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Taming offshore finance

Taming offshore finance
From BBC - November 5, 2017

The offshore finance industry puts trillions of dollars worldwide beyond the taxman's reach. Bringing it to heel is like taming a cat; not just a normal moggy - a thankless task in itself - but a Cheshire Cat: nebulous, hard to pin down, disappearing and reappearing when it likes.

No-one can actually agree on what a tax haven is. Or even on the name: one person's tax haven is another's "offshore financial centre".No-one can agree on how many there are. Nor on exactly how much money is stashed offshore. No statistics are fully reliable.

And this suits those who operate in offshore finance, from the owner of the wealth to the lawyer or accountant middlemen who manage the funds, to the often sun-kissed beaches of the jurisdictions where they are secluded or pass through. The industry's key word is privacy. Or secrecy - a word it does not like so much.

One adage cited by the taxation author and expert Nicholas Shaxson sums it up: "Those who know do not talk. And those who talk do not know."

But do we really not know how much is stashed offshore?

A report this September,co-authored by the economist Gabriel Zucman, estimates about 10% of global GDP - the way we measure the size of the world's economy - is held offshore, about $7.8tn (6tn). The Boston Consulting Group reported it last year at about $10tn.

If you are thinking, wow, that's bigger than Japan's economy, you'd be right. But if you want a real wow, try $36tn - the estimate offered by James Henry, author of the book Blood Bankers. That's twice as big as the US economy.

But no-one really knows.

And here's another wow. Remember the slogan "we are the 99%" coined by the Occupy movement to lambast the top 1% of the population for their disproportionate share of wealth? Well, the Zucman report says 80% of all offshore cash is owned by 0.1% of the richest households, with 50% held by the top 0.01%.

So if you read this and are thinking, if you ca not beat them... quite frankly, it's unlikely you will ever join them. The management fees for the ordinary person will probably far outstrip the gains.

As Nicholas Shaxson told BBC Panorama: "At the very lowest end you will have the middle classes doing little bits and pieces. But the large majority of what's going on, this is a game for rich people."

Legal, but ethical?

Surely we know some of how this works? The systems have a ring of familiarity - double taxation; tax inversion; trusts; shell companies etc. It's just we do not usually know who's in the schemes and what they are getting out of them.

The basic essence is rerouting money in one location where you do not like the taxation rules to another location - one that is stable and reliable - where there are not as many, or any.

For example, if you want to protect your assets to stave off creditors, stick them in an offshore shell company. Hey presto, much harder to get at. Want to hide ownership of a property? Put it in a trust.

This is not illegal. There are many other schemes, legal, illegal and sometimes ethically debatable. But even within these categories there are many variables on what actually constitutes The Good, the Bad and the Ugly. After all, in the film with that name the ugly arguably was not as bad as the bad, and the good was hardly perfect.

True to their Cheshire Cat-like origins, offshore financial centres (OFCs) do not always appear where one might expect them.

That's because offshore, sorry to confuse you, is also onshore. This makes it impossible to pin down the global number of OFCs. It could be 50, 70 or more and new ones come and go.

The US and UK are arguably two of the biggest OFCs.

For example, setting up shell firms is easy in some US states, like Delaware.

And it's widely known that the City of London acts as the facilitating hub for Crown dependencies and overseas territories that channel trillions of offshore dollars.

The smaller, often island, nations are what Nicholas Shaxson calls "captured states".

He told Panorama: "These places do not have a very deep pool of experienced people. They are just people who say, well we trust the accountants, we trust the lawyers to tell us what's best for our island and we will do it."

So how does offshore defend itself?

Well, the jurisdictions say it's wrong to think there are banks in OFCs sitting on pots of gold - the money is simply being reinvested by companies - and that if there were no OFCs there would be no constraint on the tax rates governments might levy.

OFCs, they say, simply pump cash around the globe and the new transparency rules put in place over the past decade have severely limited tax evasion.

It's certainly wrong to lump all the OFCs together. Some are better regulated than others. Down at the murkier end, dealings in Panama were exposed by leaks last year.

But Bermuda's Bob Richards offered a stout defence of its financial services in an interview with Panorama carried out while he was still finance minister, citing a taxation system that had been in place for more than 100 years and adding that if other nations were losing out on tax they should sort their own systems out.

Bermuda, he says, has fully signed up to an international agreement that allows for the automatic transfer of tax information within governments and such a jurisdiction "cannot be a tax haven".

And Appleby, the financial services firm involved in these latest leaks, made the case for OFCs back in 2009, in the wake of the global crash.

A vicious circle

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