Video: Billionaires stash $32 trillion offshoreApril 29 (Bloomberg) -- Bloomberg's Matthew G. Miller talks about actions by billionaires to hide assets from tax authorities or provide legal protection from government seizure and lawsuits. More than 30 percent of the world’s 200 richest people, who have a $2.8 trillion collective net worth, according to the Bloomberg Billionaires Index, control part of their personal fortune through an offshore holding company or other domestic entity where the assets are held indirectly. Miller speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Bloomberg News
Billionaires Flee Havens as Trillions Pursued Offshore
By David de Jong and Robert LaFranco April 29, 2013
Billionaire Dmitry Rybolovlev, Russia’s 14th-richest person, and his wife, Elena Rybolovleva, have been brawling for almost five years in at least seven countries over his $9.5 billion fortune.
In a divorce complaint originated in Geneva in 2008, Rybolovleva accused her husband of using a “multitude of third- parties” to create a network of offshore holding companies and trusts to place assets -- including about $500 million in art, $36 million in jewelry and an $80 million yacht -- beyond her reach.
She has brought legal action against the 48-year-old Rybolovlev in the British Virgin Islands, England, Wales, the U.S., Cyprus, Singapore and Switzerland, and is seeking $6 billion.
The suits provide a window into the offshore structures and secrecy jurisdictions the world’s richest people use to manage, preserve and conceal their assets. According to Tax Justice Network, a U.K.-based organization that campaigns for transparency in the financial system, wealthy individuals were hiding as much as $32 trillion offshore at the end of 2010. Fewer than 100,000 people own $9.8 trillion of offshore assets, according to research compiled by former McKinsey & Co. economist James Henry.
“For a lot of people, it’s not just the objective of not paying taxes,” Philip Marcovici, an independent Hong Kong-based tax lawyer and board member of Vaduz, Liechtenstein-based wealth adviser Kaiser Partner Group, said in a telephone interview. “It’s the objective of obtaining the human right to privacy and seeking confidentiality about their financial affairs.”
Van Gogh
More than 30 percent of the world’s 200 richest people, who have a $2.8 trillion collective net worth, according to the Bloomberg Billionaires Index, control part of their personal fortune through an offshore holding company or other domestic entity where the assets are held indirectly. These structures often hide assets from tax authorities or provide legal protection from government seizure and lawsuits.
Rybolovlev, who lives in Monaco, made most of his fortune from the sale of two potash fertilizer companies for a combined $8 billion in 2010 and 2011. He held both companies -- OAO Uralkali and OAO Silvinit -- through Cyprus-based Madura Holding Ltd.
Some of his art -- including works by Van Gogh, Monet and Picasso -- is now held in Xitrans Finance Ltd., a British Virgin Islands-based company, and stored in Singapore. Rybolovlev bought a New York City apartment for $88 million in 2011 using a trust associated with his daughter, Ekaterina. The penthouse was purchased from the wife of former Citigroup Inc. chairman Sandy Weill, according to divorce documents filed in New York.
Liechtenstein, Cyprus
In the suit, Rybolovleva said the billionaire moved many of his assets, including jewels, furniture and the yacht, under the control of two trusts, Aries and Virgo, that he established in Cyprus in 2005, a few weeks after she refused to sign a post- nuptial agreement he offered her.
Sergey Chernitsyn, a spokesman for Rybolovlev at his Monaco-based family holding company Rigmora Holdings Ltd., said he declined to comment. Marc Bonnant, Rybolovleva’s Geneva-based attorney, also declined to comment.
Since the onset of the global financial crisis in 2008, the laws and treaties that created and sustained the offshore tax- dodging industry and allowed for the kinds of maneuvers used by Rybolovlev have been undergoing a shift toward transparency.
Liechtenstein, once fabled for its banking secrecy laws, began in 2009 to require its financial institutions to hold -- and release when required -- details about the beneficial owners of all accounts held there. Andorra and Switzerland made their own concessions within a day of Liechtenstein.
Money Laundering
Singapore, the heart of Asia’s banking and offshore industry, will make laundering of profits from tax evasion a crime under a law taking effect on July 1. Luxembourg announced on April 10 that it would end its bank secrecy policy in 2015.
Cyprus was bailed out of its financial troubles in March by the European Union, which required the nation to impose a tax on bank deposits of more than 100,000 euros. That month, the country lost $2.4 billion in deposits, according to data from the European Central Bank.
The shift toward transparency has led many of the world’s wealthiest to reassess how and where they hold their assets, according to Goran Grosskopf, a Lausanne, Switzerland-based economist who has advised several billionaires, as well as the Russian government.
Li, Lee
Li Ka-Shing and Lee Shau Kee, Asia’s two richest men, control parts of their fortunes through offshore structures. Li owns his 43 percent stake in Hong Kong-based property developer Cheung Kong Holdings Ltd (1). through namesake trusts and companies in the Cayman and British Virgin Islands, according to regulatory filings. Lee holds his shares in Henderson Land Development (12) Co. through 10 firms set up in the two British island territories and Panama, filings show.
Li ranks 15th on the Bloomberg index with a net worth of $27.5 billion, while Lee is No. 18 with a $25.1 billion fortune.
Alisher Usmanov, Russia’s richest man, earlier this year restructured the way he holds his $19.7 billion fortune, moving the majority of his assets -- including his two most valuable, Metalloinvest Holding Co. and OAO MegaFon (MFON), worth $12.7 billion combined -- under the control of British Virgin Islands-based USM Holdings.
He controls at least one asset -- a 30 percent stake in London soccer team Arsenal worth $225 million, which he shares with a partner -- through Red & White Securities. The holding company is based on the Channel island of Jersey, a Crown dependency of the U.K. that has threatened to sever ties with the country after being criticized during 2012 for its tax policies.
Koch Industries
U.S. energy billionaire George Kaiser’s $13.5 billion fortune benefits from the $3.4 billion in assets held by his tax-exempt George Kaiser Family Foundation, according to filings with the U.S Internal Revenue Service. The charity paid $110 million for a liquid natural gas tanker in 2003. It then signed an exclusive agreement that gave control of the ship to Woodlands, Texas-based Excelerate Energy LLC, a for-profit gas delivery operation Kaiser controls with publicly traded German electric utility RWE AG.
Paolo Rocca, an Italian billionaire living in Argentina, is continuing a cat and mouse game with the Argentine government that was started by his grandfather in 1949. The family first established its San Faustin SA holding company in Uruguay that year, moving it to Panama in 1959, to Curacao and then to Luxembourg in 2011, using side entities in the British Virgin Islands and the Netherlands from which to control it.
‘Girlfriend, Wife’
A small part of the $15.3 billion fortune controlled by Texas billionaire Elaine T. Marshall, 70, is based in Liechtenstein, where her late husband, E. Pierce Marshall, started a foundation for their grandchildren, according to his will. The Dallas resident controls almost 15 percent of Koch Industries Inc., the second-largest closely held company in the U.S., after inheriting the stake in 2006.
Many of today’s wealthy remain focused on finding places to minimize their taxes and avoid double taxation, Grosskopf said. Mario Gassner, Chief Executive Officer of Liechtenstein’s Financial Market Authority, said there are other reasons the wealthy seek discretion.
“If you are married and have a girlfriend in another country, you may have a lot of assets that perhaps you don’t want your wife to know about,” he said. “Or perhaps you are looking for a solution for your children to finance university studies, or you’re not in good relations with them and you don’t know what is going to happen to your fortune in the future.”
German gGmbh
Russian billionaires create entities in the British Virgin Islands because they find its legal system, which is based on British law, more attractive than their own, Valery Tutykhin, an attorney with John Tiner & Partners, a Geneva-based law firm that specializes in wealth management, said in a phone interview.
The Cayman Islands are popular among billionaires because they don’t impose any type of income or investment taxes on funds organized in the Caribbean country, according to a 2013 taxation report by Amstelveen, the Netherlands-based tax and accounting firm KPMG International.
Delaware is the legal home to more than half of the corporate entities in the U.S. The state’s favorable tax laws cuts companies’ tax burdens by an average of 40 percent, according to a 2011 study by Jacob Thornock at the University of Washington Foster School of Business. Delaware also doesn’t require officers and directors to be U.S. citizens, and allows them to remain anonymous, according to its business code.
Limited Liability
There are other structures, such as the Dutch stichting, the Liechtenstein foundation, and the German gGmbH, that billionaires can use to control their assets.
Ingvar Kamprad, who controls Ikea Group, the world’s biggest home-furnishings retailer, fled Sweden for Switzerland in the 1970s in what he said was a protest of his home country’s tax policies. He placed shares of Ikea into a Dutch foundation in the 1980s, and later put the company’s intellectual property rights into a Liechtenstein foundation.
The transfers removed Kamprad, the world’s fifth-richest man, from any direct ownership of Ikea. He is credited with the wealth by the Bloomberg index because he controls those entities. The billionaire disputes that he controls the company.
Per Heggenes, a spokesman for Stichting INGKA Ikea, the owner of the Ikea Group, said in an interview last year that Kamprad’s goal was to protect Ikea. The multiple layers of ownership serve as a deterrent to takeover, he said. The foundations, if kept intact, will hold the ownership of Ikea in perpetuity.
Monaco Resident
Dieter Schwarz, Germany’s second-richest man, created a gemeinnuetzige Gesellschaft mit beschraenkter Haftung -- a limited liability company with a charitable purpose -- in 1999 to hold his Lidl and Kaufland discount supermarket chains, which form the largest closely held food retailer in Europe.
The 73-year-old controls a $23.6 billion fortune through the Neckarsulm, Germany-based Dieter Schwarz Stiftung gGmbH, a tax-exempt entity that had more than 30 million euros designated for charitable giving through October 2012 -- about 0.1 percent of Schwarz’s net worth -- according to Gertrud Bott, a company spokeswoman. The retail chains are overseen by his company, Schwarz Group.
In the U.K., structures that help billionaires avoid taxes are attracting increasing public scrutiny, according to Chizu Nakajima, a co-director of the Center for Research in Corporate Governance at London’s Cass Business School. Billionaire Philip Green controls Arcadia, the clothing retailer that includes the Topshop and Topman fashion chains, through London-based Taveta Investments Ltd., according to filings with the U.K.’s Companies House registry.
Wife’s Dividend
Taveta Investments is owned by Jersey-based holding company Taveta Ltd., the documents show. Taveta Ltd. is controlled by Green’s wife, who is a Monaco resident. The arrangement enabled a 1.2 billion-pound ($2.3 billion) dividend paid by Arcadia to Green’s wife in October 2005 to go untaxed, according to an article published in London’s Guardian newspaper.
Green, who didn’t respond to a request for comment, defended the arrangement in a November 2012 interview with the Financial Times newspaper. He said the structure was legal, and that Arcadia had paid 2.3 billion pounds in taxes since 2002.
Establishing an offshore account remains cheap and easy, according to Tutykhin. The typical structure costs about $1,500, he said, though he has seen ones marketed by Russian students for $200. Even the most-reputable firms don’t charge much more to establish an offshore structure, he said, though billionaires will often spend “tens of thousands” of dollars a year on lawyers to manage their holdings and assure discretion.
‘Get Out’
Those wealthy individuals should stop searching for new tax havens to hide their assets, said tax adviser Marcovici.
“We live in a world where you only have two choices: play by the rules of the country you live in, or get out if you don’t want to play by the rules,” he said.
To contact the reporters on this story: David De Jong in New York at ddejong3@bloomberg.net; Robert LaFranco in London at rlafranco@bloomberg.net
To contact the editor responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net
http://www.businessweek.com/news/2013-04-29/billionaires-flee-as-tax-districts-pursue-32-trillion-offshore#p1
Large-Scale Multilateral Action On Tax Havens Is Possible
April 24, 2013
By EJ Fagan
EJ Fagan is the New Media Coordinator for the Task Force on Financial Integrity & Economic Development in Washington, DC. He holds the same position with Global Financial Integrity.
Joshua Keating posted some excellent information over at Foreign Policy today:
Research from Niels Johannesen of the University of Copenhagen and Gabriel Zucman of the Paris School of Economics looks at the result ofinternational agreements taken to prevent tax evasion in the wake of the global financial crisis. The results are not very encouraging for reformers:
First, treaties have had a statistically significant but quite modest impact on bank deposits in tax havens: a treaty between say France and Switzerland causes an approximately 11% decline in the Swiss deposits held by Frenchresidents. Second, and more importantly, the treaties signed by tax havens have not triggered significant repatriations of funds, but rather a relocation of deposits between tax havens. We observe this pattern in the aggregate data: the global value of deposits in havens remains the same two years after the start of the crackdown, but the havens that have signed many treaties have lost deposits at the expense of those that have signedfew. We also observe this pattern in the bilateral panel regressions: after say France and Switzerland sign a treaty, French deposits increase in havens that have no treaty with France.
Johannesen and Zucman suggests their finding lend support to a “big bang” multilateral agreement on tax havens rather than an incremental approach, though it seems like it would be nearly impossible to wrangle an agreement big enough to make a difference.
I think that Keating is underselling a couple of things here. First, we’ve seen very few meaningful treaties signed to combat tax evasion through tax havens in recent years. The treaty signed between France and Switzerland did not include automatic exchange of tax information or FATCA-like information exchange, so we shouldn’t expect much progress to follow it. The truth is that the aforementioned crackdown has largely been political, rather than substantive, up to this point.
But political change is a real kind of change, and we’re looking closer to substantive policy change every day. When the G20 Finance Ministers start talking about automatic information exchange being the new global standard, they are at least talking about a “big bang” multilateral agreement. The ten EU nations, led by the UK, who have decided to start a multilateral convention for FATCA-style automatic information exchange are very clearly labeling their efforts a pilot program. We don’t know how far they are planning to extend it, but it certain looks like a potential blueprint for a worldwide system.
The US has demonstrated with FATCA, particularly in Switzerland, that developed countries hold a great deal of leverage over banks in tax havens. Incentives are clearly aligned to use that leverage, as those same developed countries want to be able to fight tax evasion and the erosion of their tax base. A deal can get done here at the G8/G20 levels. Once a multilateral convention becomes the norm for a critical number of large, important economies, compliance with it will become necessary for any large jurisdiction to do business.
Keating’s reference to the whack-a-mole problem of tax havens, where illicit money is caught up in a never-ending race to the bottom and flight to secrecy, is a smart one. We’re not going to make meaningful impacts until we prevent a great deal more secrecy jurisdictions from allowing money to be hidden inside their borders. But this kind of policy change is not impossible, and indeed may be moving substantially as we speak.
http://www.financialtaskforce.org/2013/04/24/large-scale-multilateral-action-on-tax-havens-is-possible/
Following The Money Trail To Fight Terrorism, Crime And Corruption
April 18, 2013
By Celina Realuyo
Celina Realuyo is Assistant Professor of National Security Affairs, William J. Perry Center for Hemispheric Defense Studies, National Defense University
Crossed post from the International Network for Economics and Conflict, U.S. Institute for Peace
Globalization has provided citizens across the globe with unprecedented access to goods, services, capital and information – better, faster, and cheaper. Greater efficiency in international financial markets has driven global economic development during the past 30 years. Despite all the benefits derived from a more interconnected global community, the dark side of globalization simultaneously has empowered terrorism, crime, and corruption around the world. While the Internet promotes connectivity and anonymity, protecting the identity of illicit actors, traditional investigative tools like “following the money trail” can help us better understand, detect, disrupt and dismantle these illicit networks. Let us see how examining financial flows can fight terrorism, crime, and corruption, safeguard global financial systems, and promote peace and stability around the world.
Since the tragic attacks of September 11, 2001, the U.S. and other governments have incorporated the financial instrument of national power in their efforts to combat terrorism and crime. Enhanced anti-money laundering and counterterrorism finance measures have significantly damaged these illicit networks. During the past decade, Al Qaeda operatives and affiliates from Iraq to Afghanistan complained about increased difficulty in funding terrorist operations and supporting their networks. Similarly, transnational criminal organizations in the Western Hemisphere realized that greater oversight of international bank transactions and offshore accounts since September 11 complicated their ability to launder profits through the formal banking sector. Following the money trail and surveillance of facilitators, like the bankers and lawyers moving and sheltering money for terrorist and criminal groups, produced critical financial intelligence that has led to the weakening of illicit actors such as Al Qaeda and the drug cartels.
Once the tighter measures to fight money laundering and terrorist financing were put into practice, they had an unexpected side effect – rooting out corruption. After the 2002 Bali bombings by Jemaah Islamiyah, Indonesia developed a robust counterterrorism strategy that included efforts to detect terrorist financing. In December 2004, Indonesia was the country hardest hit by the historic tsunami that killed some 170,000 Indonesians, and millions in international aid flowed to Indonesia to assist with the relief efforts. As a result of increased scrutiny of international financial flows, Indonesian authorities discovered and acknowledged that some post-tsunami assistance funds were being diverted by graft and corruption. Indonesian Corruption Watch, an independent non-governmental organization, released a 2006 report alleging irregularities, corruption and collusion in at least five major government managed projects valued at a total of $2.6 million, including the publication of reports, the appointment of staff and the procurement of office equipment. Following the money trail in the case of tsunami relief funds contributed to anti-corruption efforts in Indonesia.
More recently, strengthened anti-money laundering measures to track Mexican cartel money led to the February 26, 2013 arrest of the most prominent teacher union leader, Edna Esther Gordillo on corruption and embezzlement charges. According to Mexican Attorney General Jesus Murillo Karam, investigators from Mexico’s treasury found that more than $200 million had been routed from union funds into private bank accounts abroad (including some managed by Gordillo) between 2008 and 2012. Mexico’s Financial Intelligence Unit determined union funds were used to pay for $3 million of Neiman Marcus charges on Gordillo’s account and more than $17,000 for bills to plastic surgery clinics and hospitals in California. It was discovered that Gordillo was living large with significant real estate holdings in Mexico City as well as two luxury properties in Coronado, California. The Gordillo case is yet another example of how financial forensics, intended to pursue terrorists and drug traffickers, are yielding promising corollary results in the fight against corruption.
Money serves as the oxygen for any activity, licit or illicit. In a globalized world, we have grown to appreciate how “following the money trail” can enhance our efforts to root out terrorism, crime, and corruption around the world. Safeguarding global financial systems with these measures is intended to protect shareholders, stakeholders, and average citizens. Promoting transparency and building confidence in economies to attract foreign direct investment and promote legitimate economic development contributes to peace and stability around the world.
http://www.financialtaskforce.org/2013/04/18/following-the-money-trail-to-fight-terrorism-crime-and-corruption/
Deutsche Bank's Fitschen: Zero Tolerance for Tax Evasion-Report
Published April 28, 2013
Dow Jones Newswires
Juergen Fitschen, co-chief executive of Deutsche Bank AG (DB), has a "zero tolerance" for tax evasion, the executive told German radio on Sunday.
"Tax evasion is a criminal offense. That says it all," Mr. Fitschen said in an interview with German radio sender Deutschlandfunk. "We have zero tolerance," he added.
The co-chief executive said Germany's largest bank has established very restrictive measures against tax evasion that are known by both colleagues as well as customers.
"If there is a colleague who does not adhere to the rules, then he does not belong with us and will be punished accordingly," Mr. Fitschen said.
The executive also said he has no problem if Germany's banking supervisor Bafin examines its off-shore activities, adding that the bank has nothing to hide.
Mr. Fitschen added that the investigation into whether Deutsche Bank took part in the manipulation of the London interbank offered rate, or Libor was ongoing.
"It is shameful that this happened," he told the radio sender. He declined to say whether the allegations are true, and urged that the investigation first conclude before conclusions are drawn.
"All those who haven't behaved properly will have to face the appropriate consequences," he said.
Friday, BaFin told The Wall Street Journal that its investigation hasn't found any evidence that German banks including Deutsche Bank systematically manipulated interbank benchmark rates such as Libor, and the euro interbank offered rate, or Euribor.
Website: http://www.dradio.de
Write to the Frankfurt Bureau at djnews.frankfurt@dowjones.com
(Ulrike Dauer and Madeleine Nissen contributed to this article.)
http://www.foxbusiness.com/news/2013/04/28/deutsche-bank-fitschen-zero-tolerance-for-tax-evasion-report/