This caught my eye in the FT this morning:
Despite significant investment by some of the world's leading brands in glossy stores and staff training, mainland Chinese consumers continue to spend heavily outside their home nation; Bain reported that 67 per cent of all Chinese luxury purchases this year were made overseas.
I wonder how much of that spending is settled using credit cards charged to BVI company accounts, themselves stashed with illicit funds smuggled out of the Chinese economy?
Don't doubt the significance of this. China has the highest net illicit outflows of any economy in the world. And as the FT, again, notes:
The country's overall clout in the sector is not diminishing — Greater China now accounts for a quarter of Louis Vuitton's revenue, 35 per cent of Cartier's, and a whopping 45 per cent of Omega's, according to Exane BNP Paribas.
Those facts - high illicit flows and high offshore conspicuous consumption - are not unrelated. One, I am quite sure, directly fuels the other. And don't dismiss the consequences of it either.
First, such consumption, supported by a whole PR industry that starts with the FT's 'How to spend it' and flows on from there, this spending is designed to distort economic perception and create imbalance: this is what Thorsten Veblen taught a century or so ago, even if his work is largely ignored by economists now.
Second, such flows clearly do destabilise China - which is as likely a source for the next major economic crash as anywhere.
Third, such spending distorts economic priorities in the rest of the economy and misallocates resources towards what is no doubt, at least in part, an illicitly funded activity.
What to do about it? Well, let's start with a requirement that money laundering checks be a pre-condition on buying goods with cash or on credit cards issued from tax haven locations for sales above £10,000 or equivalent. We already impose this on some sectors for transactions of this value. So why not luxury goods? After all, do we want at least part of our luxury goods market to be built on the basis of the proceeds of tax crime?
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Dear Richard
I follow your blog and the piece about Chinese consumers caught my eye. Has anyone done any research on the impact of Chinese investment in the property market in the UK?
Anecdotally I know it is huge
I have not seen definite data
If a UK business accepts payments in cash of over 15,000 Euros they are already required to register with HMRC for money laundering purposes. Such businesses are known as a “High Value Dealer”.
I am suggesting this be extended to cover credit card payments – which could be done via the registered number
Richard,
Someone once told me that we cannot save the world on our own. You have done a great job opening the eyes of some people to the injustices of our world. I think we have enough problems in the UK without worrying about what China is or isn’t doing as far as money laundering is concerned.
One question; don’t all transactions (cash or credit cards) attract VAT in the UK regardless where the card is from?
Happy New Year!
Mike
I do think we need to worry globally
No – VAT is not charged on all transactions – exported goods can be subject to reclaim…
Stores help get this data for customers and so can link real people / passports with offshore credit cards – an invaluable source of money laundering data
Richard
What do you mean by an offshore credit card?
One issued in the UK ? Singapore ? Both are “onshore jurisdictions” I think.
I think this is a key question in the whole paradigm we live in.
Between globalisation, which will almost unavoidable bring a cut in living standards in the “developed” world in favour of growth in the rest of the world and our intellectual wish to auto-regulate ourselves to the extreme, from tax to environment, are we not hurting our economies more than we should, to the benefit of the Vuiton buyers (I’ll leave specific nations out).
Let’s face it. There is massive capital flight out of a number of countries, as Richard says. So the only solution would be to bomb flat the money havens. But what right do we have, to do that? Can we bomb Singapore? Vanuatu (most people would not even find it) or HK? Take the example of Switzerland. The private banking business is clearly down, but by much less than the reduction in European business. There is massive growth coming from the new economies. Maybe we do have “some” leverage on them, but what do we have on HK or Singapore.
Actually, this area is one of the most depressing ones for me. Actually less for me, who can travel freely to wherever I want, if regulations annoy me more than I personally want to bear, but for the 300 million Europeans who do not have that luxury.
This is not even a hated neo-liberal point of view, but a fatalistic perspective of someone who is involved in international trade and has never paid a bribe to anyone. I refuse to do so, but I know what I have left on the table over the years: a lot. The UK Bribery Act, cannot be argued about in its intentions, but if this does not apply to everyone, is it not more harmful than not?
On the positive side, one has to recognise that without the Britain’s lead in the anti-slavery movement, the worls would be a much worse place than it is today. And that was unilateral too!