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Offshore Tax Haven Clampdown Yields Cash from Hidden  $Trillions, But Secrecy Still Thrives

By Chris Vellacott and Sinead Cruise

Thu Jul 26, 2012 5:05am EDT

LONDON (Reuters) -

A global campaign to tax trillions of dollars hidden in offshore tax havens has made revolutionary progress, an official leading the drive said, rejecting suggestions that the super rich are running rings around Western authorities.

Pascal Saint-Amans, director of a unit at the Organisation for Economic Cooperation and Development, also cast doubt on estimates that the havens are illicitly sheltering wealth equivalent to several hundred times the fortune of Bill Gates.

Leaders of the G20 group of leading Western and developing nations launched the campaign three years ago, aiming to claw back billions in lost tax revenue at a time when many governments are trying to cut huge budget deficits.

Saint-Amans said his gut feeling was that before the G20's initiative at its 2009 London summit, people could hide their wealth in offshore havens without any risk of legal reprisals.

"Now you are at risk and that's a major change. That's a revolution," Paris-based Saint-Amans told Reuters in a telephone interview. Even if money is transferred abroad, rules improving transparency have made it easier for the taxman to find it, said Saint-Amans, whose unit is tasked with leading the Western efforts to fight tax evasion.

The Tax Justice Network, a campaign group, estimated last weekend that as much as $21 to $32 trillion of financial assets are sheltered in offshore tax havens, representing up to $280 billion in lost income tax.

That total wealth would dwarf the fortune of Microsoft Corp cofounder and philanthropist Bill Gates. In March Forbes magazine ranked Gates second on its global rich list with total wealth of a mere $61 billion.

Saint-Amans suggested the TJN estimates might be overstated. "I was wondering where the equivalent of 450 Bill Gates are hiding from everyone. It looks like the equivalent 20,000 unknown billionaires in the world or 200,000 people with net worth of 100 million," he said.

The Scorpio Partnership, a consultancy that analyses the global private wealth management industry, estimates the amount of money held offshore by people worth at least $1 million at a more modest $8-$9 trillion.

NO MAGIC NUMBER

Saint-Amans, who heads the OECD's Centre for Tax Policy and Administration, acknowledged his organisation makes no equivalent estimate. "I would rather spend the resource improving the legal framework and putting an end to loopholes than trying to find the magic number," he said.

In a statement accompanying its research, TJN criticized the OECD and other international bodies for not doing enough to track offshore wealth, saying it was scandalous that institutions devoted so little research to the issue.

G20 leaders agreed at their London summit to crack down on tax evasion and banking secrecy, and asked the OECD to publish lists of tax havens according to how cooperative authorities there are on releasing information about offshore wealth holdings.

There are now 89 countries on the OECD's "white list" of jurisdictions that have implemented internationally agreed tax standards. These jurisdictions have between them signed more than 800 agreements on exchanging information with authorities other countries, Saint-Amans said.

"Until 2009, countries said being secretive is justified and fair. The change in the world is nobody says that any more, so that is a big change," he said.

Western tax authorities have individually stepped up efforts to net more money hidden abroad by their own citizens through a series of amnesties targeting people with accounts in jurisdictions such as Switzerland and Liechtenstein.

At the same time they have turned up the heat on citizens suspected of tax evasion. This has included using details of Swiss accounts originally stolen from HSBC by a former IT employee that found their way into the hands of tax authorities around Europe.

Britain's HMRC tax office expects an amnesty offering leniency to people with accounts in Liechtenstein if they come clean to raise about 3 billion pounds, while a similar deal on Swiss accounts will bring in up to 7 billion pounds.

Campaigners argue that such initiatives will achieve only limited success because a financial industry designed to ensure confidentiality across multiple jurisdictions makes it impossible to shut down tax fraud or money laundering.

"Anybody who's serious about holding money offshore ... will hold it through a trust," said Richard Murphy, a chartered accountant and director of Tax Research, a think-tank.

"You'd have the trust in one territory, the company in another territory, its directors in another territory and its bank account in a fourth territory. So making an application for information is not very simple."

TOO COMPLEX TO BE WORKABLE

Murphy dismissed the OECD's progress in cracking down on tax havens, arguing that implementation of information exchange between territories is limited in practice and the process too complex to be workable.

"They've set up a system where it's virtually impossible to apply for information ... The OECD claiming they are making progress is like checking the stable door has been shut way after the horse bolted. Not just the horse, the entire stable has bolted," he said.

The TJN research on offshore wealth - authored by James Henry, a former chief economist at consultant McKinsey & Co - highlights the "often unsavory role" played by banks in catering to rich individuals who want to hide money offshore.

Large private banks with offshore businesses reject the idea they aid tax evasion.

"Our Code of Conduct explicitly says not to assist clients in activities intended to breach their tax obligations," said a spokesman for Swiss bank Credit Suisse (CSGN.VX) who declined to comment specifically on the contents of the TJN report

But recent crackdowns by tax authorities in countries such as Britain, the United States and Germany have proved embarrassing for Swiss banks.

German tax authorities are investigating roughly 5,000 German clients of Credit Suisse while French officials have searched the homes of UBS (UBSN.VX) employees.

At least 11 Swiss banks suspected of helping wealthy American clients dodge taxes are currently subject to a U.S. investigation.

Saint-Amans said the OECD's efforts have focused on engaging with governments rather than imposing more supervision on financial institutions. The complexity of the industry, he said, meant that greater information exchange was the best way to tackle people using banking secrecy to break the law.

"I'm not sure that nationalizing the banking industry throughout the world is the solution. The fact you have private practitioners being involved in a sophisticated environment is why you need to favor transparency and exchange of information," he said.

Efforts to increase disclosure and combat both tax evasion and money laundering by international bodies such as the OECD and the Financial Action Task Force (FATF), a Paris-based inter-governmental body, have focused on self regulation.

"We've tried to ensure that what we're talking about is not to create some draconian system where we put a policeman in every financial institution which would be impossible to do," said a senior source at the FATF, which was set up to combat money laundering and terrorist financing.

Nick Matthews, anti-money laundering and offshore financial industry specialist at Kinetic Partners, said purging the world's financial system is "incredibly difficult".

"Clearly tax evasion leads to money laundering and is a crime but you would have money laundering even if there was no tax, because you still have proceeds from crime or corruption polluting the financial system," he said.

"That is why I say that no bank would ever stand up and claim that they are not being used to launder money. They appreciate that they are only as strong as their weakest link."

(Additional reporting by Katharina Bart and Martin de Sa'Pinto in Zurich; editing by David Stamp)