Offshore Capital’s Tax Justice Scaling
The anti-offshore financial center group Tax Justice Network updated statistics on private banking assets and capital flight showing a combined figure above $20 trillion, with illicit wealth accumulation outstripping official external debt for the past two decades. According to the tabulation, the top 50 asset managers dominated by US and European multinationals and Swiss specialists handle $12.5 trillion, including estimates for unreported deposits and brokerage and custody holdings which can fall under third-party names. The high net worth segment has recently seen 10 percent annual growth, and most of the ten leading players got government rescue money over the period to tackle crisis instability at the same time they were receiving questionable sums from presumed launderers and tax evaders, the organization contends. Over the 40 years from 1970-2010 cumulative capital outflows and earnings from five regions came to $10 trillion led by East Asia, the CIS, and Latin America. Among individual countries, China and Russia head the list at $2 trillion together, and Argentina, Brazil, Mexico and Venezuela each register $400-500 billion. Kuwait and Saudi Arabia joint wealth flight was $800 billion, and in Sub-Sahara Africa Nigeria is conspicuous at $300 billion. The proceeds parked abroad are multiples of outstanding foreign debt, and must be juxtaposed against relief for all poor countries at a fraction of bailout costs for advanced economy banks since 2008, the research concludes.
In Nigeria the leakage has been most pronounced from the long-corrupt and inefficient oil sector which the Goodluck administration intends to comprehensively overhaul in the Petroleum Industry Bill slowly wending through parliament. Proven reserves of almost 40 billion barrels are triple the continent’s number two source Angola’s, as production amounts to only 2 million barrels/day. Despite the presence of global hydrocarbons giants no new licensing has occurred in five years with the state monopoly blocking decision-making and rule clarity, regular militant attacks in the Niger delta, and domestic refineries operating at half-capacity. Fuel subsidies knock a $15 billion hole in the budget, and the government had to settle for partial reductions after a national strike against greater reforms. The proposed legislation would modernize the tax and royalty regime, commercialize the official petroleum enterprise, and establish a separate regulator. The successor oil firm will be partially listed on the stock exchange, which has maintained gains on the prospects for eventual passage of the law and banking system recovery after another statute shifted bad assets to a central resolution agency. The central bank held the benchmark rate at 12 percent, but stiffened reserve ratios at its latest meeting with inflation stuck at double digits. A sovereign wealth fund was created with an initial $1 billion endowment, but additional Treasury-bill issuance may be needed to cover the subsidy compromise as foreign investors look to fold an overweight position at 15 percent-plus yields.
