Friday, June 26, 2009

Simple arithmetic

Forgive us if we bang on a bit about the Oxford University Centre for Business Taxation literature review of studies into illicit financial flows, tax evasion and avoidance, but we have had to spend rather too much time fielding various enquiries from journalists who are plainly mystified by what Clemens Fuest and Nadine Riedel are trying to say.

This is partly a matter of poor writing and bad layout. No contents page for example. A dreadful numbering system. Too much academic economist-think of the type rightly criticised by the Post-Autistic Economics Network. Are Fuest and Riedel claiming there's no problem? How can they substantiate talk of drastic over-estimation when they have produced no evidence of their own to judge whether this might or not be the case? And so on.

Happily for us, most journalists seem to conclude the Oxford study is weak and might be conflicted by the links between the Centre for Business Taxation and UK big business. Whoops, perhaps Fuest and Riedel should have made a voluntary disclosure here since it doesn't look good, at all, if academics claim independence even when this simply ain't the case.

But earlier this afternoon another journalist put a different question to me. This journalist, an American, is familiar with the work of Martin Sullivan at Tax Analysts. Marty is a very well known writer on tax issues. He has quite independently attempted to assess the amount of tax evading capital held in selected secrecy jurisdictions. Here are his conclusions (originally published in Tax Notes International) for the British Channel Island of Jersey:

At the end of 2006, there were $491.6 billion of assets in the Jersey financial sector beneficially owned by non-Jersey individuals who were likely to be illegally avoiding tax on those assets in their home jurisdictions. We estimated the comparable figure for Guernsey to be $293.1 billion.

Holy schmoly. That's a serious amount of tax evasion. And the underlying analysis is published for all the world to see. How come Fuest and Riedel ignored it? And this for Switzerland:

Relying on the research described in the following pages, we conclude that at the end of 2006, $606.8 billion of assets in Switzerland's financial sector were beneficially owned by nonresident individuals who can easily avoid tax on those assets in their home jurisdictions because of the shortcomings in cross-border information reporting.

$500 billion here; $600 billion there; do the arithmetic and you can see for yourself that if all the other little and not so little offshore financial centres (think Big Daddy London, for example) are brought into the frame you're talking really big money. Especially when you include the massive volumes of Latin American capital held in US Treasury bonds and the vast amount of African capital held in the form of real estate across south-east England, south-east France, Miami, not to mention the various cantons of Switzerland.

I was in Montevideo recently, participating in a regional forum on the economic crisis, and I asked an Argentinean official whether he had any estimate of the volume of Argentinean capital held in Uruguay (you'll find rather a large 'private banking' industry in this country which still has banking secrecy on the statute books).
The official rolled his eyes extravagantly. "Tens of billions," he speculated, "hundreds of billions, maybe. Who knows. They've been playing this game for decades. Half of Punta del Este belongs to Argentineans, and they never declare it to anyone."

So the journalists question was simple. Why did Fuest and Riedel not also review the Tax Analysts studies of selected secrecy jurisdictions? Well I'll be blunt here. I replied that to my knowledge no attempt had been made to talk with the leading experts in this field (virtually every one of whom is known to us) and these studies have probably never registered on the radar screen in Oxford.

And there is another remarkable omission from the Fuest/Riedel review: what about the recent study of capital flight from Sub-Saharan Africa by LĂ©once Ndikumana and James Boyce? Another blank on the screen in Oxford, maybe, or perhaps they had no appetite for critiquing work coming out of University of Massachusets, Amherst.

The longer we reflect on this literature review the more evident it becomes that this is not a thorough piece of work.

John Christensen

PS Our friends at Eurodad did a review of the available data from World Bank and other sources. This is what they came up with (click on the image to enlarge). For those who haven't seen this publication, we'll be revealing its contents very shortly.


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