In March 2005, the Tax Justice Network (TJN) published a research finding "The Price of Offshore", demonstrating that USD 11.5 trillion of personal wealth was held offshore by the rich and ultra rich -- High Net Worth Individuals (HNWIs) -- across the globe. This was based on data from many consulting firms and financial institutions including the Bank for International Settlements in Basel, Switzerland. The findings estimated that a large proportion of this wealth was managed from 70+ tax havens with Switzerland at the top of the black money pyramid. The USD 11.5 trillion of assets held offshore would generate a return of about USD 860 billion a year at a 7.5% rate of return, and a consequent tax loss of USD 250+ billion for sovereign nations, more than three times the OECD countries' official development assistance to the entire world.

Surprisingly, India -- still regarded as a poor country by many -- has USD 1.5 trillion in Swiss banks, which is more black money than the rest of the world combined. This is thought to be unaccounted money earned in India by inappropriate means as otherwise any Indian citizen or corporation wishing to open a bank account abroad has to take permission from the Reserve Bank of India and records do not show any such permissions granted for deposits in Switzerland. A 2006 report of the Swiss Banking Association claims Indians are the biggest depositors of black money in banks located in Switzerland. Top five countries in terms of such deposits are:

India: USD 1,456 billion
Russia: USD 470 billion
United Kingdom: USD 390 billion
Ukraine: USD 100 billion
China: USD 96 billion

With private account deposits of USD 1.5 trillion in foreign reserve which have been misappropriated, an amount 10 times larger than India's foreign debt -- USD 155+ billion -- one needs to rethink if India is a poor country? Many Indians regard this money as public loot since independence from Britain in 1947 and are asking, "Can we bring back our money?" It is argued that once this huge amount of black money and property comes back to India, the entire foreign debt can be repaid immediately, still leaving a huge surplus amount of foreign exchange reserves in India. Some 80,000 Indians travel to Switzerland every year, of whom 25,000 travel very frequently. "Obviously, these people won't be tourists. They must be travelling there for some other reason," believes an official involved in tracking illegal money. And, clearly, he is not referring to the commerce ministry bureaucrats who have been flying in and out of Geneva ever since the World Trade Organisation (WTO) negotiations went into a tailspin!

South Asia has been hit hard by the "The Great Unwind" because it is an important part of the global economy which has caved in. Under pressure from the West, India opened up several sectors in the last two decades. However, it has been seen during the last few weeks that the Western financial institutions, hedge funds and capital providers have been the first to sell their shares in various Indian companies, bringing the share market tumbling down. It is estimated that in India alone the Western investors have been withdrawing USD 1+ billion in foreign exchange per week as they experience margin calls, unwind carry trades, and confront liquidity problems and greater hardship in their originating countries.

The Swiss Banking Association's startling disclosure that Indians hold USD 1.4 trillion of their USD 2.15 trillion black money deposits is intensifying pressure on the Indian government to get access to that money as global financial pressures intensify and there is this accelerating flight of capital abroad. The well known economist Professor Arun Kumar estimates black money generation in India to be currently 50% of the GDP. The growth of black money in proportional percentage to the GDP has shown an alarming increase in recent years, from 20% in the 1980s to 45 - 50% at the turn of the century. It is further estimated by experts that one per cent of the world's population holds more than 57 per cent of total global wealth, routing it invariably through tax havens. ATCA's preliminary investigation to analyse the Swiss banking chain and to assess Indian wealth in that single country, suggests that the number is much larger than the USD 1.4 trillion figure and is more likely to be near USD 3 trillion. The larger figure can be derived from the deposits in vaults of gold, diamonds and other precious gems alongside assets managed out of Switzerland in other tax havens. There are some well known 'slush parks' like St Kitts, Antigua, Bahamas, Isle of Man and Liechtenstein that multiply such holdings manifold with the central management points in Switzerland.

Raymond Baker, a US-based expert in illicit financial flows, in his widely referenced book "Capitalism's Achilles Heel: Dirty Money and How to Renew the Free Market System" estimates that at least USD 5 trillion have been shifted out of poorer countries to Western tax havens since the mid-1970s. He estimated cross-border flows of global dirty money in a range between USD 1.1 to USD 1.6 trillion annually, about half of which came from developing and transitional economies, and two thirds of which is commercial dirty money. In April 2007, the World Bank endorsed Baker's figure. Using his lower USD 500bn estimate for developing and transitional economies, Baker has said, "Through most of the 1990s, aid was running at about USD 50bn a year from all sources. It has edged up slightly in this decade. USD 50bn of aid in; USD 500bn of dirty money out. For every USD 1 that we [the West] have been generously handing out across the top of the table, we've been taking back some USD 10 of illicit proceeds under the table [via tax havens and other means]. There is no way to make this formula work, for poor or for rich." The USD 500bn coming illegally out of developing and transitional economies is equivalent to 8% of their GDP.

In the 1990s, US Treasury department officials told Baker that illicit inflows into the US stood at around USD 250 billion per year, and in a good year they seized USD 250 million of that. This equates to a failure rate of 99.9%. The volumes have increased since then, but there is no reason to think that the failure rate has improved. "Laundered proceeds of drug trafficking, racketeering, corruption, and terrorism tag along with other forms of dirty money to which the United States and Europe lend a welcoming hand," Baker concluded. "These are two rails on the same tracks through the international financial system." It is not possible to tackle any of these seriously without tackling them all. Baker's opening speech at a recent conference explains some of the issues in stark detail, "No one I have ever talked to thinks dirty money is declining or that anti-money laundering efforts are stemming the global tide of illicit proceeds. Indicators point in the opposite direction." Baker broke down his data like this:

Cross-border annual flows of Global Dirty Money -- Low - High

1. Criminal -- USD 331 - 549 billion
2. Corruption -- USD 30 - 50 billion
3. Commercial -- USD 700 - 1,000 billion

of which:

Mispricing -- USD 200 - 250 billion
Abusive transfer pricing -- USD 300 - 500 billion
Fake transactions -- USD 200 - 250 billion

TOTAL -- USD 1,061 - 1,599 billion

Experts point their finger at the new investment environment of the last two decades which shunned state intervention and favoured massive deregulation. The retreat of the nation state ensured that the restraint exercised on capital to keep its greed in check was diluted and some amount of the black money went into the process of being legalised. They point out that in a free market environment takeovers were much easier. Those who possessed black money tried to buy legal businesses to gain legitimacy for their shadow wealth. The Great Unwind has reversed this process. Watch out particularly for the United States, Euro-zone countries, United Kingdom, China, India and Russia in regard to the coming sovereign crack down of tax havens worldwide.

[ENDS]

We welcome your thoughts, observations and views. Thank you.

With love and warm wishes to you and family


DK with family

DK Matai

The Philanthropia, mi2g.net

DK's online community participation includes:

Open ATCA, IntentBlog, Holistic Quantum Relativity Group, LinkedIn, Facebook, Ecademy, Xing, Spock, A&B Blog and QDOS. [Profile in pdf]

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