A new study estimates that at least $21 trillion and up to $32 trillion of unreported private financial wealth has been hidden by wealthy individuals in secret tax havens at the end of 2010, a sum equivalent to the size of the U.S. and Japanese economies combined.
There may be as much as $32 trillion of hidden financial assets held offshore by high-net-worth individuals, according to the new report, The Price of Offshore Revisited, from an advocacy group known as the Tax Justice Network. The estimates are based on financial assets and exclude non-financial assets such as real estate and yachts held by offshore structures.
The research comes amid growing concerns about the increasing income gap between the rich and poor across the globe. In the U.S., the issue of offshore tax havens has also come to the fore in the context of the presidential campaign, with questions raised about presumptive Republican presidential nominee Mitt Romney’s use of tax havens such as the Cayman Islands and Switzerland, and his reluctance to release tax returns prior to 2010.
The study was written by former McKinsey & Co. chief economist James S. Henry. “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: that is what this industry really ‘supplies’ as it competes for, conceals, and manages private capital from all over the planet, from any and all sources, no questions asked,” he wrote.
Henry drew on research from the World Bank, the International Monetary Fund, the United Nations, central banks and other sources for his report. The analysis found that by the end of 2010, the top 50 private banks collectively managed more than $12.1 trillion in cross-border invested assets for private clients, including their trusts and foundations. That figure was more than double an estimate of $5.4 trillion in 2005, representing an average annual growth rate of over 16 percent.
The report identified the three banks handling the most offshore assets as UBS, Credit Suisse and Goldman Sachs. The top 10 banks accounted for over half the top 50’s asset total, an increase since 2005.
“The number of the global super-rich who have amassed a $21 trillion offshore fortune is fewer than 10 million people,” said TJN. “Of these, less than 100,000 people worldwide own $9.8 trillion of wealth held offshore.
If the unreported $21 trillion to $32 trillion earned a modest rate of return of just 3 percent, and that income was taxed at 30 percent, it would have generated tax revenues of between $190 billion to $280 billion, roughly twice the amount that OECD countries spend on overseas development assistance around the globe.” Inheritance taxes, capital gains taxes and other taxes would boost the figure considerably, the group noted.
Along with his research the group released another study Sunday, entitled Inequality: You Don’t Know the Half of It, which demonstrates that all studies of economic inequality to date have failed to account properly for this missing wealth. It concludes that inequality is far worse than generally thought.
The group interviewed eight of the world’s most respected economists who specialize in economic inequality. They all confirmed a major under-reporting problem in this area. TJN’s research found that if an asset is hidden in an offshore bank account, trust or company, and the ultimate owner or beneficiary of the income or capital cannot be identified, then the asset and the income it produces are generally not counted in inequality statistics.
9 Comments
The 21 billions $ could be true. If the world's total yearly GDP is 70 trillions $ and half of 1 percent goes into hiding, that's 350 billions $ per year. (We know that drug money is already about 100 billions $ per year). Pile up that 350 billions $ for 60 years and you'll get 21 trillions.
Posted by: bfontannaz | July 25, 2012 7:52 AM
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If I had a lot of money I'd do whatever the congress said I had to do and our rich friends each probably owns at least 5 congressmen and 2 or three senators each. The ownership lets the office holder stay in office with the money given by their benefactor, and the rich person gets to keep their money. All this nonsense would go away if we stopped taxing them to death and passed the FairTax. Tax as you spend and who cares where their money is kept. The U.S. is the last best hope of mankind and our politicians are killing the goose who laid the golden egg, by not taxing as they spend. Instead they pass tax laws geared to maximize campaign contributions. This will eventually cause the economic collapse of the nation and the band plays on and on and on, while Rome burns.
Posted by: wjeretidwell | July 24, 2012 6:07 PM
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They say you can not take the money with you. Upon an investor's death who will inherit all his/her wealth? Will the bank that has these funds deposited inherit the money (eg. Swiss banks from exterminated German Jews)? He/she will certainly not need it. Will it go to charity? What do we know about the inheritance laws of the Cayman Islands? Will the Cayman Islands get the inheritance? If this money is "hidden" then will anyone know it is there when the owner dies??? I recently saw an article on one of the richest women in the world who lives in Australia. She refuses to give anything to her children. Useless, worthless children is what she claims she has. Do these investors who have billions in foreign banks leave their billions to their usesless, worthless children or to the bank?
Posted by: zorro1956 | July 24, 2012 5:39 PM
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Who are all these deposited funds in foreign banks helping? Do foreign banks invest their deposits in new businesses or in the stock market? Will all this accumulated wealth benefit any new business? Do these foreign banks make loans to businesses or individuals or countries? This amount of capital could - if invested properly - change a country or industry. Capital is needed to start new ventures and to help create new inventions. What a pity that all this capital is "wasted" sitting in useless offshore banks. US business starved for business capital and the US earned capital sitting in foreign banks. On another note, I truly believe, professionally speaking, that one only has to look at the basic balance sheet and see the "total" amount of money each bank is managing in deposits to tell how much foreign money is being handled by each Cayman or Panama bank. For example if Bank A at the Cayman Islands list 1 trillion as customer deposits it would be safe to assume that local Cayman Islanders would not be ones depositing that money. What each depositor has deposited would not be necessary to tell what the bank is managing in foreign funds.
Posted by: zorro1956 | July 24, 2012 5:29 PM
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The figure of $21 trillion could not possibly be correct. Think about it; as accountants you are supposed to have some feel for numbers. If you can't understand this you need to find another job. This article insults my intelligence.
Posted by: colin@colincoopercpa.com | July 24, 2012 2:01 PM
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When is everyone going to figure out that if this country would stop taxing the rich as if this was the solution to the problem, and concentrate on stopping the foolish spending on drum sticks, party favors and the such, we would have more than enough money to fund government.
Lower the tax rates and maybe the money will come home.
If I had it, I'd have it stashed in an offshore account until I saw this country spending my tax dollars to run this country, not pad the pockets of the special interests.
Posted by: PAT | July 24, 2012 1:45 PM
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Enrolled agent,
I read the 21 trillions of unreported financial wealth as world wide. This includes the wealth of Chinese, Indian, Russian and others. If indeed it is all American this is really ugly and scary.
Posted by: bfontannaz | July 24, 2012 12:45 PM
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You misunderestimate. The low end of the range at $21 Trillion would be far in excess of regular National Debt or Accumulated Deficits account. Figure 35% in stolen taxes would go a long way to balance budgets and reduce the national debt. Instead we will put a man in bed with these crooks in public housing at the White House, either the current occupant or Romney the Bane. We'll just have to double down and pay more than our fair share of taxes because of all the tax cheats. At least until the peonies rise up and slaughter us along with the Barons of Excess.
Posted by: EnrolledAgent | July 24, 2012 10:16 AM
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I read that the budget deficit of Greece (350Bn) is equal to the sum put in Switzerland by wealthy Greeks. Though Panama companies and other exotic domiciliations I would not be surprised if the amounts stashed by rich Americans equaled the US budget deficit.
While a lot of pressure is put on the little working stiffs overseas to declare everything they have, I don't see any pressure being applied on Panama and other countries to change their law and force their corporate citizens to open their books to official yearly audits. The problem is not so much the facts that banks have secret accounts. It does not exist in Switzerland anymore. The problem is that, in spite of the "end user" disclosure obligation to the bank, a Panama company with bearer shares can open an account and any question asked will be addressed to a sole lawyer director.End of the inquiry.
Posted by: bfontannaz | July 24, 2012 8:30 AM
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