Offshore Leaks: Vast Web of Tax Evasion ExposedBy Marc Pitzke in New York
An international network of journalists has obtained some 2.5 million records from tax havens detailing shell companies, offshore accounts and dubious financial deals. The unprecedented leaks include the names of 130,000 people who at one time or other moved their money offshore.
Oligarchs and dictators' daughters apparently have a penchant for bunkering their assets on the British Virgin Islands. Barons and composers, on the other hand, seem to prefer the Cook Islands. To cheat on taxes, they create bogus firms with imaginative names like Tantris, Moon Crystal or Sequoia.
Those are just a few details published this week on a major global system of tax evasion, which sheds new light on the methods used to deceive fiscal authorities and hide money. In what is believed to be the largest data leak in history, anonymous informants have provided an international consortium of journalists with around 2.5 million documents detailing activities in tax havens around the world.
The virtual Everest of data exposes some 120,000 letterbox entities, offshore accounts and other dubious deals in more than 170 countries, in addition to the names of 140,000 individuals alleged to have placed their money in known tax havens. The list includes politicians, celebrities, weapons dealers, oligarchs, financiers and a very diverse cast of characters. It also includes hundreds of Germans. Reporters at the Süddeutsche Zeitung newspaper noted that the most famous German featured on the list is society playboy Gunter Sachs, best known abroad as Brigitte Bardot's husband for a brief period in the 1960s, who committed suicide in 2011 at the age of 78.
A 15-Month Reporting Project
"The investigation lifts the curtain on the offshore system and provides a transparent look into the secret world of tax havens and the individuals and companies that use and benefit from them," said Gerard Ryle, director of the International Consortium of Investigative Journalists (ICIJ), the organization that managed the global research. "We already knew how secret and inaccessible the offshore industry is, but we were surprised by how vast and far-reaching it is."
IJIC managed the mammoth 15-month research project together with 86 journalists from 46 counties. Participating media included the BBC, the Guardian, the Washington Post, Le Monde, Switzerland's Sonntagszeitung, and German daily Süddeutsche Zeitung and public broadcaster NDR.
Investigators and governments have been probing massive offshore money flows -- both legal and illegal -- for years. In Germany, an intensive debate broke out in recent years over the purchase of CDs containing data on tax evaders. With its banking secrecy laws, Switzerland is also routinely placed under pressure for creating a friendly environment for tax cheats. And during discussions over providing euro-zone member Cyprus with a bailout package, slush accounts and tax evasion there were a major subject of debate. This week, the admission by former French Finance Minister Jérôme Cahuzac -- who stepped down in a tax evasion scandal two weeks ago -- that he held an offshore bank account has deeply shaken the government of President François Hollande. Politicians, investigators and activists have been fighting in vain against these secret and often illegal networks. One 2012 study estimated a total of between $21 trillion and $32 trillion had been hidden in tax havens. Now, reporting by the ICIJ consortium could help eliminate the system. more
Pirates of the Caribbean: Global Resistance Against Tax Havens Grows08 APR 13
Tax havens cause hundreds of millions of euros in annual damage to national economies around the world and they create an uncontrollable parallel economy. The recent Offshore Leaks investigative reports are helping to fuel efforts in Europe and the US to have them eliminated.
What do a now-deceased German playboy and the daughter of the former Philippine dictator have in common? What connects a Russian oligarch and the former campaign manager of the French president?
Gunter Sachs and Maria Imelda Marcos Manotoc, Mikhail Fridman and Jean-Jacques Augier have all parked assets in countries that expect little in taxes and guarantee absolute confidentiality. And they are not alone. More than 130,000 people do exactly the same thing, and those are only the ones whose names appear in a data set called "Offshore Leaks," which was analyzed by a group of international media organizations.
But the real scandal is much bigger than that, namely that no one knows how much money is on deposit in anonymous bank accounts in countries that are euphemistically referred to as tax havens. Estimates by the non-governmental organization Tax Justice Network put the figure at about €16 to 25 trillion ($21 to 33 trillion). In this manner, the native countries of these individuals and companies are deprived of hundreds of millions in taxes, sometimes legally but often illegally.
The billions deposited in offshore accounts come from the United States and the rest of North America, and recently from emerging economies and the Third World, as well. Many Russian oligarchs manage their companies through offshore firms, while wealthy Southern Europeans use offshore accounts to protect their assets from a collapse of the euro -- and from the taxman.
But it isn't only tax fugitives who use the discreet services offered by these countries.
A Global Shadow Realm
Drugs and other criminal funds are hidden and laundered there, shady deals are arranged, and hedge funds whose speculative activities could shake the financial system once again use them as a base.
As a result, a global shadow realm has developed in the last few decades, with bases on all continents, a parallel economy that escapes all democratic scrutiny, and from which many profit: banks that provide assistance to tax refugees, as well as attorneys and companies that devise sophisticated systems to obfuscate the path the money takes.
The number of tax havens has gone from a handful only a few decades ago to 60, 70 or even more today. Years ago the British Virgin Islands (BVI), Belize, the Cayman Islands, Cyprus and the Marshall Islands were, in some cases, dirt-poor -- until they decided to charge no or almost no taxes on money brought into the country, as well as guarantee the owners of the asset anonymity through company and foundation structures. In return, they collected fees from the offshore companies.
The British Virgin Islands, for example, transformed itself into one of the most affluent parts of the world in less than a generation, after the group of islands adopted laws to guarantee secrecy in financial transactions in 1994. Today the BVI, which is formally part of the United Kingdom and has a population of about 31,000, is home to almost half a million foundations and letterbox companies.
Trust companies and law firms worldwide help create such trusts and offshore companies. They include firms like Portcullis Trustnet in the Cook Islands and Commonwealth Trust Ltd. in the BVI, the companies whose 2.5 million documents are now making headlines. The purpose of their business is to establish anonymous trusts and letterbox companies for their generally affluent clients. But instead of the actual owners, the tax evaders use straw men as the offshore companies' supposed shareholders and managing directors. A deed of trust between the customer and the trustee ensures that the funds are managed in the customer's interest.
For the last two decades, the European Union and the Organization for Economic Cooperation and Development (OECD), the club of industrialized nations, have insisted again and again that they intend to dry out these fiscal swamps. But so far the differing national interests of the member states have largely stood in the way of effective international agreements. In the fight for international capital and jobs, there are diverging opinions on where legitimate tax competition ends and unfair competition begins. more