As the Tax Justice Network notes:
Tucked away low down in an article in the August edition of the Swiss review, there is this:
“Switzerland has become a paradise for foreign capital on which tax is not paid. The uproar from foreign governments is understandable.”
These are not the words of a critic of the banks, but of private banker Konrad Hummler. He says that around 30%, or CHF 1,000 billion, of the CHF 2,800 billion or so of foreign assets in Swiss banks is untaxed “black money”.
This is nearly twice the size of a conservative estimate put out by TaxAnalysts in December 2007, which stated that:
"At the end of 2006, there were $607.4 billion of assets in Switzerland's financial sector beneficially owned by non-Swiss individuals who could easily be illegally avoiding tax on those assets in their home jurisdictions."
As TJN also notes:
Konrad Hummler, is authoritative: the chairman of the Swiss Private Bankers' Association. We have commented on Herr Hummler on several occasions, and despite our fundamental disagreements with his world view, we do, in a sense, like his extremely forthright statements.
The Tax Justice Network have long been reported as saying there are at least US$11.5 trillion offshore — research I undertook. That, of course, was an estimate. The OECD says it is smaller at around US$7 trillion, but the excluded what we included, namely assets registered offshore such as land, buildings, yachts and more besides. We have now been told we drastically underestimated this proportion of offshore assets. If Switzerland has US$1 trillion of financial assets I remain of the view our estimate remains in the ball park range of total likely illicit assets.
But let’s for a moment just think about the Swiss cash and assets. What could they do if recovered? Clearly paying off government debt would be one thing. But suppose, just suppose for a moment that a more enlightened view was taken. Even with so called ‘amnesties’ in place much of this cash will end up in government hands — and rightly so. But suppose that this was to happen in slightly more innovative ways. Suppose the cash recovered was put in a fund and that was then loaned to governments — for at least 30years. Right now in the US that would yield a 4% return - £40 billion a year.
The World Bank has estimated it would cost US$40 - US$60 billion a year to deliver the Millennium Development Goals. I suspect a bit more by now. But let’s not quibble. The illicit cash in Switzerland alone is enough to pay for a lot of these things:
Target 1. Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day
Target 2. Halve, between 1990 and 2015, the proportion of people who suffer from hunger
Target 3. Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling
Target 4. Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015
Target 5. Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate
Target 6. Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio
Target 7. Have halted by 2015 and begun to reverse the spread of HIV/AIDS
Target 8. Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases
Target 9. Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources
Target 10. Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation
Target 11. Have achieved by 2020 a significant improvement in the lives of at least 100 million slum dwellers
Target 12. Develop further an open, rule-based, predictable, nondiscriminatory trading and financial system (includes a commitment to good governance, development, and poverty reduction?both nationally and internationally)
Target 13. Address the special needs of the Least Developed Countries (includes tariff- and quota-free access for Least Developed Countries? exports, enhanced program of debt relief for heavily indebted poor countries [HIPCs] and cancellation of official bilateral debt, and more generous official development assistance for countries committed to poverty reduction)
Target 14. Address the special needs of landlocked developing countries and small island developing states (through the Program of Action for the Sustainable Development of Small Island Developing States and 22nd General Assembly provisions)
Target 15. Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term
Target 16. In cooperation with developing countries, develop and implement strategies for decent and productive work for youth
Target 17. In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries
Target 18. In cooperation with the private sector, make available the benefits of new technologies, especially information and communications technology
That’s why we need to break open secrecy jurisdictions: with the cash they hide all these things are possible.
The ending of secrecy jurisdictions could be the best news the ordinary people of the world have ever had if that were possible.
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Richard,
Why talk of “dirty money” when describing assets deposited in Switzerland ?
Such an expression should be left for circumstances related to drugs, gambling, arms, prostitution and other obvious “criminal”-earning activities (hence the expression “money laundering”, to inject into the legal financial system money that is the result of “dirty” activities).
As you know, or should know, Switzerland’s financial industry is at the forefront in the fight against money laundering and terrorism financing.
When talking of financial assets that were righfully earned by its owner, dirty money does not apply, and the fact that “clean” money may not have been fully taxed does not make it “dirty”.
Whatever the amount of assets held in Swiss banks, they first belong to their owners.
Whether they should be invested in US securities, as you suggest, Mr Hummler – you are quoting – has another opinion on that subject and was mentioned in the Swiss media : http://www.wegelin.ch/download/medien/presse/kom_265en.pdf
Serious reading which should raise the interest of the SEC and the IRS.
Best
Bernard
Bernard
You are utterly and completely wrong
Tax evasion is money laundering
It is theft
It is the proceeds of a crime
Deny that and you declare your own support for criminality
But at least we know where you stand
Richard
Richard,
To say I would support criminality is plain dumb (but in line with your habit to frame your contradictors in negative spotlights).
My point is to make a distinction between money earned rightfully or from criminal activities.
Tax evasion is indeed an offence (as it is in Switzerland), but it can not be put on the same level as money laundering (and international instances that work on countering money laundering and terrorist financing do make this distinction).
Best
Bernard
Tax evasion is money laundering, by definition
You defend money launderers by making your comment
Laws are not allowed to make this distinction: if they do they are non-compliant
Get real: tax evaders are criminals and you’re defending them
What does that say about you?
Richard
“Tax evasion is money laundering
It is theft”
“Tax evasion is money laundering, by definition”
I think you would have a hard time making those statements stand up in a court of law. Tax evasion is a criminal offence under the tax acts quite distinct from the common law offence of theft. The evading tax payer cannot be said to have stolen property that has never actually belonged to the government, even if they ought to have declared their income and paid a sum of money possibly from other resources.
Likewise if a tax payer places their own funds on deposit and earns interest on that deposit where there is no obligation to make any withholding so that they are legally entitled to the interest and the deposit, that property is not the proceeds of crime. If they then fail to declare the interest they will have committed an offence, but the offence entails the avoidance of a liability rather than the receipt.
If the “criminal property” in a tax evasion case is the amount of tax evaded, unless there is a clear allocation of funds to meet that liability which have not in fact been so used, it is extremely difficult to see how it might be established that any particular fund of money constitutes the avoided tax liability.
For all the huffing and puffing on this HMRC are much more likely to resort to confiscation of property through the civil courts than attempt a criminal prosecution for money laundering.
Alex
That’s why the UK often charges those accused of tax evasion under the Theft Act 1968 is it?
That defines theft as:
A person is guilty of theft if he dishonestly appropriates property belonging to another with the intention of permanently depriving the other of it; and “thief” and “steal” shall be construed accordingly.
Tax evasion seems to fit the bill to me
And to the courts
Richard
Certainly from a Jersey perspective there is no doubt that tax evasion is a criminal offence, and any attempt to use Jersey to failitate tax evasion would be caught within the money laundering legislation and require a report to be lodged with the authorities.
But then, as everyone knows, Jersey is a shining example of how to operate a financial centre and it is just a pity that places both off and onsore (and I include the UK and the US) cannot live up to the same high standards.
In one sense, Bernard has a point in that the initial cash invested may have been legally earned unlike the proceeds of criminal activities. The “dirty money” element is the tax on it, which has not been paid, maybe 40%. Also tax on the interest accrued which presumably will not have been declared. Then there should be penalties to pay and interest on the eventual late payment.
I doubt that the whole of the money can be removed from the tax evaders. But probably more than half could be considered dirty money.
Of course some (maybe quite a lot) of the money will be wholly criminal.
Do you mean under s15 Theft Act 1968 (Obtaining property by deception)?
Repealed by the Theft Act 2006, I am afraid.
There is no such Act
There is a Fraud Act
But the Revenue suggest theft – not fraud
Richard
Actually I wasn’t arguing that those guilty of tax evasion weren’t necessarily guilty of theft offences, merely that you might have a hard time making it work in the courts and particularly using the money laundering arguments into play.
Imagine the following hypothetical situation using blatant tax evasion by an onshore company: assume it subscribes for a 20 year zero coupon deep discount bond and holds it to term (taxable under the loan relationship rules), but omits to include the income from the accretion on its tax returns. I see tax evasion, cheating the Revenue etc. but until the bond matures and is redeemed I don’t see any money that can have been laundered, which is why I say that HMRC are more likely to use other routes to recover what they are owed.
Alex
You’re talking sophisticated fraud there
Now let’s talk those who cream cash off and put it offshore, those who just don’t declare offshore interest and the like
Is that not theft?
Richard
Richard,
It’s not theft because there is no property belonging to another that has been stolen. Theft is concerned with property rights and although The State has a right to tax assets until it does so the property rights do not change. You cannot steal from yourself.
Would you describe not paying your plumber as theft?
I would say the actions you describe are closer to fraud, in that they are a deception that prevents the state from exercising its property rights.
@Richard Murphy
Sorry, Fraud Act 2006. My mistake.
Does the form of words really matter here? Theft, fraud – they’re both pretty bad as far as I can see. Aren’t we all against both?
I suspected that you may not have the courage to show or answer my last comment! Was it a bit too close to the truth for you?
Sled
What comment?
Richard
It was sent yesterday but is not yet shown on here.
I can find no trace of it
Was it the one in which you referred in distasteful fashion to abortion?
If so it failed moderation, entirely reasonably
So you agree then with the state using taxpayer funds for illegal wars in Iraq and the killing of millions of innocents? Anyway you could have easily left the part about abortion out and shown the rest. Answer the fundamental question, is there any level of taxation at which you think taxation becomes state theft? 40% of income? 100%? 200%?
The form of words does matter because to a certain extent the precise form of words determines the extent to which the authorities may proceed against an individual. It is quite appropriate that the authorities should be able to take action against individuals but the extent to which they are able to take action and the limits of their actions should be set down clearly by parliament, not by a decision of the Treasury or policy decision of HMRC.
In this particular case there are probably limits on the extent to which HMRC can invoke money laundering and proceeds of crime provisions of the criminal law. They don’t have those powers just because they think something is wrong or because it is as “bad” as theft.
Sled
I have an instinctive feeling something around 50% is high enough
But to stop abuse and in time of economic crisis I can see reason for more
I do not think taxation imposed by a legitimate government can ever be theft. That is a tautoliogical impossibility
I opposed the Iraq war
Thank you for your answer. Well it is interesting to know that you think it is ok for governments to “appropriate” about half, or over half of its citizens income. Many would disagree with that view. I see no reason for an efficiently run government to ever take more than 20% of a person’s income. The problem with governments, particularly European socialist governments, is that they have become grossly inefficient, bloated, wasteful, bureaucratic, greedy and corrupt. Many states around the world can manage on 20% of GDP or less, so there is no reason why those in Europe are not able to do the same. The argument about these governments being democratically elected is almost meaningless when the citizens of Europe are largely faced with a two party system, where only two parties have any chance of power, and where both parties have similar tax rates of half of GDP. There are always two sides to every argument. My basic point is that many people see these rates as state appropriation of their income, if not actual theft, and there is very little they can do about it except watch the government waste their money. And as i said before, many people also have a deep moral objection to seeing their money spent on illegal wars, nuclear weapons, and millions of abortions. For many people, 20% tax is high enough.
Of course it can. Democracy only conveys an verneer of respectability on the electoral system. It doesn’t imply that all the decisions of a democratically elected government are beyond reproach. We have specific provisions in the ECHR on retrospectivity and discrimination, for good reason, because both retrospective and discriminatory taxes might well be bad and/or confiscatory taxes.
I wouldn’t put a specific figure on when taxation becomes theft,. but certainly when the state feels it is entitled to the greater part of anyone’s property or income then we are in that sort of territory. When we get to the point that any individual becomes the servant of the state rather than vice versa, then we have gone too far. Certainly if any politician talks about taxing “until the pips squeak”, then there is a confiscatory element involved in the taxation
Richard,
We all want our governments to be ‘legitimate’ and ‘democratic’, and we all believe in ‘one person, one vote’ (who would not ?).
In tax matters, democracy is not so clear, as one taxpayer may be asked to contribute as much as thousands of other taxpayers (or even infinitely more, as a growing number of citizens are being excluded from contributing to the country coffers).
The marginal tax rates for high earners are also often disproportionately higher than for the average earner.
The dilemma for tax authorities is to assess the limit up to which they can pressure those high earners (or even middle-class folks), without them starting to ask whether their contribution is not excessive (and start expressing their disagreement by shielding part of their savings).
Jean-Baptiste Colbert, the famous 17th century French finance minister, superbly summarised the challenge fiscal authorities face : “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing”.
Even democratic countries like Britain can expose their high earners to excessive ‘hissing’; you recall George Bernard Shaw declaring his occupation as “tax collector on 2¬? per cent commission”.
Thanks to tax competition and maybe because of the existence of tax havens, some countries have developed a more respectful attitude towards their citizens, without jeopardising their spending capacity (maybe even increasing it). In many democratic countries, any political party that would promise a tax reduction or a free lunch to 95 % of the people, paid for by a tax increase on the remaining 5 % is likely to be elected. But one may make the case that democracy is more than just a mathematical majority imposing its will on a small minority (such as high earners).
I know a small country in the Alps, whose philosophy is based on a reverse Big Brother system : the people actively control the public officials and ministries, minorities are respected, tax issues are openly discussed and regularly voted upon, tax competition is strong between cantons, a high withholding tax is levied, the size of the shadow economy is among the lowest in the world, money laundering regulation and monitoring is of the highest standard, tax evasion is sanctioned administratively and tax fraud brings you to jail, but fiscal authorities understand their power derives from the people, and hence have a respectful attitude towards the taxpayers.
It is a pity that some countries seem to be more democratic than others !
Best
Bernard
Alex, I find your keenness to distinguish between fraud and theft quite concerning. Are you suggesting that fraud is OK and that government should not pursue it vigorously?
As to the maximum tax rate, quite possibly it can be reduced below 50% maximum if the tax base is increased. Thus the attack on tax havens may well enable tax rate reductions.