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Sunday, September 23, 2012

Major Banks Facilitating Trillions in Tax Evasion

This a re-posting of the transcripts of a three-part episode of the Real News about tax haven tax evasion and the destruction it is causing.Just a note, Canada, through RBC and Scotiabank, helped create tax havens and Harper has made it easier to hide more money in them, while claiming the country is broke and needs cuts. We don't need cuts, we need a government with backbone enough to go after these massive tax cheats.


Major Banks Help Clients Hide Trillions in Offshore Tax Havens

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


James S. Henry is a leading economist, attorney and investigative journalist who has written extensively about global issues. James served as Chief Economist at the international consultancy firm McKinsey & Co and as an investigative journalist his work has appeared in numerous publications like Forbes, The Nation, and the The New York Times. He was the lead researcher of the recently released report titled “'The Price of Offshore Revisited.'


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.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

Trillion Dollar Tax Havens, Inequality and Recession

James Henry Pt2: Vast amounts of money avoid taxes and productive investment


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.
This is the second part in our series of interviews about offshore tax havens. Somewhere between 20 and 30 trillions of dollars, says a new study, is being stashed in these various tax havens to avoid tax, primarily.Now joining us to continue this discussion is James Henry. He's an economist, an attorney, investigative journalist. He was a chief economist, I should say, at the international consultancy firm McKinsey & Company. And he's the lead researcher of this report, titled The Price of Offshore Revisited. He's also a global board member of the Tax Justice Network. Thanks for joining us, James.JAMES S. HENRY, ECONOMIST, LAWYER, AND INVESTIGATIVE JOURNALIST: You're welcome.
JAY: So how many people are we talking about? Like, how many people are rich enough and are taking advantage of these tax havens? And give us again the sense of the kind of money involved.
HENRY: Well, when you look at the distribution of wealth here that's offshore, we think there's no more than about 10 million people that really account for about 83 percent of the $21 trillion that is at a minimum offshore. And that's pretty concentrated. The top 100 are multibillionaires. They account for about 8.1 percent of the total. The next 2,900, billionaires with an average wealth of $1.4 billion, account for another 7 percent of it. So that's about 3,000 people that already are owning nearly 15 percent of the world's financial wealth.And then we have—the next step in the ladder is the sort of ultra high net worth crowd, which are—their average wealth is on the order of $58 million, and there's about 117,000 of them in the world. And then, finally, there's another fortunate few, who are about 9.9 million, whose average wealth is on the order of $6.3 million, and they account for about 60 percent of this. So 82 percent of the world's wealth, then, when you add all this up, is—of the offshore wealth is owned by about 0.14 percent of the world's population.So if you look at it from the standpoint of who's actually benefiting from this industry, you know, it's a tiny share of the global population. And that group has—in terms of global wealth, which is about $231 trillion, they own about a third of all that global wealth. And so that's a—you know, 0.14 percent is a tiny fraction owning that much wealth.
JAY: You do a calculation in your study about what kind of tax revenues might be derived from this if this was taxed.
HENRY: [Yeah, I've done a] calculation, rough estimate that somewhere between $250-300 billion a year of revenue, if all this money were—all this wealth were really declared and the earnings on it were—you know, and that's assuming kind of a very conservative 3 percent yield on the wealth and a 30 percent marginal tax rate. So it could be far higher than that depending on the year.Obviously, it's presumptuous to assume that tax authorities are ever going to be able to get people to declare this income, but the option that we're suggesting is that, you know, since it's concentrated in these big banks, we could imagine having 0.5 percent annual withholding tax on this wealth that would be easy for the banks to implement. They know what these folks' wealth is every quarter 'cause they have to report to them. And if it was just 0.5 percent applied to these anonymous assets, you might generate, you know, somewhere that would be big enough to basically pay the world's aid budget, which is about $89 billion this year. So we're talking about—if you want to talk it about in Occupy terms, the top 1 percent of the world's population now owns about 61 percent of all financial wealth and 100 percent of the offshore wealth that we're talking about in this study.
JAY: And what are the consequences of this on the global economy, that so much money is sitting in these tax havens?
HENRY: Well, first of all, we know that inequality is understated. The standard statistics for inequality leave out all this wealth. And even though it's only 10 percent of the world's total wealth, it all accrues to this tiny fraction of the population. So that means that the GINI statistics, all the other kind of routine statistics we've used to measure wealth inequality are understated. And secondly, we also understated the growth of inequality, because all of this activity is relatively new in world history. And so it goes back to the beginnings of 1970s, when havens started to take off and then a lot of this offshoring of wealth started to soar, partly financed by the debt crisis, partly because the haven infrastructure was being refined by these banks. And, you know, since then it's taken off.And we learned a lot more lately about the impacts that inequality really has on welfare, on people's lives, on the performance of the macroeconomy as well. For example, one characteristic of all this wealth is that it's invested in relatively low-yielding time deposits and secure assets in First World countries. You know, and compared with investing in a high-growth developing country like Brazil, the opportunity cost is really pretty high here for this kind of investment.And the people who are this wealthy are not consuming. I mean, they've consumed about as much in the way of real estate and yachts and art and other things as—you know, the finer things in life as they can, but at the end of the day, they are almost required to save it. So they do consume a lot of political power, which is—seems to be an outlet for virtually unlimited expenditures. But aside from that, you know, they're not creating a lot of jobs with their savings here.
JAY: The theory's supposed to be that if they have this much capital, they're going to invest it. Are they not?
HENRY: Well, you know, as Keynes pointed out back in 1936, the problem is that in a capitalist economy, investment depends on expected profitability, and savings can be made for other reasons. In this case, just because distribution of welfare is people who don't—you know, it's far too much for them to consume. So there's no necessary coupling between savings and investment, unless business people really expect the economy to get better. Right now we've seen that the investment side is very weak. So when you have all these people, you know, just necessarily saving rather than consuming, you know, it's—in a recession environment it makes things worse.
JAY: And I suppose if the underlying motivation here is tax avoidance, which is why you have this money in these shelters, I suppose it's not so easy just to take it and then start investing it anyway, is it?
HENRY: No, it's not easy at all. I think if, you know, you can imagine that if this wealth were taxed and the funds were distributed to the poor or to needy people or, you know, sort of people with a higher propensity to consume, you know, that would have some stimulating effect we're not seeing from all this wealth inequality. This is a political phenomenon. You know, the regulations are designed in Washington, in the City of London, and, you know, in the leading capitals of First World countries partly by an industry that receives—has enormous stake in this game, not only these wealthy clients, but, you know, the banking industry. For them this is a matter of, you know, billions of dollars a year of profits and a lot of shareholder value.They are spending, too, heavily on campaign contributions and lobbyists to make sure that their point of view is represented. Anytime there's a Treasury regulation, any time there's a major prosecution of a major bank, you know, one can be sure that they are there helping to write the regulations and lobby against the prosecutions. So in the last—since 1990, I calculated that the U.S. banking industry, for example, has spent about $6.6 billion on campaign contributions and lobbying in Washington alone. That's about $2,200 per congressman per day since 1990. And that's one of the reasons we're seeing this kind of result.
JAY: Now, if a big bank helps someone from a developing country to avoid taxes and/or embezzle a public treasury and then park this money in a tax haven, that's a criminal conspiracy, one would think. And there is an argument that's been made, I think, by one of your colleagues, too, James Boyce, and others, that there's historic precedent for then the countries to say, well, banks, you did this knowingly, and now you're lending us money, and we're in debt to you, although on the whole we'd actually be a creditor if we could repatriate all this money that you colluded with, so maybe we don't owe you this money. And I think the concept is called odious debt. What do you make of that?
HENRY: Yeah. Well, I'm familiar with that argument. It dates back to the United States' intervention in Cuba in 1898, where they ended up basically forgiving Cuba's debt to Spain because it had been imposed on them by a dictator.Unfortunately, the United States has stopped using that doctrine elsewhere or generalizing it. It doesn't really help us with these offshore assets. It would help us forgive some of the debt that developing countries still have, but in terms of this—at this situation, you have global private bankers basically helping the money to go out.Now, I would argue that the analogy really is to the kind of prosecutions that the U.S. Justice Department has been making against UBS for helping wealthy Americans take their money abroad and, you know, that we've already seen several private bankers go to jail. We've seen UBS heavily fined. The Justice Department just levied a $1 billion fine against HSBC for facilitating $14 billion of money laundering for the Colombian, Mexican cartels. But these major institutions which are involved in this—HSBC is, by the way, the third-largest player in this particular private banking industry that we're seeing here. They launder—they serve about $633 billion of offshore private wealth, and it puts them number three on the list.But basically the point is that, you know, developing countries might also want to take advantage of making the exact same argument against these banks when they come to Mexico or the Philippines, you know, to try to take money out there and basically enabling all of this kind of funny business.But we haven't seen such prosecutions, and it's for no accident. I mean, I've tried to understand why, for example, the Philippines, which was a major victim of bad banking by the foreign banks that were looking the other way while Marcos ripped off the Central Bank of the Philippines for billions and billions of dollars, parked it in Switzerland, and the Philippine government was left holding the bag for that debt. I asked the Philippine ministers at the time why they didn't go after these people. They said they were basically intimidated by the international banks and, you know, felt that the Philippines couldn't really have any bargaining power with them.So this is something that's very difficult for any individual developing country to tackle, you know, 'cause the banks quickly, you know, gang up on them and will make life hard and single them out and move elsewhere. But it is something that cries out for collective action.

JAY: Well, in the next segment of our interview, we're going to talk about what that collective action could look like and what Americans might be demanding of their government on this score, given that all of these big banks, one way or the other, are touched by American regulation or a lack thereof. So please join us for the next segment of our interview, and we will be back soon on The Real News Network.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

The Media and Politics of Offshore Tax Havens

James Henry PT 3: Politicians demand debt reduction but the media rarely connects billions of unpaid taxes on offshore accounts to the issue


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore. And we're continuing our series of interviews about offshore tax havens, $20-$30 trillion at least involved in money that's being hidden from various governments around the world so that they cannot be taxed. And, of course, the biggest banks of the world are helping engineer all of this. And all of these biggest banks, one way or the other, do business in the United States and in theory should be touched by American regulation. So where is the regulation? And is there any transparency for all of this?
Now joining us to talk about possible public policy solutions to this is James Henry. He's an economist, attorney, investigative journalist. James served as chief economist at the international consultancy firm McKinsey & Company. He's on the global board of the Tax Justice Network, and he was the lead researcher of the recently released report The Price of Offshore Revisited. Thanks for joining us again, James.JAMES S. HENRY, ECONOMIST, LAWYER, AND INVESTIGATIVE JOURNALIST: You're quite welcome.
HENRY: So I guess the demand is there needs to be transparency. And you'd think it'd be kind of obvious that the governments of Europe and North America could, if they had any motivation, make these banks disclose all of this. Is anything happening on that front?
HENRY: You know, you have the OECD talking about these issues for more than a decade. Since 1995, they started tackling so-called offshore havens. But their approach to the problem was to single out little islands like, you know, Vanuatu and Nauru in the South Pacific and the Seychelles, Mauritius. You know, there's a laundry list of about 80 of these little island players. And at the end of the day, very little was accomplished with all of that blacklisting. This industry has not gone away; it's just shifted to other places.The orchestrators of this, the systems operators, if you will, are the big banks that we described before, the largest players in the world. And they are, you know, sort of—they don't really care whether one particular haven lives or dies; they'll just move on to the next one.So this requires collective action. We just haven't been able to get the political will together to have that, because, you know, at the end of the day, many of the countries involved in this are First World countries like the United States, the U.K., Switzerland, that have a big stake in the game continuing on as it has.So one of the things you see in the pattern of prosecutions, even when you have a big serial violator like a Citibank or a HSBC—. HSBC was recently handed a $1 billion fine by the Department of Justice, three weeks ago, for laundering $14 billion of cartel money. But, you know, HSBC is a huge institution and it has $20 billion of profits last year, so that's like a parking ticket.What you don't see is the Justice Department willing to go in and shut one of these institutions down like they did with BCCI back in the 1990s. BCCI was a Pakistani bank that was involved in all kinds of chicanery and money laundering and arms dealing. But, you know, so is HSBC. I mean, they were facilitating trade with Iran, they were facilitating the Colombian cartel laundering money, and they were telling their compliance officers to back off. So this is an organized conspiracy. It went right to the top. And yet you have—the current chairman of HSBC is a guy named Stephen Green. He's actually a reverend in the Anglican church. He is the current sitting U.K. trade minister in the U.K. in David Cameron's Conservative government. This guy is the chairman for ten years of this criminal enterprise. So there's very little will power on the part of the U.S. Treasury or the authorities in the U.K. so far to crack down on HSBC.That's just one example. There are numerous others of where these large institutions have been able to have virtual impunity for, you know, not only their role in the financial crisis and their Libor rate rigging and their—.
JAY: Yeah. What do you make of the media coverage of all of this? I mean, you've got the media constantly talking about the crisis, the debt crisis, both in the United States—they talk about the European debt crisis and the—you know, we get practically apocalyptic in the language. But you never hear discussion about, well, if there's such debt, how about going after all this offshore money. I see almost no mainstream media coverage of the issue.
HENRY: Well, it's abysmal. I mean, I've been writing about this topic basically since the early '80s, and I've had a chance to look at the media coverage in detail. You have—a lot of journalists don't know anything about the subject and are moving from one story to another, so you're getting—you know, like this week, I had two minutes on CNN to explain this topic, and half of it was devoted to the response that they had to get from the conservatives, none of whom had—I would describe them not as conservatives but as reactionaries, none of whom had read my paper or had, you know, bothered—they just had the kind of knee jerks as response. But there's this notion of fair and balanced that they had to dig in.The second bias that, you know, sort of novice journalists have is that they tend to target the public sector. It's easy to rail against government. But, you know, we tend to forget that this latest financial crisis was not really made in Washington; it was made by this lobby, by this very influential bunch of banks around the world that pioneered securitization. And, you know, I knew them very well at McKinsey when we were there. They were—we started talking about securitization as a strategy banks ought to have, and it proliferated from the 1980s on throughout the industry to the point where they were securitizing student loans and real estate and car and cars and everything else and selling securities to people that they didn't understand.So what happened over time was that this banking industry basically had its way with the regulators in Washington as a result of the vast amount of influence they were wielding and the money they were flashing around. So, you know, this is not an uncaused cause. And it's not the public sector in the European case or in the United States that was responsible for the origination of this economic downturn which then led to financial crisis in the public sector because of all the collapse of tax revenue and the continuing spending that had to be done just to keep hospitals and schools and roads, you know [crosstalk]
JAY: Right. So if you have a situation where, you know, some people have described this as sort of parasitical capital, but if you have a situation where they deliberately and fraudulently manipulate global interest rates, they deliberately help the super rich avoid tax—and add to that an enormous amount of manipulation going on on the price of commodities, both in terms of hoarding and creating psychological bubbles for shortages and such, to raise prices—and then taking advantage of the low price of commodities in order to increase concentration of ownership, but you have this little financial elite with so much political power that they don't get regulated, so what do we do?
HENRY: Well, you know, I'd like to describe this first of all as a market-based solution. I have—my very good friend Professor Kotlikoff, who's at BU, is a lifelong Republican. No one I've ever heard gets more agitated and upset about the behavior of these big financial institutions than he does. And, you know, we've lately decided to—collaborated on an article where we talk about supporting Sandy Weill's latest proposal.Sandy Weill was the chairman of Citibank in 1990s and helped to get the Glass–Steagall Act repealed by working his way in Washington. That allowed these big mergers of financial institutions and allowed investment banking and retail banking to come together. Sandy Weill called for reinstituting Glass–Steagall, which would basically require us to break up these investment banks that have merged which retail banks. And so, you know, this notion of actually breaking up the big banks as a step beyond regulation is one that I think—you know, Kotlikoff and I are now working on an article that would argue for breaking these banks up, not only on a basis of needing to bring back Glass–Steagall and to stop the speculation, but also that, you know, we've had an enormous amount of criminal behavior here. This is—from one standpoint, these institutions are, you know, too big to be honest, and they're kind of beyond the reach of any particular country's jurisdiction. Even the United States has trouble doing anything but reaching a deferred prosecution agreement with HSBC or UBS. They just seem reluctant to break them up.
JAY: But is part of the problem here that the elites in the different countries, too many of them are on this gravy train, and that's where the political power is?
HENRY: Yeah, well, who do you think has these offshore assets with these banks? I mean, who do you think is being lobbied every day by these institutions which have enormous inside access? And who is, in the case of the U.K. we described before, serving as the minister of trade but the chairman of HSBC? There's a revolving door here that goes on within the elite. So it's kind of a club that we need to break up.And I don't think that's a—you know, I consider myself an independent, not a Democrat or a liberal. I'd like to see capitalism healthy and wealthy and have all of us being able to participate in that if we can achieve that. But in this situation it seems like a tiny few have been able to get a lockhold not only on the wealth, but also on the political influence.
JAY: Well, we'll see if—perhaps that horse left the barn a long time ago. I'm not sure you can put it back in again. But I wish you well. Thanks very much for joining us.
HENRY: Thank you.
JAY: And thank you for joining us on The Real News Network.


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Canada among top countries for anonymous shell companies

John Greenwood | Oct 15, 2012 1:01 PM ET
The most law-abiding corporate service providers were to be found in jurisdictions often described as tax havens such as the Seychelles, while the most dodgy were in major economies such as the U.S. and Canada.

There’s nothing inherently wrong with shell companies, but the fact remains that untraceable shell entities that exist only on paper are a vital tool for money launderers, fraudsters, tax evaders and other unsavory types.
Often set up online, they can be used to shield identity of the true owners and potentially the nature of the business being conducted, thereby creating a wall that can prove almost impenetrable in the event authorities come calling. In particular, they are the nemesis of tax collectors such as the Canada Revenue Agency.
Conventional wisdom suggests anonymous shell companies are mostly associated with shadowy tax havens like the Caymans and Liechtenstein, but according to a recent study, conventional wisdom could hardly be more wrong.

The authors of “Global Shell Games” solicited more than 3,700 corporate service providers in 182 countries. Researchers impersonated a range of customers, including money launderers, terrorist financiers and other risky customers. The idea was to determine whether international rules requiring corporate service providers to verify and record the identity of buyers are being followed.

You can find the study, published last month by the Centre for Governance and Public Policy at Griffith University in Australia, here.

The results are shocking. “Nearly half of all replies received did not ask for proper identification, and 22% did not ask for any identity documents at all to form a shell company,” the authors report.

What was surprising was that, by and large, the most law-abiding corporate service providers were to be found in jurisdictions often described as tax havens such as Jersey and the Seychelles, while the most dodgy were in major economies such as the U.S. and Canada. We’re not kidding. One particular table, below, is particularly illuminating. The authors compared jurisdictions on the basis of how many approaches it took before corporate service providers agreed to set up a “non-compliant” shell company. Providers in the top eight countries declined even after 100 requests while those in Canada required only a handful of approaches before agreeing.