Offshore finance: more than £12tn siphoned out of emerging countries

[Eugene]

Source: The Guardian

Offshore finance: more than £12tn siphoned out of emerging countries

Analysis shows £1.3tn of assets from Russia sitting offshore,
as David Cameron prepares to host anti-corruption summit

Heather Stewart Political editor
Sunday 8 May 2016 16.55 BST

More than $12tn (£8tn) has been siphoned out of Russia, China and other emerging economies into the secretive world of offshore finance, new research has revealed, as David Cameron prepares to host world leaders for an anti-corruption summit.

A detailed 18-month research project has uncovered a sharp increase in the capital flowing offshore from developing countries, in particular Russia and China.

The analysis, carried out by Columbia University professor James S Henry for the Tax Justice Network, shows that by the end of 2014, $1.3tn of assets from Russia were sitting offshore. The figures, which came from compiling and cross-checking data from global institutions including the International Monetary Fund and the United Nations, follow the Panama Papers revelations of global, systemic tax avoidance.

Chinese citizens have $1.2tn stashed away in tax havens, once estimates for Hong Kong and Macau are included. Malaysia, Thailand and Indonesia – all of which have seen high-profile corruption scandals in recent years – also come high on the list of the worst-affected countries.

[font size=1]-snip-[/font]

Read more: https://www.theguardian.com/business/2016/may/08/offshore-finance-emerging-countries-russia-david-cameron-summit

[Igel]

1. When you don't trust your government, you hide your money.

Esp. when the government has a penchant for changing the rules and taking money. Part of "trust" is being able to predict what a person (or government) is going to do. Caprice is bad. You can only flex a piece of metal, or a country, so much before it's fatigued and breaks.

Some of the money hidden will be hidden illegally. In some countries, it may be illegal but it's understandable. If I were in Russia, under sanctions and with a government that has a history (both older and more recently) of assuming that all of its people's assets are the governments, I'd probably do the same thing. It's why Greece's economy was largely underground. Same in the USSR. India. China.

The US (and some other countries) have been exceptional in that it has had a small underground economy, mostly drugs and illicit or bootleg items, and it's had a very high voluntary compliance with the tax code. Even the wealthy tend to comply, although "compliance" often has meant tax avoidance. Federal income tax paid, whatever marginal rates may be, has been remarkably consistent over the last 70 or so years. There's been some drift, but it's hard to pin that drift up or down to any one cause. The only real exceptions have been when a marked change to the tax code's occurred and it takes a few years for people to adjust their tax avoidance strategies. This results in a bump in revenues or a dip in revenues. Actually, another kind of dip or bump occurs during bubbles or recessions, when there's a sudden loss or gain, esp. at the upper levels of income in a progressive taxation system.

One thing that feeds compliance is social trust. If you think that you and the government are on the same page, that those the government helps deserve the help and you're on board with that, if you think that those the government helps are like you; if you think the government's goals are your goals and vice-versa, at least to an adequate extent; then you get voluntary compliance. (R) don't like who gets helped; (D) don't like many of the government's goals. Both sides have a profound distrust of the government, but mostly point out how the other is distrustful and not themselves.

Russia, China, etc., have low levels of social trust. That makes corruption more common, but corruption reinforces the lack of social trust. It's easy to destroy a commons like social trust; it's very hard to restore one, once lost.