offshore accounts; to
outing of tax evaders which have caused a tipping point to be reached.
It is increasingly obvious to me, that we are experiencing a major
disruption to the standard government revenue model which has been in
place for the past century. Namely, a progressive tax system. Whether
you think such a system is "fair" does not change that fact that it is
inherently unstable because of an extreme over reliance on a small
number of Golden Geese for such a huge portion of total tax revenues.

Previously governments could a implement policies that continue to add
to the tax burden to Golden Geese. If a Golden Goose reacted by
cheating the game, they could prosecute them. If a Golden Goose
reacted by trying to play the game better they could change the rules.
However, in a globalized world where Golden Geese can set up their
personal and business lives in many jurisdictions other than that of
their birth, governments will now see a reaction to their increased
burdens on the Golden Geese that will immediately and dramatically
cause a drop in total tax revenues. Recognition of the paradigm shift
is the first step. Properly reacting to the paradigm shift is
ultimately the most important step.

from:  DavidSLesperance
Posted on: Apr 5, 2013 at 14:06 IST

Let them publish the list of hidden assets/wealth in the Parliament in all countries.Tax havens should not be let out like this

from:  emneelakandan
Posted on: Apr 5, 2013 at 11:25 IST

For Wealthy Indians, no for all Indians. There is no incentive to pay tax except punitive action. There is no correlation between paying tax and development. They just take the tax and waste it.

from:  sathyavrath
Posted on: Apr 5, 2013 at 10:26 IST

I wonder why the names of any of the Indian account holder is not mentioned
here.

from:  Dhyani
Posted on: Apr 5, 2013 at 09:06 IST

One always wondered why Spain. Greece and Cyprus economies are in
trouble. Perhaps answer lies in money stashed in BVI. In all cases the
governments have squandered public money. It appears that politicians,
bureaucrats and businessmen in these countries have made billions of
dollars of accounted wealth and all of them have parked their ill-
gotten money in tax-havens like BVI. It is clear that in all countries
for those in power it is possible to escape laws, rules and
regulations about laundered money. For Indian citizens who always
think that there is very little control over use of laundered money in
elections these revelations about investments in companies in BVI by
businessmen and politicians of European nations are eye-openers.

from:  Narendra M Apte
Posted on: Apr 5, 2013 at 07:54 IST

Mr David Leigh's write up throws only a dim light over the murky BVIs and BOs from all parts of the world including India.The sum
involved is over 3 trillion dollars,a truly mind-boggling amount.
Perhaps one may expect further exposes from several other quarters.The two or three names of Indian Industrialists (all NRIs) apart no politician's name has been bandied about which is rather strange considering that these are the people who must have the major part of the Forty Thieves' treasure in the Virgin Islands Caves.Can we expect our authorities to exhibit more than due diligence in unearting names of Indian Members of the Club of Forty?

from:  Raj Kumar
Posted on: Apr 5, 2013 at 04:14 IST

Would someone kindly publish a list of these people ?

from:  avinash
Posted on: Apr 5, 2013 at 03:16 IST
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