Authorities have stumbled on enforcing economic sanctions on Russian individuals because governments do not share who ultimately benefits from assets around the world, the Independent Commission for the Reform of International Corporate Taxation, or ICRICT, said in a report published Tuesday. People use tax havens to store the equivalent of 10% of the world gross domestic product, about $8 trillion, Gabriel Zucman, an ICRICT commissioner and professor at University of California, Berkeley, said during a virtual conference Tuesday.
"The war in Ukraine shows that we need to tackle tax havens head-on now, by implementing transparency measures as a matter of urgency," ICRICT said Tuesday in an open letter addressed to the Group of 20 nations.
The commission urged world leaders to focus on financial transparency in their efforts to push back against Russia's military campaign, as cash-strapped governments spend big to insulate citizens from subsequent economic shocks.
The war and the COVID-19 pandemic are overlapping crises feeding into "spiraling inequality," the group said, which a global asset registry could help address by providing governments information about where the richest people on Earth keep wealth, the group said.
"Tax havens hinder the ability of governments to impose sanctions, and this inability hinders the international rule of law which enables our countries to coexist," the organization said.
The world's 10 richest men doubled their wealth during the pandemic while a new billionaire emerged every 26 hours and millions fell into poverty, according to the report.
Zucman told the conference that the world's 0.01% wealthiest individuals ultimately benefit from more than half of that wealth being held offshore without necessarily breaking any laws, although the actual magnitude of wealth inequality is unknown because of financial secrecy.
"We have to start somewhere, and I think the natural starting point is the national registries that exist — land and real estate registries," Zucman said.
He advised governments to start building networks to share information about ultimate beneficial ownership at the local, state, federal, regional and international levels.
"It could be the United States and Canada; it could be France and Germany," Zucman said. Ultimately, "you could then connect these various regional registries to arrive at the ultimate goal," which he said would take decades.
In the meantime, Jose Antonio Ocampo, chair of ICRICT and a professor at Columbia University, said governments need more transparency to fight back against instability from the invasion of Ukraine which has compounded already rising food and energy prices.
"The idea of a global asset registry has come to the fore, in a sense, by the proposals of some developed countries to tackle" Russian oligarchs, Ocampo said. "Even the money from the oligarchs is actually hidden and cannot be captured totally, which is exactly why we need a global asset registry."
Russian oligarchs hold at least $1 trillion in wealth abroad, "often concealed in offshore companies whose true ownership is hard to determine," according to ICRICT. "The issue is obviously not limited to Russian billionaires."
Ocampo said "tax havens and other ways of hiding money" drive corruption and push governments to adopt more regressive tax systems targeting the less fortunate, because wealthy citizens can afford to hide their income.
Much of the world's wealth is "hidden through elaborate structures either to avoid paying taxes or to hide money generated by corruption and illegal activities," according to the letter by ICRICT, whose signatories include economists such as Ocampo, Zucman, Joseph Stiglitz and Thomas Piketty.
"There are no more excuses of pandemics, no more excuses of wars where we can avoid talking about and dealing with this offshore wealth," Nadia Daar, the conference's host and head of the Washington, D.C., office of Oxfam International, told attendees. "If anything, these converging crises just make the situation that much more urgent."
More than half of household total wealth is financial wealth, Zucman said, including securitized assets, which can often be opaque to authorities seeking to enforce laws.
"The laws are such, they are so lax, they allow people to hold wealth in forms that do not show beneficial ownership," Jayati Ghosh, economics professor at University of Massachusetts Amherst, told the conference.
Secrecy creates "fertile ground for tax evasion and avoidance, and for financial crimes such as corruption, money laundering and the funding of terrorism," according to the ICRICT, and "helps kleptocrats, multiplying the damage they can cause."
Wealth inequality poses serious risks to economies, societies and the functioning of democracies, the commission said in the report, based on presentations at ICRICT's 2018 meeting by Zucman, Delphine Nougayrede at Columbia University and Andres Knobel at Tax Justice Network.
Oxfam published an analysis Tuesday, showing 13 of 15 International Monetary Fund loan programs negotiated during the second year of the pandemic "require new austerity measures, such as taxes on food and fuel or spending cuts that could put vital public services at risk."
The IMF— a lender of last resort for governments — should "find out who owns what" as a condition for providing loans, Ghosh said. Every year African economies lose about $89 billion because people illegally move capital abroad, equivalent to 3.7% of the continent-wide GDP, according to a report published in 2020 by the United Nations Conference on Trade and Development.
"If the IMF has to impose conditions that require some degree of fiscal consolidation, why doesn't it look at the tax side?" Ghosh asked. "And if it looks at the tax side, why does it only think of regressive taxes, like more [value-added taxes] or even carbon taxes that fall disproportionately on the poor?"
Developing countries consider illicit financial flows a big issue that needs to be addressed, Ghosh said, adding that her colleagues found between 1970 and 2015 that 30 African countries lost about $1.4 trillion due to capital flight.
"These are fairly simple things, low-hanging fruit available to developing countries that terrify them because there would be massive pushback from the wealthy," said Ghosh, who also serves on the United Nations Secretary General's high-level advisory board on effective multilateralism.
The IMF should ask for taxes on extreme wealth, require asset registers and allow controls on capital accounts when inking loans to governments facing dire straits, Ghosh said.
Oxfam emphasized that IMF loan recipients are facing some of the worst humanitarian crises in the world.
The experts noted that in many cases, financial secrecy is achieved through legal means, with some jurisdictions competing over opacity. Trusts in South Dakota, for example, hold around $360 billion in assets from people around the world, according to an investigation cited by the U.S. Congress, as local authorities refuse to compel financial institutions to share beneficial ownership.
"It would be a bit naive to believe that the very same bankers who for decades have been helping their clients evade taxes — sometimes taking extreme measures [such as] smuggling diamonds into toothpaste tubes — that these very same individuals today are honestly cooperating," Zucman said.
--Editing by Neil Cohen.
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