Tax Havens: Crimes and Their Victims

The so-called tax havens are havens only for organizations and individuals who operate outside the law; they are used to launder money the source of which they are unwilling to declare, evade taxes and avoid being identified and controlled. They may be businesses or individuals who commit economic crimes, as well as traffic in drugs, weapons or persons, illegal organizations of any type or dangerousness. The term “tax haven” is a deceitful and mild expression concealing crimes, criminals, accomplices and victims. We should cease to call them tax havens and unmask them as havens for criminals and evaders, which is what they actually areIf the existence of those havens for criminals and evaders did not produce victims, our appreciation of them would be somewhat different because we could self-deceive ourselves and think that they are merely “mechanisms”, “instruments” (notice the neutrality of those terms) that some skilful people use to maximize their profits and place them out of the reach of legal insecurity and fiscal authority. The idea of a tax haven evokes that there are some players who are more alert to adopt a strategy that allows them to minimize their tax burden enabling them to achieve higher capital accumulation. Thus perceived, those havens do not arouse the horror they provoke.

What those who use a haven for criminal and evaders are doing is, in some cases, to facilitate clandestine activities and, in other cases, to obtain more profits than they have the right to get by avoiding fiscal responsibility instead of assuming it, as the rest of taxpayers do. Thus they illegitimately swipe resources that could have been allotted to providing with social and productive infrastructure the countries where they obtain that margin of extraordinary profits. Both kinds of players produce countless victims.

Those who establish as well as those who use havens for criminals and evaders are responsible for inflicting severe damage and suffering to millions of families. Some of those families are assaulted by criminal organizations; others are deprived of social services (education, health, social security) or face, as producers, unfair competition from those who avoid their tax obligations and steal the resources needed to establish a better communication, irrigation, transportation and port infrastructure.

The Impact of “Havens” [[The statistical information in this section and the references to the position of the European Parliament in the following sections are included in the article by Andreu Missé entitled La Eurocámara exige una acción más enérgica contra los paraísos fiscales, published in El Pais, Spain, on April 5, 2010.]]

That is, while with a lot of effort and no little conditionality the frugal solidarity of donor countries was secured, our countries bled ten times more as a result of a massive assault that contributed to generating poverty as well as social and economic backwardness.

The wealth kept at havens for criminals and evaders is in the neighborhood of US$ 13.5 trillion (10 trillion euros), while the financial deficit generated by the crisis in developing countries stands at 315 billion euros in 2010.

A survey by Global Financial Integrity, also quoted by Andreu Missé, concludes that in Africa illegal flows between 1970 and 2008 totalled US$ 854 billion (and they keep rising at an annual rate of 11%!). The study notes that such figure would suffice to eliminate the entire foreign debt of Africa and allocate the remaining US$ 600 billion to poverty relief and development promotion efforts.

Tax fraud via havens for criminals and evaders also affects the central countries in terms of insecurity and the inability to regulate the tremendous destabilizing backlashes of the huge mass of financial resources that escape the control of their regulators, although their economic impact is relatively lower due to the magnitude of those economies. The losses reached the not insignificant figure of US$ 100 billion for the US, US$ 25 billion for Germany, and US$ 20 billion for France.

Hypocrisy and Complicity

The obvious question to ask is why those havens for criminals and evaders are allowed to exist and protected. Although there are various and diverse answers, at the basis of them all emerge the interests and hypocrisy of certain major economic groups and countries that benefit from their existence. Otherwise, their continuity, their functioning and the protection they furnish to criminal organizations could not be accounted for. It is impossible to believe that with the sophistication of contemporary intelligence services, information about those who operate in those havens, how they do so and who they victimize can not be accessed. Without that complicity, havens for criminals and evaders would not be able to exist nor reproduce their destructive power.

Every large trans-national company intends to maximize its profits and this, in principle, is legitimate; only that some do so abiding by the laws and codes of justice and ethics while others take advantage of their presence in various territorial jurisdictions (each one having its own fiscal regime and regulations) to trespass the law and profit at the expense of helpless victims who suffer the consequences of their criminal behaviour.

One of the ways in which this illegitimate withdrawal of extraordinary gains can be materialized is via sales and purchases between subsidiaries of one same economic group. To evade the payment of taxes in the jurisdiction where a company operates, one subsidiary sells its exportable production below the market price to another company within the same business group (or associated to this group) located in a laxer jurisdiction as far as taxes and regulatory framework are concerned; for instance, in a haven for criminals and evaders. The buyer based in such haven subsequently resells the acquired asset, now at the actual market price, the economic group thus retaining the excess profit resulting from the tax evasion incurred.

The complicity of those who manage the havens for criminals and evaders does not end there, as no group hoards capital in a haven not to use it. Havens also favour laundering of ill-gotten money, which is then poured back into the international economic flow. This complicity is extended to the countries where the head offices of those business groups are based, as they profit from and do not push to eliminate the havens for criminals and evaders; they end up benefiting from the appropriation made by those large corporations of the taxes that they do not pay to the rest of the world.

The existence of havens for criminals and evaders has been made easier by the enormous technological development of communications. Today, jurisdiction triangulation takes seconds and the sophistication available to conceal illegal transactions is such that it becomes extremely difficult to trace the route used by criminals and evaders, especially when regulators and those who are responsible for fighting financial crime act with venality or negligence.

There also exist other cases of people or firms who are based in jurisdictions where they fear legal insecurity and arbitrary expropriations of their assets. Those people choose places where to safeguard their savings outside their own country. This does not justify tax evasion as in many cases legal security is achieved by acquiring assets outside one’s own country without hiding one’s own wealth and, hence, without evading tax payment in the country and the society where one managed to generate the benefit. However, there are exceptions, such as when in some jurisdictions legal insecurity is extreme and associated with the prohibition of exporting savings: in these cases, small and medium taxpayers who intend to avoid jurisdictional risk are forced to evade their tax responsibility in their country of origin.

The reference to accomplices of havens for criminals and evaders further includes those accountants and lawyers who structure the way in which the evasion is implemented, the law-breaking banks which profit by concealing and facilitating financial transaction laundering operations and, very especially, complaisant or tolerant governments influenced by the interests which resort to havens to abuse defenceless victims whose faces they may or may not get to know.

Finally, a certain degree of complicity lies with the public opinion and each one of us when, out of ignorance or carelessness, we put up with the fact that individuals or companies we know use those havens for criminals and evaders without receiving any moral or social sanction.

Need to Abate Tax Havens

Eradicating havens for criminals and evaders requires concerted actions at the international level. The G-20 and the OECD have managed to establish tax information exchange agreements, a good yet clearly insufficient first step. Andreu Missé states that the European Parliament has urged the OECD, the G-20 and the European Union itself “to adopt more stringent criteria for the identification of tax havens “.

Furthermore, the European Parliament has condemned the hypocrite attitude of western countries that allow large companies to profit abusively at the expense of the southern countries by avoiding their tax obligations. It states that tax havens “may be an insurmountable hindrance to economic development in poor countries, encroaching on the sovereignty of other countries, and creating incentives to engage in economic crime”. The report of the European Parliament notes half of all illicit financial flows out of developing countries are related to the manipulation of trade prices. It then reinforces its call for a new, binding, global financial agreement which forces transnational corporations, including their various subsidiaries, to automatically disclose profits made and taxes paid, on a country-by-country basis. In addition it proposes that measures be taken to prohibit any company, bank or other institution registered in a tax haven from benefiting from public funds.

It is evident that the lobby of organized crime and some major economic groups will do as much as possible to remain relying on havens for criminals and evaders and that in the course of that fight they will count on the complicity of all those who, one way or another, benefit from their existence. In order to face them with some chance of success the States, the people and the businesses that are victims of those havens will need to become fully aware of the damage they are being subjected to and join those living in the countries of the north and the south who hand to hand struggle for sustainable development. Each voice counts: it can help mobilize public opinion demanding a much stronger and effective international action, depriving those dangerous criminals and their “haven” bases of political oxygen and social appreciation.

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