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  April 4, 2013

Investigation Reveals Trillions Hidden in Tax Havens

Bill Black: An international collaboration of investigative journalists has released the names of wealthy individuals stashing as much as three times the American GDP in tax havens
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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore. And welcome to this week's edition of The Black Financial and Fraud Report with Bill Black, who now joins us.

Bill is an associate professor of economics and law at the University of Missouri-Kansas City. He's a white-collar criminologist, a former financial regulator, and author of The Best Way to Rob a Bank Is to Own One.

Thanks for joining us, Bill.


JAY: So I guess you've been looking at this results of the investigation by a international consortium of international journalists about offshore tax havens.

BLACK: Yeah. This is interesting. This has been some--one of the few areas that there's actually been some success. Obviously, this was not a governmental effort, but there have been several governmental efforts. U.S. (with regard to some Swiss banks) and German tax authorities, and to some extent Swiss tax authorities, have gotten inside information.

And now these investigative journalists have gotten supposedly over 1 million files on thousands of the world's wealthiest people, with estimates, you know, of extraordinary amounts of money being kept in tax havens secretly, and typically in violation of law and typically for an illegal purpose of evading taxes under their home laws. So usually this isn't a crime, of course, in the tax haven, but usually it is a crime, indeed a felony, in your home country.

JAY: Now, I see in the report--and by the way, the report is called Secrecy for Sale--that some major banks were part of all this. They would actually facilitate their clients hiding their money in these tax havens. UBS was one, Deutsche Bank another. I don't know if any of the American banks were involved. In the report I saw, it didn't mention them.

BLACK: The report I saw mentions UBS, which is a giant Swiss bank, and Deutsche Bank. And what's particularly interesting is the United States had just gone through not putting the hammer down, of course, on these institutions, like it refuses to put the hammer down on any of the largest banks. But the logic was that they had supposedly cleaned up their act. And, of course, now we find not only did they not clean up their act, but they actually created a major strategic initiative to be able to defraud, and what they were going after more than any single nation was the United States of America. So, you know, under Lanny Breuer and Holder, again we've been completely conned by these people. That's one of the aspects of the story that should be embarrassing for the administration but of course wasn't even mentioned in the story.

A second thing that was intimated by the story is we're talking about the wealthiest, most politically powerful people in many of these countries. So the nation of Georgia--not the U.S. state, but the nation of Georgia, its both the prime minister and the richest person in all of Georgia is prominent on the list. Good old Imelda Marcos's daughter, who is apparently a governor now in the Philippines, is on the list. Mark Rich, the notorious tax fraud who was pardoned by Clinton to get money for his presidential library, his former wife is on the list. Top people in Russia under Putin are on the list.

It's going to have significant consequences when they get the details about all of the nations of the periphery, where the powerful folks are demanding tax increases on the working class and now it's going to turn out that simultaneously the most powerful people in many of these countries were doing everything possible to make sure that they paid next to nothing in the way of taxes.

JAY: Just to get a sense of the scale of this, in The Guardian newspaper's report about this, they quote a former Mackenzie economist, Mackenzie Group economist that this might be $32 trillion hidden away. I mean, $32 trillion is bigger than, I guess, almost every country's gross GDP, isn't it?

BLACK: No. To give you an idea of scope, it is roughly twice the GDP of the United States of America, which by a considerable margin is the largest GDP in the world.

JAY: And it's crazy. So this is just--I guess everybody gets this. The point is they're putting this money--it's not getting taxed. And I suppose it's--not only is it not getting taxed, but it's also partly a kind of laundering that takes place, too, because the source of the funds also, I suppose, isn't being accounted for or inspected.

BLACK: So there are many different tax frauds going on, as you intimate. So one of the ways they get money into these tax havens is something called transfer pricing. So they get--wherever the taxes are the lowest, they create sort of a shell operation, and then they purport that virtually all the profits of their whole huge global activities supposedly occurred in that one little place, and, of course, there's next to no taxes on it. So, yes, in addition to individual tax evasion, this is massive corporate tax evasion.

And it probably also has to do with all these estimates that there are massive amounts of cash sitting idle in the system, because the highest return these people can get is fraud upon fraud upon fraud. So, you know, again it's the story. The largest financial institutions in the world, if these reports are true, like Deutsche Bank, like UBS, are criminal enterprise, shown to be criminal enterprises again, and they work hand-in-glove with other criminal enterprises, who, again, tend to be the wealthiest, most politically powerful people in many different nations. And they have done this to such a tune that they've actually poisoned the global economy. They've actually made it incredibly dysfunctional.

JAY: I don't see on the list of names in the reports I'm seeing very many Americans. There's a mention of Denise Rich, who was married to Mark Rich, who was the oils commodity trader speculator that was eventually pardoned by Clinton 'cause of, I guess--what was it? He broke sanctions dealing with oil in Iraq. But I'm not sure she's actually based in the U.S. I know Mark Rich now lives in Switzerland. But are there many Americans involved? Or does the fact that Americans have to declare global income on their American income taxes, does that take out Americans from such plays?

BLACK: The United States is by far the most aggressive and effective home nation in getting its nationals who try to hide taxes abroad or what should be taxes abroad. So the United States is far more successful than any other major nation. But that's about individuals. The United States also has a very, very low marginal income tax rate for the individuals. So we actually have less of the fraud in the individuals.

But two things. One, we of course are ourselves a tax haven in terms of how Miami and Delaware operate and such. And secondly, our corporate, our corporations are where all the really massive amounts of money, where they're evading taxes. And again that comes back to locating in these havens, where they have next to no taxes, and then engaged in another form of fraud, where they purport that the profits of their global operation were earned almost entirely in the nation that has such tiny taxation.

So wait a bit. First reports are always incomplete. And see whether there's a second report about corporate accounts. And in that case I would predict that U.S. corporations will be high up on that list again.

JAY: And all this talk about closing loopholes and all this, how much serious discussion has there been in Washington about dealing with corporate offshore tax havens?

BLACK: Well, again, compared to other nations, there's been more in the United States because the United States was more aggressive in its litigation with Switzerland, so that Switzerland actually has changed a great deal over the last 35 years. But of course that simply means you go to the new even more rotten place. And what we've seen in these incredible disclosures about the City of London banks, HSBC and Standard Chartered, is that they were happy, eager to be money launderers to the world, and where they literally went to the most violent narcoterrorists in Mexico and created a special relationship to launder their money. So they do, figuratively--we've been talking about money and economics, but, you know, certainly figuratively they have immense amounts of blood on their hands as well.

JAY: Alright. Well, as more of the results of this study are revealed, we're going to be digging into it further. Thanks very much for joining us, Bill.

BLACK: Thank you.

JAY: And thank you for joining us 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.


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