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4 Apr, 2013

Investigative Journos Strike Again: Expose How Shady Global Tax Havens Help Make the Rich Richer


The policy of incessantly calling for lower taxes, a fundamental platform of travel industry organisations such as the World Travel & Tourism Council, is set to face a major rethink in the wake of a global media investigation of tax havens and the massive network of crony-ridden schemes designed to help the mega-rich avoid and evade taxes.

Working under the umbrella of the International Consortium of Investigative Journalists, 86 journalists from 46 countries used high-tech data crunching and shoe-leather reporting to “crack open the secrets of more than 120,000 offshore companies and trusts, exposing hidden dealings of politicians, con men and the mega-rich the world over.” It is described as “one of the biggest cross-border investigative partnerships in journalism history.”

The results of their sifting through emails, account ledgers and a cache of 2.5 million files covering nearly 30 years was published in full on 4 April 2013 at the website www.icij.org.

According to the website, “The secret records lay bare the names behind covert companies and private trusts in the British Virgin Islands, the Cook Islands and other offshore hideaways. They provide facts and figures — cash transfers, incorporation dates, links between companies and individuals — that illustrate how offshore financial secrecy has spread aggressively around the globe, allowing the wealthy and the well-connected to dodge taxes and fueling corruption and economic woes in rich and poor nations alike.”

The investigation also shows how the cash-rich, borderless travel & tourism sector is a conduit for these funds. One focus was how Britons are snapping up luxury villas in Phuket.

Said the report, “These exotic hideaways had infinity pools, resident gyms and waiting speedboats. Such properties could be rented out for cash when not in use by their owners, and could cost anything up to £5 million to buy. Britons commonly bought them through anonymous BVI offshore companies.” It names a Bangkok law firm which employed a couple of expatriate English solicitors, and were active with UK clients.

The investigation comes in the wake of global efforts by both individual governments and multilateral organisations such as the OECD and the EU to crack down on tax havens, now widely seen as being a major source of global economic crises, budgetary shortfalls and austerity campaigns, all of which hurt the poor most while the mega-rich continue to evade taxes.

Over the last two decades, multinational corporations such as those which comprise the core membership of the World Travel & Tourism Council have been at the forefront of calls for governments to cut taxes in order to attact foreign investment. This was seen as a major contributor to economic growth and job creation.

While that may be true to some extent, the flip side of the coin is now emerging, viz., that tax-cuts and tax loopholes have worsened the rich-poor income gap and prevented governments, especially in the economically less advanced countries, from funding development of education, health and infrastructure facilities and forced them to borrow more from global banking institutions.

In the travel & tourism industry, the WTTC has led the calls for tax-cuts almost from its very founding in the early 1990s.

A press release posted on its website, dated 15 January 2013, is headlined “WTTC calls on India Government to reduce taxes and improve visa policies”. The story says, “India is the 12th largest Travel & Tourism economy in the world and has the potential to become one of the very biggest economies in our industry. Yet it risks squandering this opportunity through excessive taxation and restrictive visa policies.” Mr David Scowsill, WTTC President & CEO, referred to them as “the two biggest issues that are likely to hold back the growth of the country’s Travel & Tourism economy.”

Speaking at the Hotel Investment Forum India, Mr Scowsill was quoted as saying: “India is becoming increasingly expensive. Taxes are rampant in India’s aviation sector, indicating that the government views the sector as a revenue source rather than a revenue generator. But high taxation will potentially hinder the development of Travel & Tourism. It’s vital for the government to make further moves to reduce the tax burden on the industry.”

Another release on 28 February 2013, conveys the same message. After citing all the millions of jobs created by travel & tourism in 2012, and the billions of dollars in investments and exports, Mr Scowsill was quoted as saying: “This industry is an important driver for countries’ economic development and growth strategies. Our industry is responsible for creating jobs, lifting people out of poverty, and broadening horizons. But we need international institutions and governments to recognise its strength, to remove restrictive visa and tax regimes and to work with the private sector to stimulate that growth.”

However, the ICIJ investigation has now shifted the onus to the private sector to prove that its many CEOs are not tax-dodgers. Among the shocking key findings of the ICIJ investigation:

  • Government officials and their families and associates in Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Canada, Mongolia and other countries have embraced the use of covert companies and bank accounts.
  • The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.
  • Many of the world’s top’s banks have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways.
  • A well-paid industry of accountants, middlemen and other operatives has helped offshore patrons shroud their identities and business interests, providing shelter in many cases to money laundering or other misconduct.
  • Ponzi schemers and other large-scale fraudsters routinely use offshore havens to pull off their shell games and move their ill-gotten gains.

The investigation makes fascinating reading. It is a tribute to the power of an independent journalism to expose the truth and force accountability and transparency amongst the elite, many of whom claim to be part of the solution but are in fact proving to be a very critical component of the problem itself.

Said the report, “The people identified in ICIJ’s analysis of the data are shareholders, directors, secretaries and nominees of companies and trustees, “settlors” or “protectors” of offshore trusts, as well as power-of-attorney holders who direct the actions of third parties. Many of the structures are designed to conceal the true ownership and control of assets placed offshore. Their identified addresses are spread across over more than 170 countries and territories.”

It added, “ICIJ’s data analysis showed that the people setting up offshore entities lived most often in China, Hong Kong and Taiwan. Another important group of clients comes from Russia and former Soviet republics. This helps explain why the second-largest source of capital investment flowing into China is the tiny offshore tax haven of the British Virgin Islands. Similarly, a large source of investment flowing into Russia is from Cyprus, a country that also features heavily in the data – and whose financial stability was recently undermined by a crisis precipitated by Cypriot-based banks being bloated by Russian money.”

The investigation shows that there is no such thing as secrecy and privacy any more, not even for the rich. Powerful computer software was used to analyse, sort and verify the information.

Said the report, “ICIJ’s offshore 260-gigabyte data collection is more than 160 times larger in size as measured in gigabytes than the U.S. State Department cables leaked to and published by Wikileaks in 2010. The formats of the data that ICIJ’s team worked with were more complex and diffuse than the collected U.S. State Department cables passed to Wikileaks, and needed more levels of analysis.

“One specially built program has been prepared to check and match names and addresses, and has spotted thousands of cases where the same person’s data has been entered numerous times in different ways for different companies. Another special program identifies the country associated with each person and company, even when geographic data has not been entered fully or correctly.”