Transcript Achieving Transparency Dialogue for Action

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Recent TP Abuse Cases
• SABMiller (2008-)
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South Africa, 4 other countries
• Glencore (2011-)
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Zambia
• Grain exporters (2011-)
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Argentina
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Summary
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Investigative economics (vs. “abstract empiricism”)
There’s a clear tax justice agenda
Metrics matter…
Crucial bank role in the offshore story
Stocks, not just flows
Not 1986 anymore
o
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$20-$25 trillion offshore private untaxed wealth stock
Need to be creative about taxing it/ bringing it back
“Offshore” is moving “onshore” for heavily indebted rich countries
“Heavily indebted rich countries” -- private banking opportunity?
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“The invisible hand
is nowhere to be seen.”
-- Indian economist
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Estimated US Corporate Tax Losses
Due to Trade Misinvoicing
Year
2000*
2001*
2002
2003
2004
2005
$ Shift
$131 BN
$156 BN
$251 BN
$143 BN
$267 BN
$252 BN
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Tax Loss
$44.5 BN
$53.1 BN
$85.2 BN
$48.7 BN
$90.9 BN
$85.6 BN
Pak and Zdanowicz (2006): estimates based on authors’ special
Access to US Customs data on product values reported for imports and
exports.
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Disappointing Real Growth
(1980 - 2005)
Countries (n)
% of Pop
--1980
-- 2005
% of Real
Income ($95
PPP)
Real Income
Per Capita
2005 ($95 PPP)
1980-2005
RAAGR (%)
China
India
Poorest
(UN)
All Other
Developing
Countries
High
Income
World
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1
49
105
54
210
22.1%
14.4%
20.3%
3.2%
8.1%
11.4%
17.1%
3.5%
13.6%
1.9%
6.3%
22.5%
33.0%
35.8%
29.3%
1.9%
15.3%
62%
24.5%
100%
100%
100%
54%
100%
$4,972
$2,752
$1,249
$5,123
$26,191
$7,428
8.1%
3.8%
.7%
.8%
1.9%
1.6%
1.3
1.1
.74
2.3
.98
6.43
Population (B)
Source: World Bank data, JSH analysis
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“What Goes Around…..”
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1960s/70s
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1980s
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Third World Debt Crisis/ Stagnation
IMF/ World Bank “Structural Adjustment” failed to work quickly, sustain growth
Banks get Bailouts, Brady Plans; countries continue paying
1990s-2008
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Rise of International banking, fueled by oil price spike, CA deficits, FW slow-down
3W Debt Surge - unregulated, highly profitable, unproductive, and “insured” by FW taxpayers
3W Debt-Flight cycle -- private wealt accumulated offshor,public debts at home
Rise of international private banking, global haven network
Limited 3W Debt Relief, Continued Stagnation Outside BRIC
FSU provides more debt/flight fuel
More IMF/ World Bank “Structural Adjustment” failures
Banks Turn Attention Back to First World
Rubin Treasury institutions QI, check the box regs
Takeoff of domestic LLCs, asset protection trusts
BRIC Opts for Reserve Accumulation (vs. risk of more IMF fiasco)
Increased Deregulation, Globalization, Haven-eering
Ultra-deregulation: banks, securitization, hedge funds, insurance
Loose Fed, fiscal policy: balooning FW CA deficits
Huge reverse flows from BRIC to FW Countries
Accumulated Offshore Flight Capital also Fuels Rise of FW
IMF, World Bank are marginalized
Unregulated mortage lending boom -- unregulated, highly profitable, unproductive
2008-2011+:
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FW mortgage/ housing market craters
FW Banking, Insurance, Hedge Funds, Pension Funds: massive exposure
BRIC exposure by way of MSBs, FW bonds
Huge Bailouts for Financial Institutions; limited ones for borrowers so far
IMF gets back in the game
Crisis spreads to weaker 3W, heavily indebted EU countries
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Why should we care?
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Cumulative Flight by Region
(1977-2003, $95 Billions)
**Excluding Kuwait and Saudi Arabia
Source: data from IMF (2005), World Bank (2005); JSH analysis
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© JSH 2005
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Estimates history
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JP Morgan 1986
Yours truly – 1980s, 1990s, 2000s
James Boyce, U Mass – Africa - 1990
TJN - Murphy/Christensen 2005 – “Price of Offshore”
Simon Pak (2003): trade data comparisons
GFI: 2006 –2011
Oxfam GB (2009) tax loss
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“Mapping Financial Secrecy” (2009, 2011): secrecyjurisdictions.com
• Christian Aid , ActionAid, ATAF, CCFD, Eurodad, GFI, etc.
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“Unusual” Demand for US$ Currency –
1970-2011
A. $ per Capita
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Insider Recipients - Philippine Central Bank loans ($mm
outstanding, 1986)
•Roberto Benedicto
•Marcos family members
•Roberto Cuenca
•Herminio Disini
•Eduardo Cojuangco
•Jobo Fernandez
•“Kokoy” Romualdez
•Manual Elizalde Jr.
•Jose de Venecia
•Lucio C. Tan
•Placido Mapa Jr.
•Ramon Cojuangco
•Ricardo Silverio
•Juan Ponce Enrile
•Vicente Chiudian
•Roberto Villafuerte
•Bienvenido Tantoco
•Salvador Laurel
•Other Marcos allies:
TOTAL:
$747.6 million
$726.5
$676.9
$258.4
$201.2
$180.0
$150.4
$104.1
$71.4
$51.8
$50.6
$30.9
$30.6
$28.6
$15.6
$15.2
$6.0
$5.8
$134.4
$3.58 billion
OTHER (not identifiable:)
$3.4 billion
Source: JS Henry, The Blood
Bankers (2003)
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
= $310 Billion, 2005 NPV***
 = $161 Billion
 = $149 Billion
* In addition to US participation in Paris Club debt relief
** Excluding Russia
***Most likely expected value as of mid-2006
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Source: World Bank (’05), IMF (’09), WDI (’06), OECD (’06); author’s analysis
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Key Issues – GFI approach
Trade
Misinvoicing
Capital Flight
Bias
• Unusual country concentration
✔✔
• All negative flows omitted
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++
• Data quality (timing, cif costs,
aggregation, etc.)
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?
• Stocks vs. flows
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• Income on offshore stocks
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• Post-2000 focus: late start
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✔69 zeroes + 72
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• Missing data
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53 zeroes +72
missing /217
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• Imputed values
• Mispricing in services omitted
missing/217
✔LDCs
✔
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“It is capitalism that
is truly radical.”
-- Brecht
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Key assumptions
• CF flows:
• 1970-2009 annual estimates of CA, reserves, debt,
investment: WB data+ national accounts data
• Including foreign portfolio and direct investment
• Adjusting foreign debt series for FX changes
• CF stock analysis
o
o
o
All unrecorded flows are pre-tax
Investors maximize real dollar value of wealth
Alternative investment postures
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Conservative investment posture – nominal 6 mos CD yield before taxes
More aggressive posture -- mix of debt and equity returns
Savings rate on interest income is 75%, 100% on new flows
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Early clues….
World Current Deficit Discrepancy Key Components ($95 Billions)
Source: IMF(2005) data, author’s analysis
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Middle East Capital Flight,
1976-2007
($2000 Billions)
S =$ 223.9
S =$ 135.0
S =$ 93.1
S =$73.9
S =$62.2
S =$ 52.0
© JSH 2008
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Source: data from IMF (2005), World Bank (2005); JSH analysis
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Where Did The Money Go?
• First clues – offshore currency demand, growth of “inbound”
US bank deposits via havens
• “Dubious debt” ***
– Lousy projects (artificial economics)
– Roundtrips (Philippines, Nicaragua, etc.)
– Privatization fiascos (Mexico, Arg., Indonesia,etc.)
– Financing initial capital flight
• Flight wealth: on-going tax evasion and money
laundering
• Human capital flight
*** See The Blood Bankers (NY:Basic Books, 2005)
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Capital Flight Outflows From Key East Asian Countries, 1970-2007
(Real $2000 Billions)
Revised 10-08
S =$218.2
S =$ 187.2
S =$ 139.4
S =$106.2
S =$ 62.0
S =$51.6
SS=$764.7,
EAST ASIA
MAJORS
1970-2007
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*1976-2007
** Insufficient data for Cambodia, Fiji, French Polynesia, Guam, Kiribati, DRK, Laos, Myanmar, PNG,
Samoa, Solomon Islands, Tonga, Vanuatu, and Vietnam
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Source: data from IMF/World Bank (2008): JSH analysis
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Capital Flight Outflows From Sub-Saharan Africa,
1970-2007
(Real $2000 Billions)
S =$ 104.3
S =$ 45.6
S =$22.6
S =$ 21.6
Revised 10-08
S =$16.8
S =$ 2.1
SS =$222.1,
SUB-SAHARAN
AFRICA
1970-2007

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Source: data from World Bank/ IMF (2008); JSH analysis
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China’s apparent flight is exaggerated, due to round tripping…
“Apparent” Capital Flight From China, Hong Kong SAR and Macao
SAR, 1982-2007
Revised 10-08
(Real $2000 Billions)
S = $663.9
S =$196.2
C hina (M ainland)
H ong Kong SA R*
S =$8.6
M acao S A R
$600
$500
$400
SS =$860.3,
$549.9
CHINA
1982-2007
$300
$200
$100
$196.2
$114.0
$0.0
$0
1982-1992
*HK data: 1998-2007;
**Macao data, 2002-2006
$8.6
$0.0
1993-2007
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Source: World Bank/IMF data (2008); JSH analysis
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Capital Flight Estimation Russia Example
Debt
Flows
($B)
Net Foreign
Investment
($B)
Total
Sources
($B)
Reported
CA Deficit
Ch in
Reserves
Total
Observed
Uses
($B)
Annual CF
Estimate
($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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