1ª conferência - james s henry
DESCRIPTION
James S Henry - Tax Justice Network - USATRANSCRIPT
The Trouble With Tax Havens
James S. HenryCongresso Internacional de Educacao
FiscalFortaleza, BrazilNovember 27, 2012
1(c)JSH/ TJN 2012
The Trouble With Tax Havens¶ Background¶ Key Costs
1. Odious Debt/ Privatizations2. “Pirate Banking”3. Rampant TNC abuses 4. Global Corporate Tax Race
¶ What is To Be Done?
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Summary¶ Global tax haven industry is huge; hurts growth and
development¶ Huge global stock of “missing wealth:” $21 - $32 trillion ¶ Growing TNC abuses – transfer mispricing, corruption¶ Solutions require citizen pressure
¶ Transparency¶ End “tax+rule competition” ¶ Crucial role of “Enablers”
Tax Justice Network
• TJN–Intl Sec. (2002-)• TJN-US affiliate (2003-)• R. Murphy/J. Christensen – country X country reporting • J. Blum – Barclays case, unitary taxation• J. Henry – numerous articles, books on havens, debt, offshore • D. Spencer – numerous articles on Intl tax, TP standards• N. Shaxson: Treasure Islands (2010)• M. Meisner: Secrecy Index (2009 - • Key Partners: Oxfam, ChristianAid,LatinDad,EuroDad, CCFD,GFI, Global Witness, GFI,
ActionAid, Save The Children, etc.• Emphasis on quantitative research+organization
o “Mapping Financial Secrecy” (2009, 2011): secrecyjurisdictions.como “Tax Loss” (Oxfam GB) (2009) o “Price of Offshore” (2005, 2012)
• Founding member, Task Force on Financial Integrity & Economic Development ('08-) • More info:
o http://www.taxjustice.net o http://www.secrecyjurisdictions.com
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If you cannot express it in numbers, your knowledge is of
a meager and unsatisfactory kind.
-- Lord Kelvin, 1889
Why Do We Care?
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Government revenue + taxes by country/ group
(Median % of official GDP, 2000-09)
Country Group
Population (2009)(Billions)
Per Capita Income
(PPP-Adjusted’
09)
Gov Revenue X Grants
Income Taxes
Sales Taxes
Payroll Taxes
Taxes on Intl Trade Other Taxes
Other Gov
RevenueGrants
OECD 1.22 $33153 26.1% 6.6% 7.3% 8.9% .1% 1.0% 2.2% 0%
EU .500 $31384 35.2% 7.4% 11.3% 12.%2 .02% 1.2% 3.1% 0%
US .310 $45989 17.9% 9.5% .6% 6.8% .2% .3% .5% 0%
China 1.331 $6828 9.5% 2.1% 6.2% 0% .3% .1% .8% .1%
Other Middle Income
3.481 $6245 21.%3 4.%6 6.1% 4.5% 1.3% .4% 3.2% .8%
Low Income
.846 $1205 11.5% .1% 2.3% 0% 7.0% 1.5% .6% 9.6%
World 6.775 $10686 25.0% 5.1% 8.1 7.1 1.31% .59% 2.57% .23%
Source: World Bank data (2011) , JSH analysis © JSH 2011
Tax justice impact
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More capital than ever before for developing countries…..(including poor ones, the subprime equivalent…)
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Disappointing Real Growth(1980 - 2005)
China India Poorest (UN) All Other Developing Countries
High Income
World
Countries (n) 1 1 49 105 54 210
% of Pop --1980-- 2005
22.1%
20.3%
14.4%
17.1%
8.1%
11.4%
33.0%
35.8%
22.5%
15.3%
100%
100%
% of Real Income ($95
PPP)
3.2%
13.6%
3.5%
6.3%
1.9%
1.9%
29.3%
24.5%
62%
54%
100%
100%
Real Income Per Capita
2005 ($95 PPP) $4,972 $2,752 $1,249 $5,123 $26,191 $7,428
1980-2005 RAAGR (%) 8.1% 3.8% .7% .8% 1.9% 1.6%
2005 Population (B) 1.3 1.1 .74 2.3 .98 6.43
Source: World Bank data (2008), JSH analysis(c)JSH/ TJN 2012
•Roberto Benedicto $747.6 million•Marcos family members $726.5•Roberto Cuenca $676.9•Herminio Disini $258.4•Eduardo Cojuangco $201.2•Jobo Fernandez $180.0•“Kokoy” Romualdez $150.4•Manual Elizalde Jr. $104.1•Jose de Venecia $71.4•Lucio C. Tan $51.8•Placido Mapa Jr. $50.6•Ramon Cojuangco $30.9 •Ricardo Silverio $30.6•Juan Ponce Enrile $28.6•Vicente Chiudian $15.6•Roberto Villafuerte $15.2•Bienvenido Tantoco $6.0•Salvador Laurel $5.8•Other Marcos allies: $134.4
TOTAL: $3.58 billion
OTHER (not identifiable:) $3.4 billion
Insider Recipients - Philippine Central Bank loans ($mm outstanding, 1986)
Source: JS Henry, The Blood Bankers (2003)(c)JSH/ TJN 2012 12
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Compare current $700 billion+ US bank bailout, 500 billion UK bailout, $135 billion (so far) AIG bailout, $200 billion Fannie/Freddie bailout, etc..
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Privatization Abuses
• Brazil case, 1995 – 1999: • Companhia Siderurgica Nacional: $1 b in “moeda podres” • Ferrovia Paulista S.A., Banerj, Rio Light, Embraer, Usiminas, Copesul,
Acesita, CVRD, etc.
• Brazil received R$85.2b, paid $87.6b: net –R$2.4b o -- Biondi, Brasil Privatizado
• Similar results all over the world
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What a difference leadership makes…
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is
*1990-99
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Heavily Indebted Rich Countries (HIRCs)
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Thirty Years of Globalization “ The Globalization of Crisis”
1980s• Heavily-indebted developing
countries• 3W capital flight, private banking• MNC, bank abuses concentrated
in 3W• Inequality, poverty:
“development” problems• Debt cancellation, Fx controls,
protection, nationalization: 3W policy instruments
2010s• Heavily indebted rich countries• First World capital flight (France,
Spain, US, etc.)• 3W private banking (Singapore,
Brazil)• MNC/ bank abuses everywhere• Growing inequality everywhere• New interest in intervention
everywhere
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Unrecorded Capital Flows and Stocks ( 139/ 154 developing countries)
Private Bank AUM
s
(world’s top 50 PBs)
Cro
ss-B
orde
r
Portf
olio
Mod
el
(BIS
dat
a/ P
B in
terv
iew
s)
Triangulating on the offshore hole in the global economy….
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Source: bank financials, private banking industry interviews, JSH analysis
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Capital Flight Estimation -Russia Example
Debt Flows ($B)
Net Foreign
Investment ($B)
Total Sources
($B)
Reported CA
Deficit
Ch in Reserves
Total Observed
Uses($B)
Annual CFEstimate
($B current)
Annual CF Estimate ($B US 95)
1994 -5.8 0.4 -5.4 7.8 3.4 11.3 5.9 6.0
1995 2.1 1.5 3.5 7.0 -4.9 2.1 5.6 5.6
1996 7.1 3.7 10.8 10.8 6.1 16.9 27.7 27.2
1997 5.4 3.0 8.4 -0.1 -0.4 -0.5 7.9 7.6
1998 46.3 2.2 48.5 0.2 10.5 10.7 59.2 56.3
1999 0.7 0.8 1.5 24.6 -5.4 19.2 20.7 19.4
2000 -12.6 -0.4 -13.0 46.8 -18.9 27.9 14.9 13.7
2001 -3.3 0.7 -2.6 33.8 -12.0 21.8 19.1 17.1
2002 -5.6 2.6 -2.9 29.1 -12.8 16.3 13.4 11.9
2003 28.6 -1.4 27.3 35.8 -27.2 8.6 35.9 31.2
Total $62.8 $13.2 $76.0 $196.0 $-61.6 $134.4 $210.4 $195.9
Source: data from IMF/World Bank (2008), JSH analysis
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Unrecorded Net Capital Outflows from Latin America, 1970-2010
(Real Value of Cumulative Net Outflows by Period, $2000 Billions)
Source: data from World Bank/ IMF (1979-2008); JSH analysis
S =$263.5
**30 other Latin American and Caribbean countries
S S=$1376.0
(Real $2000), UnrecordedCF Outflows
LAC REGION, 1970-2010
(c) JSH 2008, 2011
Huge debt- and oil-financed real flight flows by region…
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S =$278.2
S =$362.2
S =$259.3
S =$82.4
S =$33.7S =$22.5S =$39.8
S =$33.8
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Source: Project data models, JSH analysis
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TOP 8 LATIN AMERICAN SOURCE COUNTRIES:CF vs. NFI: % of Real $GNI
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S Top 20 = $ 7.6 Trillion
S 139 countries = $ 9.4 Trillion
Global Flight Wealth - Key Countries, Including China
($2010 Billions)
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External Debt Vs. Estimated Flight Wealth, By Key Country - ( 2007 $Billions)
Source: data from IMF/World Bank (2008); JSH analysis
© JSH 2008
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Global Flight Wealth, Vs. All Developing Country Debt**
(1975-2003)(Billions US $Current)
Source: data from IMF (2005), World Bank (2005); JSH analysis
First crossover: 1989-90
**Including China
Flight Wealth “Surplus”
© JSH 2008
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Growth Factors – TP Abuse
• Corporate globalization • `Abusive industry growth
– Software– Big pharma– Extraction– Finance
• Rise of secrecy jurisdictions
• Rise of “enabling experts”– Accounting firms– Law firms– Major banks
• Official tolerance (OECD)
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• Developing country tax resources and skills
• Competing jurisdictions (vs. MNC solidarity)
• Global resources • Policy analysis• Training• Enforcement
Many recent TP abuses involving leading MNCs and havens…
• Intellectual property abuses: Apple, Google, Pfizer, GE, Cisco, Forest Labs, etc. (current – WNB)
• Banana exporters cases (2006-)• SABMiller (2008-): South Africa, 4 other countries
• Glencore (2011-): Zambia• Grain exporters (2011-): Argentina• Big bank tax evasion
TNC Corruption Cases
• Siemens ($800->$1700,’08)• Halliburton/KBR ($579,’09)• BAE($400,’10)• Technip ($338,‘10)• Daimler ($185,’10)• Alcatel-Lucent ($137,’10)• Shell/Panalpina ($82,’10)• ABB ($58,’10)• Pride ($56,’10)• Baker Hughes (’07)• Willbros (‘08)• Chevron (’07)• Titan (‘05)
• Alcoa• Allianz• AstraZeneca• Avon (grand jury re China)• China NE Petrol Corp• BHP Billiton• Bridgestone Tire• Deere & Co • Glaxo• HP (Europe)• IBM• Ingersoll• Johnson & Johnson • Lilly• LV Sands/Adelson• Merck• Morgan Stanley• Pfizer• Raytheon• Tyco, etc etc. etc.
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Top 10 US penalties ($MM) as of 1/12 Now in the works…(DOJ/SEC:+75)
Illustrative
Source: FCPA Blog.com (2011) (c)JSH/ TJN 2012
Recent Aggregate TP Cost Estimates
Study Approach Estimated Lost Tax Rev
Simon Pak (2003-6) • Goods trade misinvoicing - Bilateral Customs data
“+$200 billion/ yr.`”
GFI (2011-12) • Goods trade misinvoicing “$98-$106 b./ yr., 2002-06 “
Christian Aid (2009) • Goods trade misinvoicing – partner discrepancies
“+$160 billion/yr.”
TJN (2012) • Country studies •`intangibles``’ abuse
• Case studies of Mx, Zambia, Swiss, India, China
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Isle of Man : 4p for insurance services
Cayman Islands : 8p for use of purchasing network
Ireland : 4p charged for use of brand
Jersey : 6p charged for management services
Produced in Latin America Export price: 13 pence1.5p labour costs / 10.5p production costs1p taxable profits
Consumed in UK : Import price : 60p39p retail mark-up1p taxable profits
Bermuda : 17p for use of distribution network
Luxembourg : 8p for financial services
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ZAMBIA
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SWITZERLAND
MexicoMisinvoicing Vs. Net FDI as a % of GDP, 1970-2011
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MEXICO
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$182.4
$445.3
(Cumulative Total, 1962-2010; Real $2000 Billions)
Source: JSH 2012
Total = $627.8 b,1962-10
Apparent
Apple – China ”value chain”
• 20 mm Ipads/yr @ $500 retail = $10 b.• 65k US workers (35k in retail stores)• 1.2 mm Chinese workers (Foxconn)• $40/Ipad = $800 mm to China• $2.2 b royalties for IP, brand to offshore jurisdictions w
3% tax rate• Total non-China gross margin = $9.2 b – sales and
marketing – royalties = $6 b• Total effective tax on non-COGS margin =<10%, mainly
to US IRS
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http://werenotbrokethemovie,com
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The Global “Tax Race”
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What Is To Be Done?
• Policy collaboration vs. “competition”– Tax regimes– Trade– Reserves/ sov. wealth– Financial regulation– Enforcement
• MNCs/ Banks– Information/ investigation– Penalties– Regulate global enablers
• Private elite – Information/ investigation– Global industry enablers– Taxing global wealth– Attracting capital home
A Hallowed Tradition: Debt Forgiveness
“We shall never be able to move again, unless we can free our limits of these paper shackles. A general bonfire is so great a necessity that Unless we can make of it an orderly and good-tempered affair in which no seriousInjustice is done to anyone, it will….grow into a conflagration.”
- J.M. Keynes, The Economic Consequences of the Peace (1920).
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Summary¶ Global tax haven industry is huge; hurts growth and
development¶ Huge global stock of “missing wealth:” $21 - $32 trillion ¶ Growing TNC abuses – transfer mispricing, corruption¶ Solutions require citizen pressure
¶ Transparency¶ End “tax+rule competition” ¶ Crucial role of “Enablers”
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“It is capitalism thatis truly radical.”
-- Brecht
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Odious Debt
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• Citibank/MHT (Bataan/CBk/Philippines)• JP Morgan (Brazil dams,nukes)….• Panama/Torrijos’ buffalo farm• Indonesia power projects• Argentina/Yacyreta• Peru/Majes-Siguey• Mexico/Laguna Verde• Stroessner’s phone calls• Chase (Venezuela, Iran)• Deutsche Bank (Iraq)• Chile privatization fiasco (BT)• Sandinista debt deal…• Lesotho (LHWP dam)• Carlos Andres’ offshore fund…• Guatemala/Chixoy
…..Clearly a systemic problem
Pirate Banking
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MAY 1976
J.S. Henry(c)JSH/ TJN 2012 57
“Unusual” Demand for US$ Currency –1970-2011
-- $ per Capita
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.
Key issues – aggregate TP estimates Trade
Misinvoicing Capital Flight
Bias
• Country concentration ✔✔ ++
• All negative flows omitted ✔✔ ✔✔ ++
• Data quality (timing, cif costs, aggregation, etc.)
✔✔ ✔ ?
• Stocks vs. flows ✔✔ ✔✔ -
• Income on offshore stocks ✔✔ ✔✔ -
• Post-2000 focus ✔✔ ✔✔ -
• Missing data ✔ 53 zeroes +72 missing /217
✔69 zeroes + 72 missing/217
-
• Imputed values ✔LDCs +
• Mispricing in traded services omitted
✔ - ?
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US AS A TAX HAVEN
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63
FINANCIAL SERVICES34%
REAL ESTATE38%
INSURANCE28%
THE US ”FINANCIAL-INDUSTRIAL COMPLEX" --TOTAL REAL SPENDING ON FEDERAL POLITCAL INFLUENCE*,
1990 - 2010(Cumulative $2010)
$2.292 B$1.930 B
$2.601 B
∑ =$6.823 Billion
Source: Opensecrets.org (2010) data, my analysis
(c) Submergingmarkets.com, 2010
* Total real cumulativespending on federal lobbyingand campaign contributions,by industry
** Asuming 220 workdays per year, which may be generous
$2973 per Con-gressman and Sen-ator per day** -- for 20 years
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“Dark matter” • 1970s :
– “Underground economy” – “Intl. currency demand“– Drug money in Florida
• 1980s: – “Odious debt”– “Capital flight”– Citibank’s “debt-flight cycles” – Noriega/Stroessner – JP Morgan’s bribery in Brazil– Marco’s Central Bank
• 1990s– “Banqueros” (‘96)– “US as a tax haven”– “Flight wealth”
• 2000s– “Blood Bankers” (‘03-’05)– Shadow banking (’08-)– “We’re Not Broke” (’12)– “Pirate banking” (‘12)– “Offshore wealth” – Human capital flight– Hidden offshore earnings– Hidden labor flows
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Investigative economicsInvestigative Economics Neoclassical Economics
•“Just look at the f’in data.” (J. Tukey’s inter-ocular significance test)
• Optimization model-centric
•Anomaly-driven: Puzzles tell us where to look (often with night vision)
•Models tell us where to look
•Skeptical of “methodological individualism” •Bias toward “methodological individualism”
• Plausibility counts: case based + inferential
• 19th-century positivism lives on: “prediction” trumps “explanation”
• If you want to know how someone feels, you can ask them
• 1960s behaviorism: “You look pretty good today; how am I?”
• Get out of the armchair, go to the field ( vs. “abstract empiricism”) (C. Wright Mills)
• “But I want tenure!… and my armchair is very comfortable!”
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Basic Concept –- Adjusted Partner Trade Measure
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Total Misinvoicing = Export Misinvoicing + Import Misinvoicing
`’Export Misinvoicing`: ∑∑ ((X*ijt (1+CIFijt) – ∑∑Mwijt))
”Import Misinvoicing”: ∑∑ (M*ijt – ∑∑ (Xwijt(1+CIFijt)))
Where: X* = Country X’s Reported FOB goods exports per commodity per trading partner at time t, in a common currency\
M* = Country X’s Reported CIF goods imports per commodity per trading partner at time t, in a common currency
Xw = Sum of world’s reported FOB goods exports per commodity per trading partner at time t , in a common currency
Mw= Country X’s Reported CIF goods imports per commodity per trading partner at time t, in a common currency
CIFij1 = `’normal trade costs,” including customs, insurance and freight, for commodity j and trading partners j at time t
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Country X
World
Exports
Imports
Imports Exports
< > > <
CONVENTIONAL TRADE MISINVOICING
”Export Under-invoicing”
”`imports Overinvoicing”
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IN PRACTICE...NOT MUCH FUN…!!!
Forty years in the underground economy• 1966 - $1/hr making pizzas in Minnesota• 1976 - “Calling in the Big Bills” – demand for US currency• 1978-81 - Fed Res data, Castle Bank, ABA Income Tax compliance • 1984 – Film on Honduran land reform• 1986 - “Debt Hoax” - relation between debt and flight
• Sachs runs Bolivia; Pinera buys LAN Chile; Cavallo runs Argentina1987-90 -Noriega, Marcos, Stroessner, Brazil, Tienanman Square
• 1992 – Brazilian Supreme Court libel case• 1996 - “Banqueros y Lavadolares” – first book on int’l tax havens
• Sachs runs Russia; Pinera a billionaire • 2003/ 2004 - “Blood Bankers” (Basic Books) – odious debt book• 2005 - “Banking the Poor” (WBk)• 2006 – Doc film about Evo Morales: “Cocalero” • 2007 – “A Game as Old as Empire” (debt relief estimates)• 2009 – Oxfam GB cap flight estimates for G20• 2010 – Initial estimates of untaxed offshore wealth (Forbes)
• 2012 “Pirate Bankers” – Film: “We’re Not Broke” (Sundance doc on corp tax evasion)– “Transfer Pricing Abuses” (TJN Helsinki conference) – “ The Price of Offshore Revisited (TJN Research Paper)
• Pinera: President of Chile; Sachs at Colombia; Cavallo at NYU
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“Unusual” Demand for US$ Currency –1970-2011
-- Trends in Velocity
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19701973
19761979
19821985
19881991
19941997
20002003
20062009
0
10
20
30
40
50
60
70
80
90
$100 Bill VelocityVelocity - Other US Cur-rency
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http://werenotbrokethemovie,com
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US dominance…(∑=632 foreign bribery prosecutions, 1977-2011)
(c)JSH/ TJN 2012 73Source: Trace Intl (2011 data, my analysis)
…has increased….
70%78%
1977-1999 2000-2011
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Growth Industry
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The Philippines Long-Term Development -
Real Per Capita Incomes, Five Asian Economies(1972 = 100)
Source: WB (WDI Data), 2003, author’s analysis © JS Henry, 2003
Underground roots of the globaldevelopment crisis
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“Apparent” Capital Flight From China, Hong Kong SAR and Macao SAR, 1982-2010
(Real $2000 Billions)
Source: World Bank/IMF data (2012); JSH analysis
China (Mainland) Hong Kong SAR* Macao SAR
$0
$100
$200
$300
$400
$500
$600
$700
$800
$742.1
$125.9
$8.6
*HK, Macao data: 1998-2010; (c) JSH 2008
S S=$876.7
.3,
CHINA
1982-2010
China’s apparent flight is exaggerated, due to round tripping…
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Solutions?
Key problems• Rise of financial impunity
– Global elite– Trans-nationals
• “Enablers” – Secrecy Jurisdictions– Pirate banking– Hedge funds– Intl law firms/ accounting
firms
• Tax/ bank systems
TJN Remedies…• Automatic tax info exchange• Country x country reporting• New standards for transfer
pricing (beyond OECD)• Beneficial ownership
disclosure• “Enabler” regulation• New tax systems• Payments transparency…
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Country X
World
Goods Exports
Goods Imports
Goods ImportsGoods Exports
< > > <
NEW TRADE MISINVOICING FOCUS
”Underinvoicing”
”Overinvoicing”
Traded Services
Traded Services
A
B
C
Summary¶ Global haven industry – huge, diversified¶ Abuses can be quantified¶ Huge global stock of missing wealth: $21 - $32 trillion ¶ Leading MNC abuses – transfer mispricing, corruption¶ Solutions require end to “tax+rule competition” among
countries¶ “Enablers” role is crucial
Recent TP Abuse Estimates• Since 2000, flurry of aggregate ITP misinvoicing estimates• Most based on ”trade partner comparisons” • Rough consensus on global tax revenue loss: $100- $200 billion/ yr.• No aggregate estimates for services, intellectual property • Aggregate estimates obscure haven role
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Mexico – Trend in ”Real” Mispricing
(Real$2000 $Billions, 1962-2011)
Source: UN Comtrade raw data (2012), JSH analysis
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2009
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