Tax Havens1

Andrew Conio. A.Conio@wlv.ac.uk

Tax havens are the most important single reason why poor
people and poor counties stay poor. 2

The government is not managing the economy for the people

of this nation. It is managing it for a tiny transnational elite, a
kind of global gated community.3

Our political system protects and enriches a fantastically-

wealthy elite, much of whose money is, as a result of their
interesting tax and transfer arrangements, effectively stolen
from poorer countries and poorer citizens of their own
countries.4

In a singularly impressive unpacking of the financial crisis for

the London Review of Books, 5 John Lanchester presents a
summary of the key features of the Royal Bank of Scotland
Group Corporate Report released on the 27 th Feb 2008 which
shows a robust financially secure company built on solid
foundations in rude good health. By the 22 nd April the Bank
was attempting to raise 12bn to cover losses and a mere two
months passed before the taxpayers paid 45.5bn (and
potentially much more) to prevent the company from
bankruptcy. It should come as no surprise therefore that
1
This paper was written in 2009. In 2011 Nicholas Shaxson published Treasure
Islands, which Richard Murphy, describes as the best book on Tax havens, and
George Monbiot calls it, the best book written so far this year. All of figures
presented in this paper are supported and in some cases updated by Treasure
Islands. In turn, I taken the opportunity to filch a few quotes from Shaxson

2
Nicholas Shaxson. Treasure Islands: Tax Havens and the Men who stole the world.
London: Bodley Head. (2011)
3
George Monbiot, Gaurdian 11 Feb 2011
4
George Monbiot. Gaurdian 8th Feb 2011
5
Lanchester John. Its Finished. London Review of Books. 28th May 2009

1
information on the value of wealth held offshore, the amount
people and organisations pay in tax, the extent of tax
avoidance and the operations of tax havens is hard to come by.
Figures are deliberately obfuscated or hidden in complex
financial systems so that frankly no one knows the true picture
of global finance. However, the figures presented here are as
reliable as can be found.

The 11th annual World Wealth Report (2007) from Merrill

Lynch/Capgemini6 finds the number of High Net Worth
Individuals (HNWI) has grown to 9.5 million with their assets
rising to US$37.2 trillion. That is, 0.015% of the worlds
population have an asset worth of more than half of the worlds
GDP, which in 2007, according to the World Bank, was
US$54tn7. A third of HNWIs assets are held in offshore
accounts or tax havens (this fits with Oxfams findings that 1/3
of global GDP is sequestered into tax havens) 8 which would
give a figure of US$12.4tn. This fits almost exactly The Tax
Justice Network9 estimation (2005) that placements by high
net-worth individuals in tax havens totaled US$11-12tn in 2004
and both figures accurately reflect the very steep rise in the
use of tax havens in the last few years leading the writers of
the single most authoritative report yet written about tax
havens10 to state official statistics suggest that the scale of
6
Capgemini (Euronext: CAP) is a major French company, one of the world's largest
information technology, transformation and management consulting, outsourcing
and professional services companies with a staff of over 91,000 operating in 36
countries.
7
http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK:20535
285~menuPK:1192694~pagePK:64133150~piPK:64133175~theSitePK:239419,00.ht
ml
8
Tax Havens: Releasing the hidden billions for poverty eradication. SERIES: Oxfam
Briefing Papers 2000
9
Tax Justice Network is an international campaign group with headquarters in
London that promotes transparency in international finance and opposes secrecy. It
appears to the most respected and authrotive organization devoted solely to the
investigation of Tax Havens. According to the Norwegian Royal commission into Tax
Havens their findings and assumptions appear reliable
10
Tax havens and development Status, analyses and measures. Report from the
Government Commission on Capital Flight from Poor Countries. Appointed by Royal
Decree of 27 June 2008. Submitted to Erik Solheim, Minister of the Environment and
International Development, on 18 June 2009.

2
such placements increased sharply in subsequent years.
However, this world is one of dissemblance and deliberate
concealment by the major financial institutions. For example,
the I.M.F. does collect data in Government Financial Statistics
but will not release it to either researchers or financial analysts.
Or, when the British Government talks of closing tax havens as
if they were semi-legal shadowy operations outside the
mainstream it fails to mention that ten of the OECDs list of 35
tax havens are UK overseas territories or dependencies of the
British Crown11. No mention is made of the fact that the
accounts in tax havens are often run by major financial centers,
(London, New York) and according to the IMF 50% of
international positions in the worlds banks are held in Offshore
Financial Centres12. It will come as no surprise, then, when
Obama and Browns huffing and bluffing about tax havens
come to nothing in a few months time, because their
economies are structurally dependent upon them. Returning to
HNWIs, if we estimate 1/3 of their assets are held in tax
havens that would total US$12.4tn. Given the norm 7.5%13
growth p.a. this would yield US$930bn annual return. (Although
the American Bureau of Economic Analysis puts the rate of
return from tax havens at 12%). 14 As 30-35% tax is the
prevailing rate in most OED countries this would yield
US$279bn. Actual tax paid by HNWI is 7.5% 15
or US$69.75bn.
In sum, HNW individuals pocket US$209.25bn per annum in
unpaid taxes although the highly respected Tax Justice Network
put this figure at US$255bn in 2005. To put this in perspective
$16bn a year would be sufficient to give every child in the

11
Nick Mathiason. The Observer, Sunday 29th March 2009.
12
IMF (2000): Offshore Financial Centres IMF Background Paper
13
Figure provided by McKinsey consulting and Boston consulting Group
14
The Commission's calculations based on U.S. Direct Investment Abroad: Balance of
Payments and Direct Investment Position Data, The Bureau of Economic Analysis
(BEA)
15
Average CapGemini portfolio

3
world a school place16.

The sole purpose of Tax Havens is to conceal activities from

juridical and public scrutiny17 to allow for the avoidance of tax
and thus creating a shortfall that has to be born either by other
taxpayers, exchequers or the social infrastructure (roads,
schools, hospitals). They are to all meaningful sense simply
vehicles for deception.18 Profits are shipped overseas so that
little or no tax is paid by a spurious company that produces
nothing, employs no one and creates nothing of value. In Tax
Havens no accounts are required, few standards for fit and
proper governance and regulation are imposed. For example in
the British Virgin Islands one single office is the registered
address for 18,000 companies. The British Virgin Islands has an
inward investment ratio of 2.7bn per capita. Not only do unpaid
taxes seriously limit the capacity of any country to invest in the
vital services, education, health systems and infrastructure
needed to sustain the heath and well being of that country,
they also distort the economy by diverting capital from
investments which have other social values as practitioners
spend more time creating new systems for tax avoidance
rather than wealth creation.19 Not least amongst these effects
is the distortion of national priorities and a weakening of the

16
Sebastien Fourmy, Policy and Advocacy Director from Oxfam France.
17
The great majority of the reports on suspicious transactions are shelved without
investigation. Only a modest proportion lead to charges and a court judgement.
Many of the tax havens have extremely large international activities relative to the
size of their population and economy. In a number of cases, it is virtually
inconceivable that these jurisdictions have the capacity to control money laundering,
and not least to pursue cases through investigation and trial. Tax havens and
development Status, analyses and measures
18
The UK tax authorities gained access in 2006 to a list of depositors with the tax-
haven branches of a major bank. Of the almost 10 000 British depositors, only 3.5
per cent had provided account information to the tax authorities (confer Sullivan,
Martin A. (2007): Keeping Score on Offshore: UK 60 000, US 1 300, Tax Notes, 7 July
2007).

19
Potentially the most serious consequences of tax havens are that they can
contribute to weakening the quality of institutions and the political system in
developing countries. Tax Havens and development. Norwegian Ministry of Foreign
Affairs.

4
capacity of a nation to manage its own affairs 20 and to bring to
justice or public accountability practices that lie outside of the
countries jurisdiction21. The global financial system therefore
makes a major contribution to the continued existence of
nation states that are essentially incompetent or perpetuate
grotesque distortions of national priorities.

We are not done there, a new analysis for Oxfam (March

2009)22 by James Henry, former Chief economist at McKinsey &
Co, found that at least $6.2 trillion of developing countrys own
wealth is held offshore, depriving developing countries of
annual tax receipts of between $64-$124bn p.a. even though,
according to the Tax Justice Network, this figure is an
underestimation:

If money moved offshore by private companies was

included this figure would be much higher. Even that
estimate tells only part of the story: with tax havens now
involved in an estimated half of all global trade, the sums
passing through will be even greater.23

This figure is far in excess of the 28-42bn the World Bank

estimates will be required annually to meet the Millennium
Development Goals (MDGs) aimed at halving extreme poverty
by 2015. Or, according to Christian Aid, ample funds to save
the lives of 350,000 children under five a year. 24

20
Take South African mining company AGAs agreement with Tanzania. Of US$1.43bl
worth of gold extracted from 200 to 2006, it paid US$96m in taxes and royalties to
the Tanzanian government. Death and taxes pg 12.
21
Suhartos embezelment of UD$15bn from Indonesia is only the largest of this type;
none of which have been recovered.
22
Tagged: Tax Havens. http://www.oxfam.org/en/pressroom/pressrelease/2009-03-
13/tax-haven-could-deliver-120bn-year-fight-poverty. Accessed 28/07/2010
23
Closing the Floodgates, Tax Justice Network, 2007,
www.globalpolicy.org/nations/launder/ haven/2007/2007taxjustice.pdf
24
Death and Taxes: the True Toll of Tax Dodging, (Andrew Hog et al) Christian Aid,
2008.

5
In fact, these examples are only part of a far larger system of
expropriation of labour value and wealth and the shift of capital
from the poor to the rich. According to Christian Aid a full 50
per cent of world trade takes place through tax havens. 25
Indeed, globalisation is far from a simple vehicle for exchange
and trade, as 60% of world trade takes place within rather than
between multinational corporations. (Not surprising when we
note that 200 corporations account for more than a quarter of
the worlds economic activity).26 An analysis loosely supported
by Nicholas Shaxson; about two thirds of Global cross border
world trade happens inside multinational corporations. 27 A full
50% of these intra-company trades are devices such as transfer
pricing, mispricing or false invoicing which are used to transfer
profits to low-tax jurisdictions to maximize tax avoidance. For
example, Adobe Corporation had a turnover of US$2.6bn last
year but paid a paltry US$5m in corporation tax. 28 The
Norwegian Royal Commission report states estimates suggest
the tax loss could be on the order of 30 percent of the potential
revenue from foreign multinational enterprises. Given the
amount of world GDP transacted intragroup by multinationals
this would indeed be a colossal Similar to the 7% of entire
Global GDP Raymond Baker, Senior Fellow of the US Center for
International Policy, estimates is accounted for by mispricing
and false invoicing.

Indeed, these processes are part of, but do not fully account for
the monumental flow of capital out of developed countries over

25
Death and Taxes: the True Toll of Tax Dodging, (Andrew Hog et al) Christian Aid,
2008.
26
Prem Sikka, Prof Of Accounting At University Of Essex. Enterprise, culture and
accountancy firms; new masters of the universe, Accounting, Auditing and
Accountability Journal, vol 21, no 2, 2008, p 268-295,
27
Nicholas Shaxson. Treasure Islands: Tax Havens and the Men who stole the world.
London: Bodley Head. (2011) pg 12
28
This is by no means an isolated example. In 2006 the worlds biggest banana
companies Del Monte, Dole and Chiquita, did nearly $750 Million worth of business in
Britain but paid 235,00 in tax. (Shaxson pg 12). 1/3 of Britains top 700 companies
paid zero tax in 2007

6
the last few years. For reasons that have become obvious, the
scale of illicit money flows from developing countries to tax
havens cannot be determined precisely, but it unquestionably
far exceeds development assistance or direct legitimate
investment in these countries. Thus, whilst the total registered
capital flows into developing countries in 2006 are estimated at
US$571 billion (World Bank (2007). Donor aid accounted for
US$70 billion of this figure. The most qualified estimate (Kar &
Mamadov (2008)) for illegal money flows from developing
countries indicates that illegal capital flows totaled US$641-979
billion. Even the lowest estimate suggests that the illegal
capital outflow exceeds the net legal inflow, and the illegal
outflow corresponds roughly to ten times the development
assistance given to developing countries. Ndikumana and
Boyce29 have calculated that accumulated over the 1970-2004
period, capital flight is estimated at US$420 billion (converted
to 2004 prices). With calculated interest accumulation, capital
flight is assumed to total US$600 billion over the period. This
corresponds to almost three times the total foreign debt of the
countries concerned.30

In many countries, particularly in sub-Saharan Africa and Latin

America, capital flight is accompanied by increased foreign
borrowing. This borrowing is not used to finance investment or
consumption, but to finance the capital flight itself (Rodrguez
1987, Boyce & Ndikumana 2005). The ensuing debt burden will
hurt the poor most, since public spending on the social sectors
and on investment in infrastructure must be cut to service the
debt.

Taking into account all these factors; tax evasion by HNWI,

developing countries own use of tax havens, capital flight and
29
James K. Boyce and Lonce Ndikumana Department of Economics and Political
Economy Research Institute, University of Massachusetts Amherst, MA 01003
30
Ndikumana and Boyce estimate of capital flight from Africa

7
mis- and transfer-pricing and the combined effects of distortion
of rational governance, we find a global financial system, which
is coincidental with globalization, that is systematically,
structurally and constitutionally geared towards the extraction
of the wealth from the poorest, and the sequestration of the
labour value and resources of such magnitude that it actually
dwarfs the exploitation of the slave trade. Here is George
Monbiot;

Wealth is being transferred from the poor and middle to

the rich at stupefying speed and on a stupefying scale.
The financial sector seeks to wring every drop from the
productive economy, heedless of the eventual impacts.
The government is there to help.31

As Raymond Baker says: for the first time in the 200-year run
of the free-market system, we have built and expanded an
entire integrated global financial structure the basic purpose of
which is to shift money from the poor to the rich. Indeed,
between 2005 and 2007, the total amount of capital flow from
bilateral trade mispricing into the EU and the US alone from
non-EU countries is estimated conservatively at US$1tn. Of
which Christian Aid says;

The situation is stark and urgent. We predict that illegal,

trade-related tax evasion alone will be responsible for
some 5.6 million deaths of young children in the
developing world between 2000 and 2015. That is almost
1,000 a day. Half are already dead.

It is hard to imagine a more estimable advisory board (which

includes the Chairperson of the European Parliaments
Committee on Development and the Managing Director of the
World Bank) gathered to produce unimpeachable reports into
31
Guardian 15th February 2011

8
the global financial system than that recruited by the non-profit
organisation Global Financial Integrity32 who say of
decolonization and the spread of multinational corporations
the 1960s marked the point at which the expansion of the illicit
financial structure took off in earnest. 33
Their Chair Raymond
Baker concludes;

Economic deprivation brutalizes billions of people. This

makes it necessary for us to be brutally honest with
ourselves. This reality has been going on for decades and
cumulatively has moved trillions of dollars out of poor
countries into rich countries. This reality propelled by
the illicit financial structure that we created in good part
of (sic) accomplish exactly this end, is, in my reading of
history and in my judgment, the ugliest chapter in global
economic affairs since slavery. The poor deserve better
from us. 34

32
Their advisory board includes Lord Daniel Brennan QC.. Francis Fukuyama. Ms
Ngozi Okonjo-Iweala is the Managing Director of the World Bank. She is the former
Finance Minister and Foreign Minister of Nigeria. Thomas Pogge is a professor of
Philosophy and International Affairs at Yale University.."John G. Heimann is Chairman
of the Financial Stability Institute of the Council on Foreign Relations. Kenneth M.
Jensen is on the Executive Committee of the American Committees on Foreign
Relations. Eva Joly is a member of the European Parliament, and the Chairperson of
the European Parliaments Committee on Development (DEVE). David S. Landes is a
professor emeritus of Economics at Harvard University. James S. McDonald is
President and CEO of Rockefeller & Co. Moiss Nam is the Editor in chief of Foreign
Policy magazine. In the late 1980s and early 1990s, Mr. Nam served as Venezuelas
Minister of Trade and Industry. John C. Whitehead is the former Chairman of both
Goldman, Sachs & Co and the Board of the Federal Reserve Bank of New York. Mr.
Whitehead served as the Deputy Secretary of State under President Reagan.
33
Illicit Financial Flows and their Impact on Development Global Financial Integrity
34
Raymond W Baker, The ugliest chapter in global economic affairs since slavery,
speech to Global Financial Integrity Program, 28 June 2007.