Saturday, 25 October 2014 / TRUTH-OUT.ORG

Major Banks Help Clients Hide Trillions in Offshore Tax Havens (Part I)

Friday, 10 August 2012 11:04 By Paul Jay, The Real News Network | Interview and Video

James Henry: US media and politicians mostly ignore massive untaxed wealth that big banks help rich move to tax havens.

Also see: Trillion Dollar Tax Havens, Inequality and Recession (Part II)

TRANSCRIPT:

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

About a year ago, a friend of ours, Sony Kapoor, who we've interviewed many times on The Real News Network, told a story of when he went to work at Lehman Brothers. He walked in the personnel office, and they gave him his forms to fill out and that, and then the person said to him, "Do you want to set up your account in the Cayman Islands, or would you like us to help you with it?" Well, obviously, Sony and others at Lehman were not the only ones setting up accounts in places like the Cayman Islands. A new study has estimated the amount of money stuck in these bank accounts, away from taxation by governments, anywhere from twenty-one to maybe thirty, thirty-two trillion dollars. Now joining us is the author of that study, James Henry. He's an economist, an attorney, an investigative journalist, who's written extensively about global issues. He served as a chief economist at the international consultancy firm McKinsey & Company. He's now on the global board of the Tax Justice Network, and he's the lead researcher on this recently released report titled The Price of Offshore Revisited. Thanks for joining us, James.

JAMES S. HENRY, ECONOMIST, LAWYER, AND INVESTIGATIVE JOURNALIST: Yup. My pleasure.

JAY: So give us the scope of what we're talking about.

HENRY: Well, basically, we've estimated that as of December 2010, somewhere between $21-32 trillion is basically parked offshore. That's private financial wealth. About 90 percent of it is probably tax-free, not reported to the source countries. So it's a major black hole in the global economy and it has lots of consequences. The Tax Justice Network has been concerned about tax justice issues related to the offshore industry for a decade, but this is the first time we've really tried to pull together the best estimates from everywhere. And we've estimated this number several ways, and we have a lot of confidence that it's a good minimum.

JAY: Right. Now, give us some examples of the numbers. For example, the top 50 private banks alone collectively manage more than $12.1 trillion. What are we talking about? And we are talking about the big banks here.

HENRY: Yes. They're the leaders of the pack. This is a global industry. I mean, behind all the individual more than 80 tax havens out there, you have an industry operated by the largest banks in the world, players like UBS, Credit Suisse, JPMorgan, Goldman. They're all pioneers in a field called international private banking. It's a field that most people aren't aware of because it's not something that's offered to retail customers. They're interested in people with at least $1 million and more of net worth, and most of them are interested in $10 million and up. But these top 50 banks manage about $12.3 trillion of international client assets—that's assets under management plus deposits, plus brokerage assets as well. And of that, the top ten banks account for about 51 percent, $6.3 trillion.And that's one stake in the ground, that's one of the three methods that we use, was to look individually at these banks and take a look that no one else has ever done, which is to look across banks and also look back in time at how fast they have grown in this activity. So this is a big business, and they're the kind of puppeteers here, along with leading accounting firms and law firms that specialize in helping very wealthy people set up these offshore investment vehicles, like trusts and foundations and shell companies.

JAY: Now, that was my question, because if you're an American citizen, you're supposed to be reporting global income. So why is there some advantage to sticking the money abroad unless you're not reporting it?

HENRY: Well, that's exactly the point. I mean, U.S. banks have a lot of money, for example, from Mexico and Latin America. You know, since the 1970s, when global lending got started, the private banking departments of Citibank, at the same time their institutions were lending heavily to Latin America or the Philippines, they were sending their private bankers down to these places to call on senior officials, major business people, and get them to take their money out, put it offshore.And the interesting thing is the United States and other leading First World countries have so designed their own tax codes so that if you are a wealthy Mexican nonresident of the United States or a wealthy Kuwaiti who's—wants to live in London, you can become a nonresident alien in the United States or a non-dom in London, live there tax-free, and not be having to owe the United States government any taxes on your bond interest, on your capital gains, or on your bank deposits at Citibank or at, you know, JPMorgan. And, basically, the United States Treasury doesn't bother to report this to developing countries.Now, the Treasury has recently gotten upset because this game has kind of turned around to haunt the United States, with—you know, we're seeing the big cases involving pirate bankers like UBS coming here, sending their private bankers to the United States to gather up money from wealthy Americans. And the Treasury's gotten angry about that and cracked down on several Swiss banks recently, and is now demanding that foreign financial institutions that want to do business here report the Americans who are investing with them.But that regulation doesn't extend to—you know, we're not generous enough to share with Mexico or Brazil or Venezuela or Russia when they want to tax their offshore wealth. I mean, Mexico has a worldwide income tax just like we do. Philippines has that kind of a worldwide tax. Many developing countries have tried to tax global income just like we do, because otherwise they end up just having to tax sales, or their, you know, poor people and middle class has to pay the cost of government.But they've gotten no cooperation from the U.S. Treasury in that regard. In fact, when Obama administration came to power in 2009, one of the first things that happened was that the secretary of the Ministry of Finance in Mexico wrote to Tim Geithner requesting that he share some of the same information that he was sending to Canada on Canadian depositors. He wanted the same information on Mexicans who had foreign accounts in U.S. banks. And Geithner never responded to the letter. The reason is it's a big business for U.S. banks, as well as for U.K. banks, you know, Swiss banks, to round up money from developing countries.

JAY: So this $20-$30 trillion, how much is this is developing countries' money? And do you have any sense of it, how much of it is Americans trying to avoid tax in one way or the other?

HENRY: We actually get better data [unintel.] when we look at the developing countries from the IMF and the World Bank. We have developed, using their raw data, spent more than a year building models of 139 developing countries, with data going all the way back to 1970 for, on the one hand, the sources of foreign capital, you know, their official debt and their global—their investments that they receive from abroad, comparing that with the uses that we can identify, which is financing the deficit on current account and also changes in reserve. And when you deduct the uses from the sources, you get this big number which is left over. It's unexplained. And it basically represents capital that's flown out of the country.Cumulatively speaking, the developing world, if we add all that up and then take account of how it's grown over time, being reinvested, the cumulative amount is between $7-9 trillion dollars. So it's about a third of the total here. And that's, again, independent of the estimates we have for the banks, and independent of another approach that we've taken, which I'll describe in a second.

JAY: So I'm not sure I understood the answer in terms of how much of this is American money though. Is much of this straight American money avoiding tax, or is most of this developing world money?

HENRY: This is about a third from the developing world. The problem is that there isn't equivalent data for OECD countries like the United States, the U.K., France, Germany that we have from the World Bank and the IMF to build these models. So all that we have there is from the Bank for International Settlements, and that is data on cross-border bank and non-bank deposits. And bank deposits are basically a fraction of people's portfolios. So we have pretty good data on what the corporations and individuals are holding abroad, and that can let us scale up these cross-border deposits to an estimate of how big the total portfolio is for global offshore wealth.Now, buried in that data is data that the BIS won't release. They have data from 30 financial centers, from the central banks in those centers, on, say, how much Americans have in Swiss banks or how much the French have in Liechtenstein. But because their data gathering depends on voluntary cooperation from the central banks of these countries, they won't release the pair-wise information on, say, U.S. versus Switzerland and, you know, Liechtenstein, for example. They won't release it. So we actually know less about the distribution within the rich countries than we do about the distribution from the Third World. We are able to say that it's about—two-thirds of it is from rich countries going to other rich countries and ending up, through havens, avoiding tax.There is some evidence that we've also been able to gather for individual wealthy countries, and the standard estimate for the United States is there's about $100 billion of lost tax revenue from all the offshore activity.

JAY: To what extent is this illegal? Are there laws against this? And if there are, are these banks then participating in something criminal?

HENRY: Well, as I just said, the laws that have been written by the First World countries, so that if you are a wealthy Mexican, for example, and you have your money in a Swiss bank account, you don't owe the U.S. Treasury anything on the investment—so that's not a violation of law, but it's—basically leaves up to that investor then to go and report all that back in the home country. And we know from interviews with private bankers and with clients that tax evasion, outright tax evasion, is a key motive for moving money offshore. I mean, it's expensive to set up these arrangements, and you'd only do that if you were either worried about political risk or you're worried about being taxed on this money or if it comes from outright criminal enterprise. And there's a fair amount of drug money, as well, washing around in these accounts.

JAY: By illegal I meant, for example, the laws of Mexico or the laws of Kenya or somewhere else. If the banks are colluding or helping people violate the laws of their own countries, either through tax evasion or sometimes a straightforward stealing from public treasuries, then the banks are participating in something criminal. Is that—would that be true?

HENRY: You know, Mexico has been a major recipient of visits from all the global banks over the years and private bankers to Mexico and, you know, Venezuela and Brazil. You know, I've met many of them. I've met—one of the leading private bankers in Geneva, you know, is—specializes in Brazilian money. And Brazil is one of the—has one of the largest accumulated volume of offshore private wealth that's beyond the reach of the tax authorities.So yes, this is—you know, Denis Healey, the chancellor of the exchequer, once said that the difference between evasion and avoidance is the width of a prison wall. So, you know, a lot of this is in that grey zone that—I would argue that much of it is essentially being part of a conspiracy to help very wealthy people evade taxes.And these are the largest banks in the world. And they're also the biggest recipients of bailout money. All of the top ten banks on our list received substantial assistance in the last five years, and all of them were deeply involved in creating the economic crisis. So it's a little bit of, I would say, an irony that these are also the same institutions that it turns out are deeply involved in helping the richest people in the world basically evade taxes that are—you know, ordinary taxpayers are—even while ordinary taxpayers like us are helping to bail them out.

JAY: Okay. Well, in the next segment of our interview we're going to talk more about consequences of all this, especially inequality and what that means, not just for the people that are on the short end of this stick, but what all this concentration of capital means for the world economy, concentration of capital that's not doing very much.So thanks very much for joining us, James. And thank you for joining us on The Real News Network. And please join us for part two of this series of interviews.

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

About a year ago, a friend of ours, Sony Kapoor, who we've interviewed many times on The Real News Network, told a story of when he went to work at Lehman Brothers. He walked in the personnel office, and they gave him his forms to fill out and that, and then the person said to him, "Do you want to set up your account in the Cayman Islands, or would you like us to help you with it?" Well, obviously, Sony and others at Lehman were not the only ones setting up accounts in places like the Cayman Islands. A new study has estimated the amount of money stuck in these bank accounts, away from taxation by governments, anywhere from twenty-one to maybe thirty, thirty-two trillion dollars.Now joining us is the author of that study, James Henry. He's an economist, an attorney, an investigative journalist, who's written extensively about global issues. He served as a chief economist at the international consultancy firm McKinsey & Company. He's now on the global board of the Tax Justice Network, and he's the lead researcher on this recently released report titled The Price of Offshore Revisited. Thanks for joining us, James.JAMES S. HENRY, ECONOMIST, LAWYER, AND INVESTIGATIVE JOURNALIST: Yup. My pleasure.JAY: So give us the scope of what we're talking about.HENRY: Well, basically, we've estimated that as of December 2010, somewhere between $21-32 trillion is basically parked offshore. That's private financial wealth. About 90 percent of it is probably tax-free, not reported to the source countries. So it's a major black hole in the global economy and it has lots of consequences. The Tax Justice Network has been concerned about tax justice issues related to the offshore industry for a decade, but this is the first time we've really tried to pull together the best estimates from everywhere. And we've estimated this number several ways, and we have a lot of confidence that it's a good minimum.JAY: Right. Now, give us some examples of the numbers. For example, the top 50 private banks alone collectively manage more than $12.1 trillion. What are we talking about? And we are talking about the big banks here.HENRY: Yes. They're the leaders of the pack. This is a global industry. I mean, behind all the individual more than 80 tax havens out there, you have an industry operated by the largest banks in the world, players like UBS, Credit Suisse, JPMorgan, Goldman. They're all pioneers in a field called international private banking. It's a field that most people aren't aware of because it's not something that's offered to retail customers. They're interested in people with at least $1 million and more of net worth, and most of them are interested in $10 million and up. But these top 50 banks manage about $12.3 trillion of international client assets—that's assets under management plus deposits, plus brokerage assets as well. And of that, the top ten banks account for about 51 percent, $6.3 trillion.And that's one stake in the ground, that's one of the three methods that we use, was to look individually at these banks and take a look that no one else has ever done, which is to look across banks and also look back in time at how fast they have grown in this activity. So this is a big business, and they're the kind of puppeteers here, along with leading accounting firms and law firms that specialize in helping very wealthy people set up these offshore investment vehicles, like trusts and foundations and shell companies.JAY: Now, that was my question, because if you're an American citizen, you're supposed to be reporting global income. So why is there some advantage to sticking the money abroad unless you're not reporting it?HENRY: Well, that's exactly the point. I mean, U.S. banks have a lot of money, for example, from Mexico and Latin America. You know, since the 1970s, when global lending got started, the private banking departments of Citibank, at the same time their institutions were lending heavily to Latin America or the Philippines, they were sending their private bankers down to these places to call on senior officials, major business people, and get them to take their money out, put it offshore.And the interesting thing is the United States and other leading First World countries have so designed their own tax codes so that if you are a wealthy Mexican nonresident of the United States or a wealthy Kuwaiti who's—wants to live in London, you can become a nonresident alien in the United States or a non-dom in London, live there tax-free, and not be having to owe the United States government any taxes on your bond interest, on your capital gains, or on your bank deposits at Citibank or at, you know, JPMorgan. And, basically, the United States Treasury doesn't bother to report this to developing countries.Now, the Treasury has recently gotten upset because this game has kind of turned around to haunt the United States, with—you know, we're seeing the big cases involving pirate bankers like UBS coming here, sending their private bankers to the United States to gather up money from wealthy Americans. And the Treasury's gotten angry about that and cracked down on several Swiss banks recently, and is now demanding that foreign financial institutions that want to do business here report the Americans who are investing with them.But that regulation doesn't extend to—you know, we're not generous enough to share with Mexico or Brazil or Venezuela or Russia when they want to tax their offshore wealth. I mean, Mexico has a worldwide income tax just like we do. Philippines has that kind of a worldwide tax. Many developing countries have tried to tax global income just like we do, because otherwise they end up just having to tax sales, or their, you know, poor people and middle class has to pay the cost of government.But they've gotten no cooperation from the U.S. Treasury in that regard. In fact, when Obama administration came to power in 2009, one of the first things that happened was that the secretary of the Ministry of Finance in Mexico wrote to Tim Geithner requesting that he share some of the same information that he was sending to Canada on Canadian depositors. He wanted the same information on Mexicans who had foreign accounts in U.S. banks. And Geithner never responded to the letter. The reason is it's a big business for U.S. banks, as well as for U.K. banks, you know, Swiss banks, to round up money from developing countries.JAY: So this $20-$30 trillion, how much is this is developing countries' money? And do you have any sense of it, how much of it is Americans trying to avoid tax in one way or the other?HENRY: We actually get better data [unintel.] when we look at the developing countries from the IMF and the World Bank. We have developed, using their raw data, spent more than a year building models of 139 developing countries, with data going all the way back to 1970 for, on the one hand, the sources of foreign capital, you know, their official debt and their global—their investments that they receive from abroad, comparing that with the uses that we can identify, which is financing the deficit on current account and also changes in reserve. And when you deduct the uses from the sources, you get this big number which is left over. It's unexplained. And it basically represents capital that's flown out of the country.Cumulatively speaking, the developing world, if we add all that up and then take account of how it's grown over time, being reinvested, the cumulative amount is between $7-9 trillion dollars. So it's about a third of the total here. And that's, again, independent of the estimates we have for the banks, and independent of another approach that we've taken, which I'll describe in a second.JAY: So I'm not sure I understood the answer in terms of how much of this is American money though. Is much of this straight American money avoiding tax, or is most of this developing world money?HENRY: This is about a third from the developing world. The problem is that there isn't equivalent data for OECD countries like the United States, the U.K., France, Germany that we have from the World Bank and the IMF to build these models. So all that we have there is from the Bank for International Settlements, and that is data on cross-border bank and non-bank deposits. And bank deposits are basically a fraction of people's portfolios. So we have pretty good data on what the corporations and individuals are holding abroad, and that can let us scale up these cross-border deposits to an estimate of how big the total portfolio is for global offshore wealth.Now, buried in that data is data that the BIS won't release. They have data from 30 financial centers, from the central banks in those centers, on, say, how much Americans have in Swiss banks or how much the French have in Liechtenstein. But because their data gathering depends on voluntary cooperation from the central banks of these countries, they won't release the pair-wise information on, say, U.S. versus Switzerland and, you know, Liechtenstein, for example. They won't release it. So we actually know less about the distribution within the rich countries than we do about the distribution from the Third World. We are able to say that it's about—two-thirds of it is from rich countries going to other rich countries and ending up, through havens, avoiding tax.There is some evidence that we've also been able to gather for individual wealthy countries, and the standard estimate for the United States is there's about $100 billion of lost tax revenue from all the offshore activity.JAY: To what extent is this illegal? Are there laws against this? And if there are, are these banks then participating in something criminal?HENRY: Well, as I just said, the laws that have been written by the First World countries, so that if you are a wealthy Mexican, for example, and you have your money in a Swiss bank account, you don't owe the U.S. Treasury anything on the investment—so that's not a violation of law, but it's—basically leaves up to that investor then to go and report all that back in the home country. And we know from interviews with private bankers and with clients that tax evasion, outright tax evasion, is a key motive for moving money offshore. I mean, it's expensive to set up these arrangements, and you'd only do that if you were either worried about political risk or you're worried about being taxed on this money or if it comes from outright criminal enterprise. And there's a fair amount of drug money, as well, washing around in these accounts.JAY: By illegal I meant, for example, the laws of Mexico or the laws of Kenya or somewhere else. If the banks are colluding or helping people violate the laws of their own countries, either through tax evasion or sometimes a straightforward stealing from public treasuries, then the banks are participating in something criminal. Is that—would that be true?HENRY: You know, Mexico has been a major recipient of visits from all the global banks over the years and private bankers to Mexico and, you know, Venezuela and Brazil. You know, I've met many of them. I've met—one of the leading private bankers in Geneva, you know, is—specializes in Brazilian money. And Brazil is one of the—has one of the largest accumulated volume of offshore private wealth that's beyond the reach of the tax authorities.So yes, this is—you know, Denis Healey, the chancellor of the exchequer, once said that the difference between evasion and avoidance is the width of a prison wall. So, you know, a lot of this is in that grey zone that—I would argue that much of it is essentially being part of a conspiracy to help very wealthy people evade taxes.And these are the largest banks in the world. And they're also the biggest recipients of bailout money. All of the top ten banks on our list received substantial assistance in the last five years, and all of them were deeply involved in creating the economic crisis. So it's a little bit of, I would say, an irony that these are also the same institutions that it turns out are deeply involved in helping the richest people in the world basically evade taxes that are—you know, ordinary taxpayers are—even while ordinary taxpayers like us are helping to bail them out.JAY: Okay. Well, in the next segment of our interview we're going to talk more about consequences of all this, especially inequality and what that means, not just for the people that are on the short end of this stick, but what all this concentration of capital means for the world economy, concentration of capital that's not doing very much.So thanks very much for joining us, James. And thank you for joining us on The Real News Network. And please join us for part two of this series of interviews.
This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Paul Jay

Paul Jay is CEO and Senior Editor of The Real News Network. As Senior Editor of TRNN Paul has overseen the production of over 4,500 news stories and is the Host of our news analysis programming. As Executive Producer of CBC Newsworld's independent flagship debate show counterSpin he produced over 2,000 shows during its 10 yrs on air. He is an award-winning documentary filmmaker with over 20 films under his belt and was founding Chair of Hot Docs!, the Canadian International Documentary Film Festival (now the largest in North America).


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Major Banks Help Clients Hide Trillions in Offshore Tax Havens (Part I)

Friday, 10 August 2012 11:04 By Paul Jay, The Real News Network | Interview and Video

James Henry: US media and politicians mostly ignore massive untaxed wealth that big banks help rich move to tax havens.

Also see: Trillion Dollar Tax Havens, Inequality and Recession (Part II)

TRANSCRIPT:

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

About a year ago, a friend of ours, Sony Kapoor, who we've interviewed many times on The Real News Network, told a story of when he went to work at Lehman Brothers. He walked in the personnel office, and they gave him his forms to fill out and that, and then the person said to him, "Do you want to set up your account in the Cayman Islands, or would you like us to help you with it?" Well, obviously, Sony and others at Lehman were not the only ones setting up accounts in places like the Cayman Islands. A new study has estimated the amount of money stuck in these bank accounts, away from taxation by governments, anywhere from twenty-one to maybe thirty, thirty-two trillion dollars. Now joining us is the author of that study, James Henry. He's an economist, an attorney, an investigative journalist, who's written extensively about global issues. He served as a chief economist at the international consultancy firm McKinsey & Company. He's now on the global board of the Tax Justice Network, and he's the lead researcher on this recently released report titled The Price of Offshore Revisited. Thanks for joining us, James.

JAMES S. HENRY, ECONOMIST, LAWYER, AND INVESTIGATIVE JOURNALIST: Yup. My pleasure.

JAY: So give us the scope of what we're talking about.

HENRY: Well, basically, we've estimated that as of December 2010, somewhere between $21-32 trillion is basically parked offshore. That's private financial wealth. About 90 percent of it is probably tax-free, not reported to the source countries. So it's a major black hole in the global economy and it has lots of consequences. The Tax Justice Network has been concerned about tax justice issues related to the offshore industry for a decade, but this is the first time we've really tried to pull together the best estimates from everywhere. And we've estimated this number several ways, and we have a lot of confidence that it's a good minimum.

JAY: Right. Now, give us some examples of the numbers. For example, the top 50 private banks alone collectively manage more than $12.1 trillion. What are we talking about? And we are talking about the big banks here.

HENRY: Yes. They're the leaders of the pack. This is a global industry. I mean, behind all the individual more than 80 tax havens out there, you have an industry operated by the largest banks in the world, players like UBS, Credit Suisse, JPMorgan, Goldman. They're all pioneers in a field called international private banking. It's a field that most people aren't aware of because it's not something that's offered to retail customers. They're interested in people with at least $1 million and more of net worth, and most of them are interested in $10 million and up. But these top 50 banks manage about $12.3 trillion of international client assets—that's assets under management plus deposits, plus brokerage assets as well. And of that, the top ten banks account for about 51 percent, $6.3 trillion.And that's one stake in the ground, that's one of the three methods that we use, was to look individually at these banks and take a look that no one else has ever done, which is to look across banks and also look back in time at how fast they have grown in this activity. So this is a big business, and they're the kind of puppeteers here, along with leading accounting firms and law firms that specialize in helping very wealthy people set up these offshore investment vehicles, like trusts and foundations and shell companies.

JAY: Now, that was my question, because if you're an American citizen, you're supposed to be reporting global income. So why is there some advantage to sticking the money abroad unless you're not reporting it?

HENRY: Well, that's exactly the point. I mean, U.S. banks have a lot of money, for example, from Mexico and Latin America. You know, since the 1970s, when global lending got started, the private banking departments of Citibank, at the same time their institutions were lending heavily to Latin America or the Philippines, they were sending their private bankers down to these places to call on senior officials, major business people, and get them to take their money out, put it offshore.And the interesting thing is the United States and other leading First World countries have so designed their own tax codes so that if you are a wealthy Mexican nonresident of the United States or a wealthy Kuwaiti who's—wants to live in London, you can become a nonresident alien in the United States or a non-dom in London, live there tax-free, and not be having to owe the United States government any taxes on your bond interest, on your capital gains, or on your bank deposits at Citibank or at, you know, JPMorgan. And, basically, the United States Treasury doesn't bother to report this to developing countries.Now, the Treasury has recently gotten upset because this game has kind of turned around to haunt the United States, with—you know, we're seeing the big cases involving pirate bankers like UBS coming here, sending their private bankers to the United States to gather up money from wealthy Americans. And the Treasury's gotten angry about that and cracked down on several Swiss banks recently, and is now demanding that foreign financial institutions that want to do business here report the Americans who are investing with them.But that regulation doesn't extend to—you know, we're not generous enough to share with Mexico or Brazil or Venezuela or Russia when they want to tax their offshore wealth. I mean, Mexico has a worldwide income tax just like we do. Philippines has that kind of a worldwide tax. Many developing countries have tried to tax global income just like we do, because otherwise they end up just having to tax sales, or their, you know, poor people and middle class has to pay the cost of government.But they've gotten no cooperation from the U.S. Treasury in that regard. In fact, when Obama administration came to power in 2009, one of the first things that happened was that the secretary of the Ministry of Finance in Mexico wrote to Tim Geithner requesting that he share some of the same information that he was sending to Canada on Canadian depositors. He wanted the same information on Mexicans who had foreign accounts in U.S. banks. And Geithner never responded to the letter. The reason is it's a big business for U.S. banks, as well as for U.K. banks, you know, Swiss banks, to round up money from developing countries.

JAY: So this $20-$30 trillion, how much is this is developing countries' money? And do you have any sense of it, how much of it is Americans trying to avoid tax in one way or the other?

HENRY: We actually get better data [unintel.] when we look at the developing countries from the IMF and the World Bank. We have developed, using their raw data, spent more than a year building models of 139 developing countries, with data going all the way back to 1970 for, on the one hand, the sources of foreign capital, you know, their official debt and their global—their investments that they receive from abroad, comparing that with the uses that we can identify, which is financing the deficit on current account and also changes in reserve. And when you deduct the uses from the sources, you get this big number which is left over. It's unexplained. And it basically represents capital that's flown out of the country.Cumulatively speaking, the developing world, if we add all that up and then take account of how it's grown over time, being reinvested, the cumulative amount is between $7-9 trillion dollars. So it's about a third of the total here. And that's, again, independent of the estimates we have for the banks, and independent of another approach that we've taken, which I'll describe in a second.

JAY: So I'm not sure I understood the answer in terms of how much of this is American money though. Is much of this straight American money avoiding tax, or is most of this developing world money?

HENRY: This is about a third from the developing world. The problem is that there isn't equivalent data for OECD countries like the United States, the U.K., France, Germany that we have from the World Bank and the IMF to build these models. So all that we have there is from the Bank for International Settlements, and that is data on cross-border bank and non-bank deposits. And bank deposits are basically a fraction of people's portfolios. So we have pretty good data on what the corporations and individuals are holding abroad, and that can let us scale up these cross-border deposits to an estimate of how big the total portfolio is for global offshore wealth.Now, buried in that data is data that the BIS won't release. They have data from 30 financial centers, from the central banks in those centers, on, say, how much Americans have in Swiss banks or how much the French have in Liechtenstein. But because their data gathering depends on voluntary cooperation from the central banks of these countries, they won't release the pair-wise information on, say, U.S. versus Switzerland and, you know, Liechtenstein, for example. They won't release it. So we actually know less about the distribution within the rich countries than we do about the distribution from the Third World. We are able to say that it's about—two-thirds of it is from rich countries going to other rich countries and ending up, through havens, avoiding tax.There is some evidence that we've also been able to gather for individual wealthy countries, and the standard estimate for the United States is there's about $100 billion of lost tax revenue from all the offshore activity.

JAY: To what extent is this illegal? Are there laws against this? And if there are, are these banks then participating in something criminal?

HENRY: Well, as I just said, the laws that have been written by the First World countries, so that if you are a wealthy Mexican, for example, and you have your money in a Swiss bank account, you don't owe the U.S. Treasury anything on the investment—so that's not a violation of law, but it's—basically leaves up to that investor then to go and report all that back in the home country. And we know from interviews with private bankers and with clients that tax evasion, outright tax evasion, is a key motive for moving money offshore. I mean, it's expensive to set up these arrangements, and you'd only do that if you were either worried about political risk or you're worried about being taxed on this money or if it comes from outright criminal enterprise. And there's a fair amount of drug money, as well, washing around in these accounts.

JAY: By illegal I meant, for example, the laws of Mexico or the laws of Kenya or somewhere else. If the banks are colluding or helping people violate the laws of their own countries, either through tax evasion or sometimes a straightforward stealing from public treasuries, then the banks are participating in something criminal. Is that—would that be true?

HENRY: You know, Mexico has been a major recipient of visits from all the global banks over the years and private bankers to Mexico and, you know, Venezuela and Brazil. You know, I've met many of them. I've met—one of the leading private bankers in Geneva, you know, is—specializes in Brazilian money. And Brazil is one of the—has one of the largest accumulated volume of offshore private wealth that's beyond the reach of the tax authorities.So yes, this is—you know, Denis Healey, the chancellor of the exchequer, once said that the difference between evasion and avoidance is the width of a prison wall. So, you know, a lot of this is in that grey zone that—I would argue that much of it is essentially being part of a conspiracy to help very wealthy people evade taxes.And these are the largest banks in the world. And they're also the biggest recipients of bailout money. All of the top ten banks on our list received substantial assistance in the last five years, and all of them were deeply involved in creating the economic crisis. So it's a little bit of, I would say, an irony that these are also the same institutions that it turns out are deeply involved in helping the richest people in the world basically evade taxes that are—you know, ordinary taxpayers are—even while ordinary taxpayers like us are helping to bail them out.

JAY: Okay. Well, in the next segment of our interview we're going to talk more about consequences of all this, especially inequality and what that means, not just for the people that are on the short end of this stick, but what all this concentration of capital means for the world economy, concentration of capital that's not doing very much.So thanks very much for joining us, James. And thank you for joining us on The Real News Network. And please join us for part two of this series of interviews.

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

About a year ago, a friend of ours, Sony Kapoor, who we've interviewed many times on The Real News Network, told a story of when he went to work at Lehman Brothers. He walked in the personnel office, and they gave him his forms to fill out and that, and then the person said to him, "Do you want to set up your account in the Cayman Islands, or would you like us to help you with it?" Well, obviously, Sony and others at Lehman were not the only ones setting up accounts in places like the Cayman Islands. A new study has estimated the amount of money stuck in these bank accounts, away from taxation by governments, anywhere from twenty-one to maybe thirty, thirty-two trillion dollars.Now joining us is the author of that study, James Henry. He's an economist, an attorney, an investigative journalist, who's written extensively about global issues. He served as a chief economist at the international consultancy firm McKinsey & Company. He's now on the global board of the Tax Justice Network, and he's the lead researcher on this recently released report titled The Price of Offshore Revisited. Thanks for joining us, James.JAMES S. HENRY, ECONOMIST, LAWYER, AND INVESTIGATIVE JOURNALIST: Yup. My pleasure.JAY: So give us the scope of what we're talking about.HENRY: Well, basically, we've estimated that as of December 2010, somewhere between $21-32 trillion is basically parked offshore. That's private financial wealth. About 90 percent of it is probably tax-free, not reported to the source countries. So it's a major black hole in the global economy and it has lots of consequences. The Tax Justice Network has been concerned about tax justice issues related to the offshore industry for a decade, but this is the first time we've really tried to pull together the best estimates from everywhere. And we've estimated this number several ways, and we have a lot of confidence that it's a good minimum.JAY: Right. Now, give us some examples of the numbers. For example, the top 50 private banks alone collectively manage more than $12.1 trillion. What are we talking about? And we are talking about the big banks here.HENRY: Yes. They're the leaders of the pack. This is a global industry. I mean, behind all the individual more than 80 tax havens out there, you have an industry operated by the largest banks in the world, players like UBS, Credit Suisse, JPMorgan, Goldman. They're all pioneers in a field called international private banking. It's a field that most people aren't aware of because it's not something that's offered to retail customers. They're interested in people with at least $1 million and more of net worth, and most of them are interested in $10 million and up. But these top 50 banks manage about $12.3 trillion of international client assets—that's assets under management plus deposits, plus brokerage assets as well. And of that, the top ten banks account for about 51 percent, $6.3 trillion.And that's one stake in the ground, that's one of the three methods that we use, was to look individually at these banks and take a look that no one else has ever done, which is to look across banks and also look back in time at how fast they have grown in this activity. So this is a big business, and they're the kind of puppeteers here, along with leading accounting firms and law firms that specialize in helping very wealthy people set up these offshore investment vehicles, like trusts and foundations and shell companies.JAY: Now, that was my question, because if you're an American citizen, you're supposed to be reporting global income. So why is there some advantage to sticking the money abroad unless you're not reporting it?HENRY: Well, that's exactly the point. I mean, U.S. banks have a lot of money, for example, from Mexico and Latin America. You know, since the 1970s, when global lending got started, the private banking departments of Citibank, at the same time their institutions were lending heavily to Latin America or the Philippines, they were sending their private bankers down to these places to call on senior officials, major business people, and get them to take their money out, put it offshore.And the interesting thing is the United States and other leading First World countries have so designed their own tax codes so that if you are a wealthy Mexican nonresident of the United States or a wealthy Kuwaiti who's—wants to live in London, you can become a nonresident alien in the United States or a non-dom in London, live there tax-free, and not be having to owe the United States government any taxes on your bond interest, on your capital gains, or on your bank deposits at Citibank or at, you know, JPMorgan. And, basically, the United States Treasury doesn't bother to report this to developing countries.Now, the Treasury has recently gotten upset because this game has kind of turned around to haunt the United States, with—you know, we're seeing the big cases involving pirate bankers like UBS coming here, sending their private bankers to the United States to gather up money from wealthy Americans. And the Treasury's gotten angry about that and cracked down on several Swiss banks recently, and is now demanding that foreign financial institutions that want to do business here report the Americans who are investing with them.But that regulation doesn't extend to—you know, we're not generous enough to share with Mexico or Brazil or Venezuela or Russia when they want to tax their offshore wealth. I mean, Mexico has a worldwide income tax just like we do. Philippines has that kind of a worldwide tax. Many developing countries have tried to tax global income just like we do, because otherwise they end up just having to tax sales, or their, you know, poor people and middle class has to pay the cost of government.But they've gotten no cooperation from the U.S. Treasury in that regard. In fact, when Obama administration came to power in 2009, one of the first things that happened was that the secretary of the Ministry of Finance in Mexico wrote to Tim Geithner requesting that he share some of the same information that he was sending to Canada on Canadian depositors. He wanted the same information on Mexicans who had foreign accounts in U.S. banks. And Geithner never responded to the letter. The reason is it's a big business for U.S. banks, as well as for U.K. banks, you know, Swiss banks, to round up money from developing countries.JAY: So this $20-$30 trillion, how much is this is developing countries' money? And do you have any sense of it, how much of it is Americans trying to avoid tax in one way or the other?HENRY: We actually get better data [unintel.] when we look at the developing countries from the IMF and the World Bank. We have developed, using their raw data, spent more than a year building models of 139 developing countries, with data going all the way back to 1970 for, on the one hand, the sources of foreign capital, you know, their official debt and their global—their investments that they receive from abroad, comparing that with the uses that we can identify, which is financing the deficit on current account and also changes in reserve. And when you deduct the uses from the sources, you get this big number which is left over. It's unexplained. And it basically represents capital that's flown out of the country.Cumulatively speaking, the developing world, if we add all that up and then take account of how it's grown over time, being reinvested, the cumulative amount is between $7-9 trillion dollars. So it's about a third of the total here. And that's, again, independent of the estimates we have for the banks, and independent of another approach that we've taken, which I'll describe in a second.JAY: So I'm not sure I understood the answer in terms of how much of this is American money though. Is much of this straight American money avoiding tax, or is most of this developing world money?HENRY: This is about a third from the developing world. The problem is that there isn't equivalent data for OECD countries like the United States, the U.K., France, Germany that we have from the World Bank and the IMF to build these models. So all that we have there is from the Bank for International Settlements, and that is data on cross-border bank and non-bank deposits. And bank deposits are basically a fraction of people's portfolios. So we have pretty good data on what the corporations and individuals are holding abroad, and that can let us scale up these cross-border deposits to an estimate of how big the total portfolio is for global offshore wealth.Now, buried in that data is data that the BIS won't release. They have data from 30 financial centers, from the central banks in those centers, on, say, how much Americans have in Swiss banks or how much the French have in Liechtenstein. But because their data gathering depends on voluntary cooperation from the central banks of these countries, they won't release the pair-wise information on, say, U.S. versus Switzerland and, you know, Liechtenstein, for example. They won't release it. So we actually know less about the distribution within the rich countries than we do about the distribution from the Third World. We are able to say that it's about—two-thirds of it is from rich countries going to other rich countries and ending up, through havens, avoiding tax.There is some evidence that we've also been able to gather for individual wealthy countries, and the standard estimate for the United States is there's about $100 billion of lost tax revenue from all the offshore activity.JAY: To what extent is this illegal? Are there laws against this? And if there are, are these banks then participating in something criminal?HENRY: Well, as I just said, the laws that have been written by the First World countries, so that if you are a wealthy Mexican, for example, and you have your money in a Swiss bank account, you don't owe the U.S. Treasury anything on the investment—so that's not a violation of law, but it's—basically leaves up to that investor then to go and report all that back in the home country. And we know from interviews with private bankers and with clients that tax evasion, outright tax evasion, is a key motive for moving money offshore. I mean, it's expensive to set up these arrangements, and you'd only do that if you were either worried about political risk or you're worried about being taxed on this money or if it comes from outright criminal enterprise. And there's a fair amount of drug money, as well, washing around in these accounts.JAY: By illegal I meant, for example, the laws of Mexico or the laws of Kenya or somewhere else. If the banks are colluding or helping people violate the laws of their own countries, either through tax evasion or sometimes a straightforward stealing from public treasuries, then the banks are participating in something criminal. Is that—would that be true?HENRY: You know, Mexico has been a major recipient of visits from all the global banks over the years and private bankers to Mexico and, you know, Venezuela and Brazil. You know, I've met many of them. I've met—one of the leading private bankers in Geneva, you know, is—specializes in Brazilian money. And Brazil is one of the—has one of the largest accumulated volume of offshore private wealth that's beyond the reach of the tax authorities.So yes, this is—you know, Denis Healey, the chancellor of the exchequer, once said that the difference between evasion and avoidance is the width of a prison wall. So, you know, a lot of this is in that grey zone that—I would argue that much of it is essentially being part of a conspiracy to help very wealthy people evade taxes.And these are the largest banks in the world. And they're also the biggest recipients of bailout money. All of the top ten banks on our list received substantial assistance in the last five years, and all of them were deeply involved in creating the economic crisis. So it's a little bit of, I would say, an irony that these are also the same institutions that it turns out are deeply involved in helping the richest people in the world basically evade taxes that are—you know, ordinary taxpayers are—even while ordinary taxpayers like us are helping to bail them out.JAY: Okay. Well, in the next segment of our interview we're going to talk more about consequences of all this, especially inequality and what that means, not just for the people that are on the short end of this stick, but what all this concentration of capital means for the world economy, concentration of capital that's not doing very much.So thanks very much for joining us, James. And thank you for joining us on The Real News Network. And please join us for part two of this series of interviews.
This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Paul Jay

Paul Jay is CEO and Senior Editor of The Real News Network. As Senior Editor of TRNN Paul has overseen the production of over 4,500 news stories and is the Host of our news analysis programming. As Executive Producer of CBC Newsworld's independent flagship debate show counterSpin he produced over 2,000 shows during its 10 yrs on air. He is an award-winning documentary filmmaker with over 20 films under his belt and was founding Chair of Hot Docs!, the Canadian International Documentary Film Festival (now the largest in North America).


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