Finance & Development, the quarterly magazine of the International Monetary Fund (IMF), recently took a look at the crises ensuing from corruption and the global use of secret offshore tax havens.
Established in 1944, the IMF works to stabilize the monetary system that crisscrosses this globe. The system, described by the IMF as “the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other,” is the foundation on which international trade and the worldwide economic picture resides.
The September issue of Finance & Development looks at “Hidden Corners of the Global Economy,” and illustrates the methods by which money laundering and foreign bank accounts keep impoverished regions impoverished.
The issue is well worth digesting for current opinion and information on the common practice of taking money off the table where it can be hidden and grown while remaining untaxed. There are a lot of angles to the issue. Here are some overall points:
- Tax havens just aren’t what they used to be: US FATCA regulations bent the time-honored anonymity of Swiss bank accounts, penalizing banks and institutions that don’t play by the rules. While deposits in Switzerland have declined, more hidden wealth is flowing toward Asian, European, and American tax havens.
- Illegal tax havens are not a victimless tax crime: Global governments lose between $500 and $600 billion in corporate revenue through legitimate havens and secrecy jurisdictions. For smaller economies, the hit from money laundering and tax fraud reduces or even eliminates capabilities to build or repair infrastructure, develop trade, or provide education and public health services.
- Secrecy jurisdictions are a “race to the bottom:” Creating preferential tax policies is a great strategy to attract mobile money into your economy. The secrecy jurisdictions of Luxembourg and Mauritius are just two tactical success stories. When money shifts to a tax haven with lower corporate taxes, other jurisdictions drop their rates as well, further reducing legitimate tax dollars to governing agencies.
The true amount of the world’s wealth that is being structured away from legitimate tax authorities is difficult to calculate. Privacy and services are important for individual and corporate entities wishing to shield and grow their wealth legitimately. As noted by the IMF, “Vast sums of money that could be used to improve lives are stashed in tax havens or lost to corruption.”
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