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Offshored Trillions: The Hidden Economy That's Robbing the World

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Eduardo Saverin renounced his U.S. citizenship in order to avoid paying taxes. (Getty Images)

Tax havens are big news in the U.S., but a recent study shows that, when it comes to offshoring cash to dodge taxes, Americans are amateurs. Globally, tax havens are used to hide an estimated $21 trillion, more than the entire U.S. GDP, making it clear that offshored wealth is a truly global problem.

The idea of parking profits in another country to avoid paying taxes is nothing new -- scofflaws as far back as ancient Greece were using havens to cheat the taxman. But in the wake of 2008's financial meltdown, the practice has increasingly come under fire. Earlier this year, Apple came under attack after it spent hundreds of thousands of dollars in a lobbying push for a "tax holiday" that would enable it to bring some of its offshore profits into the U.S. without paying taxes.

And corporations aren't the only entities that use offshore havens to avoid paying taxes: Presidential candidate Mitt Romney has also been criticized for his offshore bank accounts in the Cayman Islands and Switzerland. By far the highest-profile tax dodger recently, however, has been Internet investor Eduardo Saverin, whose 2011 decision to renounce his U.S. citizenship in order to avoid paying taxes on his Facebook windfall resulted in a legislative firestorm.

In May, Saverin almost singlehandedly inspired a push for a major change in the tax code. As his decision to renounce his citizenship drew headlines, four senators quickly crafted the Ex-PATRIOT Act (Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy), a bill that would punish high-wealth individuals who renounce citizenship to dodge their taxes. To begin with, malefactors such as Saverin would be charged a 30% tax rate on any capital gains earned on U.S. soil; second, they would be barred from re-entry into the U.S.

While American tax dodgers have drawn an outsized level of attention, they actually account for only a fraction of worldwide tax avoidance. Using information published by the World Bank, International Monetary Fund, and other monetary groups, the Tax Justice Network (TJN), a British-based policy institute, determined that $21 trillion to $32 trillion in private funds are currently socked away in tax havens. The biggest contributor is China, which has offshored at least $1.2 trillion. Russia, Korea, Brazil and Kuwait round out the top five.

Although U.S. citizens are small-timer when it comes to offshoring, our banks play a big part in the movement of global wealth to tax havens. TJN statistics suggest that, of the top 10 banks for global offshoring, five -- Goldman Sachs, Bank of America, Wells Fargo, Morgan Stanley, and JPMorgan/Chase -- are based in the U.S.

Offshoring is nothing new, but TJN's recent analysis suggests that it is happening on an almost unimaginable scale. More disturbingly, it's increasingly becoming clear that this global movement of wealth, which is robbing countries around the world of trillions in tax revenue, is not run by fly-by-night banks run out of sunny Caribbean countries. It is a global business of its own -- and American banks are leading the industry.



Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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tony941

American's have more than that to be concerned about. We have an underground economy that is in the hundreds of billions if not trillions. People are gaining income such as those living here legally working under the table, illegal aliens working, drug dealers and more with out paying a single dime in income taxes. Yet the federal government turns there heads to this problem. Why? Because it's easier to go after the 1 or 2 % that can afford off shore accounts with out effecting their voter base.
There is another simple alternative to paying taxes that would eliminate the underground economy, and have no need for off shore accounts, and would literally solve our country's financial woes, but the government won't go for it because it means having to give up their enormous power base.

August 21 2012 at 2:39 PM Report abuse rate up rate down Reply
jhamm86

Apple had a great idea. We should have a repatriation holiday to allow companies to bring money back into this country so we could put more people back to work. Then the money will be taxed through income taxes as more people are employed.

August 21 2012 at 10:20 AM Report abuse rate up rate down Reply
mahon001

Mentioning Mitt Romney in this article with the clear inference that an off shore bank account constitues some form of tax cheating is a flagrant outright misleading deliberate lie. An American that discloses an offshore bank account on their tax return, which is perfectly legal, is obliged to pay US tax on worldwide income. There is no other version of this fact.

August 21 2012 at 10:00 AM Report abuse +2 rate up rate down Reply
Bill Ridenour

Yet another liberal article demonizing the legal use of off shore accounts..........

August 21 2012 at 9:57 AM Report abuse -1 rate up rate down Reply
fsp1219

Tax avoidance is legal (and in some circumstances patriotic), tax evasion is not. As long as offshore accounts are reported properly they are perfectly legal under US law. To demonize people with legal offshore accounts is either deceitful or ignorant of fact. The current tax laws encourage the practice by corporations, want to change it, change the law.

Any wonder the top five are the top five? Perhaps there is a concern within those countries for the consistency of the rule of law?

August 21 2012 at 9:39 AM Report abuse rate up rate down Reply
inventpeace

Don't vote for candidates who have lots of money for lots of TV and other ads... they are the ones who have/are taking the underhanded "donations" in return for future "favors" (meaning they vote for what 1 person wants instead of what millions of citizens want).... VOTE EM ALL OUT AND START OVER !!
Mitt is a good example of the puppet controlled by super rich ! What is he hiding by setting the worldly example of riches? Does he do honor to the savior by setting the worldly example?

August 21 2012 at 9:06 AM Report abuse rate up rate down Reply
rebasfl

This subject sickens most loyal americans. We have a tax system which ensures hard working folks pay their
fair share of taxes thru payroll deductions and active oversight. Yet the twits who legislate for us in our congress, allow these unpatriotic indiv's and entities to avoid taxes thru favorable laws and gimmicks made just for them. 'We' let it go on and on by voting, returning them to office. When will voters 'WAKE UP' and elect honest and patriotic representatives who dismiss the rich and focus on fairness? Maybe never....

August 21 2012 at 8:53 AM Report abuse +1 rate up rate down Reply
1 reply to rebasfl's comment
nladney

You are wrong - Romney does pay US taxes on interest and other income earned offshore. It is only when someone renounces their citizenship that they no longer pay taxes to the US on future earned interest. Such people have to pay US taxes on all income, including interest and capitol gains, until they renounce citizenship.

August 21 2012 at 9:50 AM Report abuse rate up rate down Reply
A.G. SESKIS

We the People have to start to stand up for OUR RIGHTS !!
Simple as that,...until we change the ways of Cronie / Govt. / Special Interest / etc. etc., I dont care WHO is Pres. , its all the cronies of Govt. who keep allowing all this bs to happen.
From stealing our money, to changing laws in favor of Big Business, all in the name of the $$$ !!
Rich get richer,...and poor get poorer,...we have a Constitutional problem with our Govt. side stepping the laws for profit,....all political people dont care about US,...just where the money will come from for the next election,..and who is giving it out, and who they owe their soles to ,..its a sad day today,..and We the People can change it all ,..just DONT VOTE for them !!
It`s a simple as that,...DONT VOTE for any of them,...FORCE a change !! We the People have that RIGHT !!

August 21 2012 at 7:53 AM Report abuse +1 rate up rate down Reply
jimstewart65

Let's get those bucks back here so that the crooks in the White House can waste it on some more green energy projects to pay back donors...or high speed rail from LA to LasVegas or give a Finland auto company (Fisker) some $$$$ to build an electric car, (partly owned by Al Gore), or giving $2B to Brazil for off shore oil exploration.

August 21 2012 at 7:50 AM Report abuse +2 rate up rate down Reply
Andrew

IT IS PERFECTLY LEGAL TO HAVE AN OFFSHORE ACCOUNT DIVIDENDS AND INTEREST ARE TAXED
BY THE US WORLDWIDE;; STOP DEMONIZING THINGS APPROVED BY YOUR OWN GOVT;

August 21 2012 at 7:48 AM Report abuse rate up rate down Reply