'Elites' Have $21 TRILLION in Hidden Wealth

Posted by Mike Tirone - Monday, July 23rd, 2012

“The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments.”

This sentence is describing the 0.001% of the world's population, and it comes from the report titled The Price of Offshore Revisited, by James Henry, an expert of tax havens and also former chief economist at consultancy McKinsey.

The report exposes the global super-rich elite have taken advantage of the tax havens available throughout the world. So much so that this exploitation of gaps in offshore tax rules has hid a massive £13 trillion ($21 trillion) of wealth from several nations.

That total figure is nearly as much as the Japanese and American GDPs combined.

The research was commissioned by the campaign group Tax Justice Network and the report – which shows that at least £13 trillion, but potentially up to £20 trillion ($31 trillion), has flooded out of many countries-- was released exclusively to the Observer.

Secretive jurisdictions such as Switzerland and the Cayman Islands are well-known tax havens that have plenty of help from private banks, which try to attract the assets of these “high net-worth individuals.”

(Click to view the IMF's 'offshore financial centers') *Courtesy of Grant Thorton

tax haven jurisdiction

Henry explains in the report that these individuals' wealth is, “protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy."

The report does not bode well for the global private banking sector's already tarnished image, as the top 10 private banks managed more than $6 trillion in 2010 alone, a heavy rise from just $2.3 trillion from five years earlier. Of those ten banks were UBS, Credit Suisse in Switzerland, and U.S. investment bank Goldman Sachs.

The determent that developing countries have endured could have been severely lessened if this immensely large amount of wealth had not been flowing out of their respective countries, the report indicates.

From the Guardian,

“The detailed analysis in the report, compiled using data from a range of sources, including the Bank of International Settlements and the International Monetary Fund, suggests that for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world.”

Countries with much of its wealth hailing from the oil-rich lands within their borders have especially been effected by these offshore havens. Thanks to those countries' internationally mobile elite --ones whom have financial ties and investments around the world-- have taken advantage of the oil-rich states by spreading their wealth over to offshore bank accounts instead of being invested domestically. The report shows that once the returns on investing the hidden assets is included, countries like Russia, Saudi Arabia and Nigeria have watched their economies stripped of billions of dollars.

Since the early 1990s, when Russia's economy opened up, almost $775 billion has disappeared from its economy. With Saudi Arabia, nearly $305 billion has vanished since the mid-1970s and $303 billion from Nigeria.

Henry's calculations show that $9.7 trillion of assets is owned by only 92,000 people, which make up the 0.001% of the world's population. According to the Guardian, this incredibly small class of the mega-wealthy seem to have more in common with each other than those at the bottom of the income scale in their own societies.He noted that "the sheer size of the cash pile sitting out of reach of tax authorities is so great that it suggests standard measures of inequality radically underestimate the true gap between rich and poor.”

Tax Justice Network's John Christensen says “These estimates reveal a staggering failure: inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people. People on the street have no illusions about how unfair the situation has become.”

Now the question being asked is 'can we turn this large pile of cash into a beneficial rescue plan for the dire global economy? '

The United Kingdom's Trade Union Congress' general secretary, Brendan Barber explains that, “Closing down the tax loophole exploited by multinationals and the super-rich to avoid paying their fair share will reduce the deficit. This way the government can focus on stimulating the economy, rather than squeezing the life out of it with cuts and tax rises for the 99% of people who aren't rich enough to avoid paying their taxes.”

The possibilities of how that large pile of assets could be divvied up has grown to calculating that $21 million with an annual average 3% earning for its owners and then having the government tax that income at 30%. The total would generate nearly $187 billion in revenues, which is more than rich countries annually spend on aid to the developing world.

Within the entire community of tax avoiders, the key to all of this money's flow ties around one thing and Henry explains, “The very existence of the global offshore industry, and the tax-free status of the enormous sums invested by their wealthy clients, is predicated on secrecy.”

This economic inequality has continued to prove to be a societal issue, as the super-rich elite are accused of not caring about those in the majority, the lower class global citizens, but also that they do not want to pay for the amenities and benefits that government taxes within their home country provide.

But this secrecy and checks-and-balancing may be a step closer. This weekend the U.K. announced that this week the Treasury will enforce a crackdown on tax avoidance schemes. Promoters of aggressive tax avoidance schemes, like the one of comedian Jimmy Carr's 1% tax on his income (which stirred the issue), may be forced to disclose client lists to inspectors. It is said that the scheme operators will be “named and shamed” and under the reforms, a promoter who has been penalized for not complying with the rules will have to give additional information to the proper revenue and customs authorities on all of their schemes, not just for the one they were reprimanded for.

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