Thursday, April 04, 2013

Offshore special: possibly the largest cross border journalism collaboration in history.

This is a game-changer. The International Consortium of Investigative Journalists (ICIJ) has launched the latest part of its multi-year project, in collaboration with a range of media around the world, drawing from a trove of 2.5 million secret files to strip away the owners of large numbers of anonymous companies. As ICIJ puts it,
"The files identify the individuals behind the covert companies and private trusts based in the British Virgin Islands, the Cook Islands, Singapore and other offshore havens. They include American doctors and dentists and middle-class Greek villagers as well as Russia corporate executives, Eastern European and Indonesian billionaires, Wall Street fraudsters, international arms dealers and families and associates of long-time dictators.
The files illustrate how offshore financial secrecy has spread aggressively around the globe, allowing the wealthy to avoid taxes, fueling corruption and economic woes in rich and poor nations. The current banking crisis in Cyprus is one example of how the offshore system can impact an entire country’s financial stability."
As a result of this aggressive growth and metastatising of the problem through the global system, we believe that there's some $20-30 trillion sitting out there offshore.

The ICIJ worked with 86 investigative journalists from 46 countries, including reporters from the Guardian and the BBC in the UK, Le Monde in France, Süddeutsche Zeitung and Norddeutscher Rundfunk in Germany, The Washington Post, the Canadian Broadcasting Corporation (CBC) and 31 other international media partners. (See a world map of the different investigations, here.) They had access to data files that were more than 160 times larger in size as measured in gigabytes than the U.S. State Department cables leaked to and published by Wikileaks in 2010. They used data mining software and old fashioned shoe leather reporting to unveil the previously hidden but thriving world of fraud, tax dodging and political corruption. We at TJN are far too small an organisation ever to have attempted such a thing, and we are absolutely delighted to see serious, top-class, multi-tasking collaborative investigative firepower being brought to bear on this crucial subject.

It's hard to know where to begin with this, but here are a few selected items.
"The people setting up offshore entities lived most often in China, Hong Kong and Taiwan. Another important group of clients comes from Russia and former Soviet republics.  This helps explain why the second-largest source of capital investment flowing into China is the tiny offshore tax haven of the British Virgin Islands.  Similarly, a large source of investment flowing into Russia is from Cyprus, a country that also features heavily in the data – and whose financial stability was recently undermined by a crisis precipitated by Cypriot-based banks being bloated by Russian money."
None of this is particularly surprising, though it's fantastic to have the hard evidence of this kind, and be sure that this trove will be just one small fraction of the whole. More specifically, some examples:
  • Government officials and their families and associates in Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Canada, Mongolia and other countries have embraced the use of covert companies and bank accounts.
  • The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.
  • Many of the world’s top’s banks – including UBS, Clariden and Deutsche Bank – have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways.
  • A well-paid industry of accountants, middlemen and other operatives has helped offshore patrons shroud their identities and business interests, providing shelter in many cases to money laundering or other misconduct.
  • Ponzi schemers and other large-scale fraudsters routinely use offshore havens to pull off their shell games and move their ill-gotten gains.
And here's just one illustration of how hopeless  international initiatives to crack down on this stuff have been.
"When the database reconstruction was done, there were surprises.  The databases had been built to record and check who really lay behind each company and trust, as required by international regulations on money laundering and “due diligence.”   ICIJ’s journalists hoped the data as to who was behind a company was a click away.  

In fact, database entries for “beneficial owners” were often empty. Often too, the offshore services providers had passed the legal responsibility for holding the information to intermediaries in other countries who had brought the client to the service provider.   The lesson was that the empty fields were not an accident; it was the design."
The implications of this evidence alone, while again not surprising, are colossal. This must become cause for citizens around the world to push the OECD, the FATF and other international bodies supposedly cracking down on offshore secrecy to engage in revolutionary, transformative change at last.

A telling headline from Tax Research, in typically robust style, reads What’s really important about today’s tax haven stories in papers worldwide is it will scare the shit out of those who use these places. Or, as the Guardian puts it:
"The naming project may be extremely damaging for confidence among the world's wealthiest people, no longer certain that the size of their fortunes remains hidden from governments and from their neighbours."
Very true, though there will be plenty of users of the system. The Guardian notes:
"The leak of 2m emails and other documents, mainly from the offshore haven of the British Virgin Islands (BVI), has the potential to cause a seismic shock worldwide to the booming offshore trade."
We hope that this giant leak deals a crushing blow to the secrecy industry of the British Virgin Islands, a swamp of offshore secrecy protected by Britain, which has the option of closing it down but has chosen to turn a blind eye.

There are plenty more stories to come from this project, but in the meantime here is a selection:

Tax havens explained: How the rich hide money. A really great interactive tool, from CBC Canada.

Taxmen Have Little Clue of Offshore Companies Owned by Greeks. Just four out of 107 offshore companies investigated by ICIJ are registered with tax authorities as the law usually requires. Endemic tax evasion there is fueling a financial crisis that has devastated Greece’s economy.

Disclosure of secret offshore documents may force top Mongolian lawmaker to resign.
“I shouldn’t have opened that account,” admits Bayartsogt Sangajav, Mongolia’s deputy speaker of Parliament, exposed with a Swiss account owned by a BVI company.

And this is just for starters . . .


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