The document discusses the issues with global tax havens and their costs. It notes that the global tax haven industry is huge and hurts economic growth and development. Trillions of dollars are missing from countries' tax bases and held in havens, growing transnational corporate abuses. Solutions require transparency, ending tax and rule competition between countries, and addressing the roles of professionals and institutions that enable tax haven abuse.

1. The Trouble With Tax Havens
James S. Henry
Congresso Internacional de Educacao Fiscal
Fortaleza, Brazil
November 27, 2012
(c)JSH/ TJN 2012 1

2. The Trouble With Tax Havens
¶ Background
¶ Key Costs
1. Odious Debt/ Privatizations
2. “Pirate Banking”
3. Rampant TNC abuses
4. Global Corporate Tax Race
¶ What is To Be Done?
(c)JSH/ TJN 2012 2

3. Summary
¶ Global tax haven industry is huge; hurts growth and
development
¶ Huge global stock of “missing wealth:” $21 - $32 trillion
¶ Growing TNC abuses – transfer mispricing, corruption
¶ Solutions require citizen pressure
¶ Transparency
¶ End “tax+rule competition”
¶ Crucial role of “Enablers”

4. Tax Justice Network
• TJN–Intl Sec. (2002-)
• TJN-US affiliate (2003-)
• R. Murphy/J. Christensen – country X country reporting
• J. Blum – Barclays case, unitary taxation
• J. Henry – numerous articles, books on havens, debt, offshore
• D. Spencer – numerous articles on Intl tax, TP standards
• N. Shaxson: Treasure Islands (2010)
• M. Meisner: Secrecy Index (2009 -
• Key Partners: Oxfam, ChristianAid,LatinDad,EuroDad, CCFD,GFI, Global
Witness, GFI, ActionAid, Save The Children, etc.
• Emphasis on quantitative research+organization
o “Mapping Financial Secrecy” (2009, 2011): secrecyjurisdictions.com
o “Tax Loss” (Oxfam GB) (2009)
o “Price of Offshore” (2005, 2012)
• Founding member, Task Force on Financial Integrity & Economic Development ('08-)
• More info:
o http://www.taxjustice.net
o http://www.secrecyjurisdictions.com

5. 12/13/2012 (c) JSH/TJN 2012 5

6. If you cannot express it in
numbers, your knowledge is of
a meager and
unsatisfactory kind.
-- Lord Kelvin, 1889
(c)JSH/ TJN 2012 6

7. Why Do We Care?
(c)JSH/ TJN 2012 7

8. (c)JSH/ TJN 2012 8

9. Government revenue + taxes
by country/ group
(Median % of official GDP, 2000-09)
Per
Capita
Populatio Gov Other
Country Income Income Sales Payroll Taxes on
n (2009) Revenue Other Taxes Gov Grants
Group (PPP- Taxes Taxes Taxes Intl Trade
(Billions) X Grants Revenue
Adjusted
’09)
OECD 1.22 $33153 26.1% 6.6% 7.3% 8.9% .1% 1.0% 2.2% 0%
EU .500 $31384 35.2% 7.4% 11.3% 12.%2 .02% 1.2% 3.1% 0%
US .310 $45989 17.9% 9.5% .6% 6.8% .2% .3% .5% 0%
China 1.331 $6828 9.5% 2.1% 6.2% 0% .3% .1% .8% .1%
Other 3.481 $6245 21.%3 4.%6 6.1% 4.5% 1.3% .4% 3.2% .8%
Middle
Income
Low .846 $1205 11.5% .1% 2.3% 0% 7.0% 1.5% .6% 9.6%
Income
World 6.775 $10686 25.0% 5.1% 8.1 7.1 1.31% .59% 2.57% .23%
Source: World Bank data (2011) , JSH analysis © JSH 2011

10. More capital than ever before for developing
countries…..(including poor ones, the subprime
equivalent…)
The Supply of Foreign Debt, Equity and Aid to Developing Countries**, 1971-2003
Period Totals by Type, in $1995 $Billions
1971-82 1983-92 1993-2003 1971-2003
Foregin Debt $1,022 67% $977 54% $971 28% $2,970 44%
>Comm. bank loans $439 29% $212 12% $119 3% $770 11%
.>Multilateral bk loans $559 36% $730 40% $525 15% $1,814 27%
>Bonds $24 2% $35 2% $326 9% $385 6%
Foreign Equity $143 9% $283 16% $1,806 52% $2,232 33%
>Direct investment $143 9% $251 14% $1,591 46% $1,985 29%
>Portfolio equity $0 0% $32 2% $215 6% $247 4%
Official Aid $369 24% $544 30% $705 20% $1,618 24%
Total $1,534 $1,804 $3,482 $6,820
**All 154 "middle- and low-income" countries, by World Bank category
Source: World Bank data (2005), JSH analysis
(c)JSH/ TJN 2012 10

11. Disappointing Real Growth
(1980 - 2005)
China India Poorest All Other High World
(UN) Developing
Countries Income
Countries (n) 1 1 49 105 54 210
% of Pop 22.1% 14.4% 8.1% 33.0% 22.5% 100%
--1980
-- 2005 11.4% 35.8%
20.3% 17.1% 15.3% 100%
% of Real 3.2% 3.5% 1.9% 29.3% 62% 100%
Income ($95
PPP)
13.6% 6.3% 1.9% 24.5% 54% 100%
Real Income
Per Capita
2005 ($95 PPP) $4,972 $2,752 $1,249 $5,123 $26,191 $7,428
1980-2005
RAAGR (%)
8.1% 3.8% .7% .8% 1.9% 1.6%
2005
Population (B)
1.3 1.1 .74 2.3 .98 6.43
(c)JSH/ TJN 2012 11
Source: World Bank data (2008), JSH analysis

12. Insider Recipients - Philippine Central Bank loans ($mm
outstanding, 1986)
•Roberto Benedicto $747.6 million
•Marcos family members $726.5
•Roberto Cuenca $676.9
•Herminio Disini $258.4
•Eduardo Cojuangco $201.2
•Jobo Fernandez $180.0
•“Kokoy” Romualdez $150.4
•Manual Elizalde Jr. $104.1
•Jose de Venecia $71.4
•Lucio C. Tan $51.8
•Placido Mapa Jr. $50.6
•Ramon Cojuangco $30.9
•Ricardo Silverio $30.6
•Juan Ponce Enrile $28.6
•Vicente Chiudian $15.6
•Roberto Villafuerte $15.2
•Bienvenido Tantoco $6.0
•Salvador Laurel $5.8
•Other Marcos allies: $134.4
TOTAL: $3.58 billion
OTHER (not identifiable:) $3.4 billion
Source: JS Henry, The Blood Bankers (2003)
(c)JSH/ TJN 2012 12

13. (c)JSH/ TJN 2012 13

14. Chart 4
Debt Relief Metrics
$2005 NPV Billions
Low Income Middle Income Total
Pre-Relief Total $574 $3,426 $4,000
Debt Relief $161 $149 $310
Post-Relief Debt $413 $3,277 $3,690
% Relieved 28.1% 4.3% 7.8%
Source: World Bank (2006) data, my analysis © JS Henry, 2006
Compare current $700 billion+ US bank bailout, 500 billion UK
$135 billion (so far) AIG bailout, $200 billion Fannie/Freddie bail
(c)JSH/ TJN 2012 14

15. Privatization Abuses
• Brazil case, 1995 – 1999:
• Companhia Siderurgica Nacional: $1 b in “moeda podres”
• Ferrovia Paulista S.A., Banerj, Rio Light, Embraer, Usiminas, Copesul,
Acesita, CVRD, etc.
• Brazil received R$85.2b, paid $87.6b: net –R$2.4b
o -- Biondi, Brasil Privatizado
• Similar results all over the world

16. (c)JSH/ TJN 2012 16

17. 12/13/2012 (c) JSH/TJN 2012 17

18. What a difference leadership makes
is …
*1990-99
(c)JSH/ TJN 2012 18

19. (c)JSH/ TJN 2012 19

20. Heavily Indebted Rich Countries
(HIRCs)
(c)JSH/ TJN 2012 20

21. Thirty Years of Globalization
“ The Globalization of Crisis”
1980s 2010s
• Heavily-indebted developing • Heavily indebted rich countries
countries • First World capital flight (France,
• 3W capital flight, private banking Spain, US, etc.)
• MNC, bank abuses concentrated • 3W private banking (Singapore,
in 3W Brazil)
• Inequality, poverty: • MNC/ bank abuses everywhere
“development” problems • Growing inequality everywhere
• Debt cancellation, Fx • New interest in intervention
controls, protection, nationalizati everywhere
on: 3W policy instruments
(c)JSH/ TJN 2012 21

22. Triangulating on the offshore hole in the global economy….
(c)JSH/ TJN 2012 22

23. Source: bank financials, private banking industry
interviews, JSH analysis
(c)JSH/ TJN 2012 23

24. (c)JSH/ TJN 2012 24

25. Capital Flight Estimation -
Russia Example
Debt Net Foreign Total Reported Ch in Total Annual CF Annual CF
Flows Investment Sources CA Deficit Reserves Observed Estimate Estimate
($B) ($B) ($B) Uses ($B current) ($B US 95)
($B)
1994 -5.8 0.4 -5.4 7.8 3.4 11.3 5.9 6.0
1995 2.1 1.5 3.5 7.0 -4.9 2.1 5.6 5.6
1996 7.1 3.7 10.8 10.8 6.1 16.9 27.7 27.2
1997 5.4 3.0 8.4 -0.1 -0.4 -0.5 7.9 7.6
1998 46.3 2.2 48.5 0.2 10.5 10.7 59.2 56.3
1999 0.7 0.8 1.5 24.6 -5.4 19.2 20.7 19.4
2000 -12.6 -0.4 -13.0 46.8 -18.9 27.9 14.9 13.7
2001 -3.3 0.7 -2.6 33.8 -12.0 21.8 19.1 17.1
2002 -5.6 2.6 -2.9 29.1 -12.8 16.3 13.4 11.9
2003 28.6 -1.4 27.3 35.8 -27.2 8.6 35.9 31.2
Total $62.8 $13.2 $76.0 $196.0 $-61.6 $134.4 $210.4 $195.9
Source: data from IMF/World Bank (2008), JSH analysis
(c)JSH/ TJN 2012 25

26. Huge debt- and oil-financed real flight flows by region…
Unrecorded Net Capital Outflows from Latin America,
1970-2010
(Real Value of Cumulative Net Outflows by Period, $2000 Billions)
**
AC
L
a
er
a
d
tin
bi
a
ela
th
m
da
m
il
en
zu
o
lO
e
na
az
xic
lo
ini
ne
il
g
Al
Me
Ch
Co
Ve
Pa
Br
Ar
Tr
=$362.2
$320 $87.9
=$278.2 $1376.0
=$263.5
$270 =$259.3 (Real $2000),
Unrecorded
$220
$56.0
CF Outflows
$153.5
$106.3
LAC REGION,
$195.8
1970-2010
$170
$93.2
$64.0
$120
$45.3 $71.3 =$82.4
$36.8
=$33.8
$70 $44.6 $45.1 $7.0
$71.1 =$33.7 =$39.8 $60.0
$56.4
=$22.5
$38.9 $11.3 $0.5
$3.5
$34.3 $34.2 $31.2
$20 -$5.4 $13.9
$14.3 $9.3 $3.8
$4.5
$0.7
$7.9 $9.2 $0.4
-$9.0
$2.4
-$25.0
-$30
1970-80 1981-90 1991-2000 2001-10 (c) JSH 2008, 2011
**30 other Latin American and Caribbean countries Source: data from World Bank/ IMF (1979-2008); JSH analysis
26
(c)JSH/ TJN 2012

27. (c)JSH/ TJN 2012 27

28. Source: Project data models, JSH analysis
12/13/2012 (c) JSH/TJN 2012 28

29. (c)JSH/ TJN 2012 29

30. TOP 8 LATIN AMERICAN SOURCE COUNTRIES:
CF vs. NFI: % of Real $GNI
(c)JSH/ TJN 2012 30

31. 139 countries = $ 9.4 Trillion
Top 20 = $ 7.6 Trillion
Global Flight Wealth -
Key Countries, Including China
($2010 Billions)
(c)JSH/ TJN 2012 31

32. External Debt Vs. Estimated Flight Wealth,
By Key Country - ( 2007 $Billions)
I nd
o ne
sia
R
N ig
eria
Phi R
lipp
i ne
sR
Me
xic
oR
Ven
ezu
ela
Arg R
ent
ina
R
Bra
zi l
R
Ru
ssia
R
-$500 -$400 -$300 -$200 -$100 $0 $100 $200 $300 $400 $500 $600
© JSH 2008
External Debt Flight Wealth
(c)JSH/ TJN 2012 32
Source: data from IMF/World Bank (2008); JSH analysis

33. Global Flight Wealth,
Vs. All Developing Country Debt**
(1975-2003)
(Billions US $Current)
Flight Wealth “Surplus”
First crossover: 1989-90
Including China © JSH 2008
(c)JSH/ TJN 2012
Source: data from IMF (2005), World Bank (2005); JSH analysis
33

34. Growth Factors – TP Abuse
• Corporate globalization • Developing country tax
• `Abusive industry growth resources and skills
– Software • Competing jurisdictions
– Big pharma (vs. MNC solidarity)
– Extraction • Global resources
– Finance • Policy analysis
• Training
• Rise of secrecy
• Enforcement
jurisdictions
• Rise of “enabling experts”
– Accounting firms
– Law firms
– Major banks
• Official tolerance (OECD)
(c)JSH/ TJN 2012 34

35. Many recent TP abuses involving
leading MNCs and havens…
• Intellectual property abuses:
Apple, Google, Pfizer, GE, Cisco, Forest Labs, etc.
(current – WNB)
• Banana exporters cases (2006-)
• SABMiller (2008-): South Africa, 4 other countries
• Glencore (2011-): Zambia
• Grain exporters (2011-): Argentina
• Big bank tax evasion

36. TNC Corruption Cases
Top 10 US penalties ($MM) as of 1/12 Now in the works…(DOJ/SEC:+75)
• Siemens ($800->$1700,’08) • Alcoa
• Allianz
• Halliburton/KBR ($579,’09)
• AstraZeneca
• BAE($400,’10) • Avon (grand jury re China)
• Technip ($338,‘10) • China NE Petrol Corp
• Daimler ($185,’10) • BHP Billiton
• Bridgestone Tire
• Alcatel-Lucent ($137,’10)
• Deere & Co
• Shell/Panalpina ($82,’10) • Glaxo
• ABB ($58,’10) • HP (Europe)
• IBM
• Pride ($56,’10)
• Ingersoll
• Baker Hughes (‟07)
• Johnson & Johnson
• Willbros („08)
• Lilly
• Chevron (‟07) • LV Sands/Adelson
• Titan („05) • Merck
• Morgan Stanley
• Pfizer
• Raytheon
• Tyco, etc etc. etc.
Source: FCPA Blog.com (2011) (c)JSH/ TJN 2012 36

37. Recent
Aggregate TP Cost Estimates
Study Approach Estimated Lost Tax Rev
Simon Pak (2003-6) • Goods trade misinvoicing - “+$200 billion/ yr.`”
Bilateral Customs data
GFI (2011-12) • Goods trade misinvoicing “$98-$106 b./ yr., 2002-06 “
Christian Aid (2009) • Goods trade misinvoicing – “+$160 billion/yr.”
partner discrepancies
TJN (2012) • Country studies • Case studies of Mx,
•`intangibles``’ abuse Zambia, Swiss, India, China
(c)JSH/ TJN 2012 37

38. Ireland : 4p Consumed in UK :
charged for use of Import price : 60p
brand 39p retail mark-up
1p taxable profits
Isle of Man : 4p for Luxembourg : 8p for
insurance services financial services
Bermuda : 17p for use
of distribution network
Jersey : 6p charged for
Cayman Islands : management services
8p for use of
purchasing network
Produced in Latin America
Export price: 13 pence
1.5p labour costs /
10.5p production costs
1p taxable profits

39. ZAMBIA
(c)JSH/ TJN 2012
39

40. SWITZERLAND
(c)JSH/ TJN 2012 40

41. MEXICO
Mexico
Misinvoicing Vs. Net FDI as a % of GDP, 1970-2011
(c)JSH/ TJN 2012 41

42. (Cumulative Total, 1962-2010; Real $2000 Billions)
Total = $627.8 b,1962-10
$182.4
$445.3
Source: JSH 2012
(c)JSH/ TJN 2012 42

43. Apple – China ”value chain”
• 20 mm Ipads/yr @ $500 retail = $10 b.
• 65k US workers (35k in retail stores)
• 1.2 mm Chinese workers (Foxconn)
• $40/Ipad = $800 mm to China
• $2.2 b royalties for IP, brand to offshore jurisdictions w
3% tax rate
• Total non-China gross margin = $9.2 b – sales and
marketing – royalties = $6 b
• Total effective tax on non-COGS margin =<10%,
mainly to US IRS
(c)JSH/ TJN 2012 43

44. http://werenotbrokethemovie,com
(c)JSH/ TJN 2012 44

45. The Global “Tax Race”
(c)JSH/ TJN 2012 45

46. (c)JSH/ TJN 2012 46

47. (c)JSH/ TJN 2012 47

48. (c)JSH/ TJN 2012 48

49. What Is To Be Done?
• Policy collaboration vs. “competition”
o Tax regimes
o Trade
o Reserves/ sov. wealth
o Financial regulation
o Enforcement
• MNCs/ Banks
oInformation/ investigation
o Penalties
o Regulate global enablers
• Private elite
o Information/ investigation
o Global industry enablers
o Taxing global wealth
o Attracting capital home

50. A Hallowed Tradition:
Debt Forgiveness
“We shall never be able to move again, unless we can free our limits
of these paper shackles. A general bonfire is so great a necessity that
Unless we can make of it an orderly and good-tempered affair in which no serious
Injustice is done to anyone, it will….grow into a conflagration.”
- J.M. Keynes, The Economic Consequences of the Peace (1920).
(c)JSH/ TJN 2012 50

51. Summary
¶ Global tax haven industry is huge; hurts growth and
development
¶ Huge global stock of “missing wealth:” $21 - $32 trillion
¶ Growing TNC abuses – transfer mispricing, corruption
¶ Solutions require citizen pressure
¶ Transparency
¶ End “tax+rule competition”
¶ Crucial role of “Enablers”

52. (c)JSH/ TJN 2012 52

53. “It is capitalism that
is truly radical.”
-- Brecht
(c)JSH/ TJN 2012 53

54. (c)JSH/ TJN 2012 54

55. Odious Debt
• Citibank/MHT (Bataan/CBk/Philippines)
• JP Morgan (Brazil dams,nukes)….
• Panama/Torrijos’ buffalo farm
• Indonesia power projects
• Argentina/Yacyreta
• Peru/Majes-Siguey
• Mexico/Laguna Verde
• Stroessner’s phone calls
• Chase (Venezuela, Iran)
• Deutsche Bank (Iraq)
• Chile privatization fiasco (BT)
• Sandinista debt deal…
• Lesotho (LHWP dam)
• Carlos Andres’ offshore fund…
• Guatemala/Chixoy
…..Clearly a systemic problem
(c)JSH/ TJN 2012 55

56. Pirate Banking
(c)JSH/ TJN 2012 56

57. MAY 1976
J.S. Henry
(c)JSH/ TJN 2012 57

58. .
“Unusual” Demand for US$ Currency –
1970-2011
-- $ per Capita
(c)JSH/ TJN 2012 58

59. Key issues – aggregate TP estimates
Trade Capital Bias
Misinvoicing Flight
• Country concentration ✔✔ ++
• All negative flows omitted ✔✔ ✔✔ ++
• Data quality (timing, cif ✔✔ ✔ ?
costs, aggregation, etc.)
• Stocks vs. flows ✔✔ ✔✔ -
• Income on offshore stocks ✔✔ ✔✔ -
• Post-2000 focus ✔✔ ✔✔ -
• Missing data ✔ 53 zeroes +72 ✔69 zeroes + -
missing /217 72 missing/217
• Imputed values ✔LDCs +
• Mispricing in traded services ✔ -?
omitted
(c)JSH/ TJN 2012 59

60. (c)JSH/ TJN 2012 60

61. US AS A TAX HAVEN
(c)JSH/ TJN 2012 61

62. (c)JSH/ TJN 2012 62

63. THE US ”FINANCIAL-INDUSTRIAL COMPLEX" --
TOTAL REAL SPENDING ON FEDERAL POLITCAL INFLUENCE*,
1990 - 2010
(Cumulative $2010)
$2973 per
Congressman and
Senator per day** -
- for 20 years
INSURANCE
28% FINANCIAL SERVICES
34%
$1.930 B
$2.292 B
∑ =$6.823 Billion
* Total real cumulative
spending on federal lobbying
and campaign contributions,
by industry
$2.601 B
** Asuming 220 workdays per REAL ESTATE
year, which may be generous 38%
Source: Opensecrets.org (2010) data,
my analysis
(c) Submergingmarkets.com, 2010
(c)JSH/ TJN 2012 63

64. “Dark matter”
• 1970s : • 1990s
– “Underground economy” – “Banqueros” („96)
– “Intl. currency demand“ – “US as a tax haven”
– Drug money in Florida – “Flight wealth”
• 1980s: • 2000s
– “Odious debt” – “Blood Bankers” („03-‟05)
– “Capital flight” – Shadow banking (‟08-)
– Citibank‟s “debt-flight cycles” – “We’re Not Broke” (’12)
– Noriega/Stroessner – “Pirate banking” („12)
– JP Morgan‟s bribery in Brazil – “Offshore wealth”
– Marco‟s Central Bank – Human capital flight
– Hidden offshore earnings
– Hidden labor flows
(c)JSH/ TJN 2012 64

65. Investigative economics
Investigative Economics Neoclassical Economics
•“Just look at the f’in data.” (J. Tukey’s inter- • Optimization model-centric
ocular significance test)
•Anomaly-driven: Puzzles tell us where to •Models tell us where to look
look (often with night vision)
•Skeptical of “methodological individualism” •Bias toward “methodological
individualism”
• Plausibility counts: case based + • 19th-century positivism lives on:
inferential “prediction” trumps “explanation”
• If you want to know how someone feels, • 1960s behaviorism: “You look pretty good
you can ask them today; how am I?”
• Get out of the armchair, go to the field ( • “But I want tenure!… and my armchair is
vs. “abstract empiricism”) (C. Wright very comfortable!”
Mills)
(c)JSH/ TJN 2012 65

66. Basic Concept –- Adjusted Partner Trade Measure
Total Misinvoicing = Export Misinvoicing + Import Misinvoicing
`’Export Misinvoicing`: ∑∑ ((X*ijt (1+CIFijt) – ∑∑Mwijt))
”Import Misinvoicing”: ∑∑ (M*ijt – ∑∑ (Xwijt(1+CIFijt)))
Where: X* = Country X‟s Reported FOB goods exports per commodity per
trading partner at time t, in a common currency
M* = Country X‟s Reported CIF goods imports per commodity per
trading partner at time t, in a common currency
Xw = Sum of world‟s reported FOB goods exports per commodity per
trading partner at time t , in a common currency
Mw= Country X‟s Reported CIF goods imports per commodity per
trading partner at time t, in a common currency
CIFij1 = `‟normal trade costs,” including customs, insurance and freight,
for commodity j and trading partners j at time t
(c)JSH/ TJN 2012 66

67. CONVENTIONAL TRADE MISINVOICING
World
Exports Imports
< > < >
Exports ”Export
Under-invoicing”
Country X
Imports ”`imports
Overinvoicing”
(c)JSH/ TJN 2012 67