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Exposure of US$ 21 trillion of hidden wealth shows true extent of inequality

Added 02/Aug/12

The wealthy hold between US$ 21 trillion and US$ 32 trillion of undeclared income according to a new report by the Tax Justice Network (TJN) The Price of Offshore Revisited. This summarises the most detailed attempt to calculate the scale of wealth held in offshore jurisdictions and hidden ownership structures such as companies, trusts and foundations with unclear or undisclosed ownership. This is further evidence for why ownership of corporate vehicles must be disclosed. This is a conservative estimate as it only includes financial assets but not houses, boats, art works, jewellery etc and other possessions, which also raises another point, that retailers in these areas should also be doing due diligence on suspicious clients to check that their purchases are not being used for money laundering and reporting suspicions to the authorities. The law needs to make it clear to people in any sector that could be used for money laundering that helping people to hide the proceeds of tax evasion is always a money laundering offence so, tax evaders must be reported to authorities like any other criminal.

Debt Implications:

The research also made an analysis comparing this offshore wealth to debt in 139 mostly low middle income countries, traditional data shows aggregate external debts of US$4.1trillion at the end of 2010. But if you factor in foreign reserves and offshore private wealth held by individuals from those countries they would have a total surplus of US$10.1 trillion. However these reserves are held by a few wealthy individuals, while their debts are shouldered by their ordinary people through their governments.

 Inequality Implications:

The implications of this report are that as this data has not been considered when calculating official Gini Cofficients these significantly understate the scale of inequality, this is discussed in a second report Inequality: You don't know the half of it. It has already been widely recognised that the scale of inequality is extreme and unacceptable, and that this process is accelerating, yet it seems inequality is not only getting worse but getting worse faster than we had assumed. The enormous quantity of assets held offshore and in opaque and anonymous structures is not factored properly into anybody’s inequality calculations.

The argument is that if an asset is hidden in an offshore bank account, or an offshore trust or company and the ultimate owner or beneficiary of the income or capital cannot be identified, then this asset and the income it produces will not be counted in the inequality statistics. Almost all these hidden assets are owned by the world’s wealthiest individuals. So it follows that the inequality statistics, particularly at the top end of the scale, underestimate the scale of the problem.

 Although much of the wealth and income of the poorest is also “missing,” as they are especially hard to access and to survey, their ‘missing’ assets and income are insignificant when compared to those at the top, so they make little difference to the overall inequality picture. Wealthy people, or High Net Worth Individuals (HNWIs) in the bankers’ parlance, usually have advisers offering all manner of offshore services, ranging from mild (legal) tax planning to the cloaking of assets for the purpose of tax evasion and many other crimes. A private global infrastructure of lawyers, accountants, bankers and company and trust formation agents are dedicated to hiding the assets of the world’s wealthiest individuals.

With the bottom half of the world’s population together possessing barely 1% percent of global wealth while the top10% owns 84%,economic inequality is widely and increasingly recognized as a problem in its own right. This research was based on interviews with global experts and seeks to spur more research and debate on this topic. There are also further appendicies with underlying data and further explanations on the TJN web page. These reports have created a barrage of global media coverage around the world. Including articles on the Front page The Observer  and a longer piece in that paper on the same day. Showing that interest and pressure on this issue is building as the true extent of the problem comes to light.