The evils of tax evasion and tax havens

In last week’s G8 summit, the leaders of the 8 most powerful countries in the world devoted the first day to finding a solution to the Syrian conflict. However, the surprising topic during the second day was how world governments can combat tax evasion and money laundering.

Currently, individuals and companies are able to avoid paying taxes either by outright falsification of tax returns or by hiding money in “tax “havens.” This has a tremendous negative impact on the economy of a developing country and leads to increasing poverty levels.

The Global Financial Integrity, an international anti-corruption group, estimates that $5.86 trillion in illicit funds were illegally moved from developing countries to these “tax havens” from 2001 to 2010, the period essentially covering the years of the Arroyo presidency.

According to the report, the top 10 developing countries with the highest illicit financial outflows were China ($2.74 trillion), Mexico ($476 billion), Malaysia ($285), Saudi Arabia ($210 billion), Russia ($152 billion), Philippines ($138 billion), Nigeria ($129 billion), India ($123 billion), Indonesia ($109 billion ) and the United Arab Emirates ($105 billion).

The same report also said that of these illicit cash flows, 60%-65% was for tax avoidance and 30%-35% from criminal activities. Illicit cash flows from corruption, bribery and theft among government officials accounted for 3%-5%. The most depressing news for us is that the Philippines ranked 6th in the list of developing countries in terms of illicit cash flows. We can only dream of the positive effect on our economy and on the number of jobs that would have been created if the Philippine elite had decided to keep and invest the $135 billion here instead of stashing them abroad.

In their final communiqué, the eight leaders explained the importance of fighting tax evaders and money launderers. They said, “Private enterprise drives growth, reduces poverty and creates jobs and prosperity for people around the world. Governments have a special responsibility to make proper rules and promote good governance. Fair taxes, increased transparency and open trade are vital drivers of this. “

The most important weapon against tax havens is lifting the “veil of secrecy” and allowing governments to obtain information on the identities of persons with these secret bank accounts.

There are an estimated 50 to 60 tax havens that serve as domiciles for more than 2 million “paper” companies. In these countries, depositors can put up fake companies because the government assures them of absolute secrecy.

Though most of the most notorious tax havens are still territories or are members of the British Commonwealth, it was David Cameron, Prime Minster of the UK who led the fight for information sharing.

Cameron has asked ten of these countries to share information on individuals and companies who hold bank accounts in their jurisdiction. The ten include among the most well known tax havens: Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Anguilla, Montserrat, Turks and Caicos, Jersey, Guerney and the Isle of Man. These are places that continue to be favored by Filipino tax evaders and money launderers.

Private groups have also joined the fight against tax havens. For example, recently the International Consortium of Investigative Journalism (ICIJ) published a database that “for the first time in history will help begin to strip away this secrecy across 10 offshore jurisdictions.” The Offshore Leaks Database will allow users to search through more than 100,000 secret companies, trusts and funds created in offshore locales such as the British Virgin Islands, Cayman Islands, Cook Islands and Singapore.

Their list included many world famous celebrities and politicians. Here are some of those names:

Potjaman Na Pombejra, whose divorce from Thailand’s former Prime Minister Thaksin Shinwatra was allegedly to protect Thaksin’s assets from being seized by the government. She acquired an offshore company called Premium Select in the British Virgin Islands.

Mirzan Bin Mahathir, son of Mahathir Mohamad, the longest serving prime minister of Malaysia. He is shareholder and director of Utara Capital Limited, Crescent Energy Limited and Al Sadd Investments Limited, all registered in Labuan, an offshore banking zone in Malaysia.

Dmytro Firtash of Ukraine, who has been linked to arms and drug trafficking and to reputed Russian mob boss Semion Mogilevich.  Dmytro is shareholder and director in Group DF Inc. in the British Virgin Islands.

Eka Tjipta Widjaja, head of Indonesia’s second richest family who owns Asia Pulp and Paper which cleared much of the rainforests in his country. He reputedly also owns the world’s second largest palm oil plantations. He is the beneficial owner, through his Sinar Mas conglomerate, of various offshore companies registered in the British Virgin Islands and Labuan.

Imee Marcos Manotoc, the daughter of former Philippine dictator Ferdinand Marcos. She is the beneficiary and investment adviser to Sintra Trust (2002) in the British Virgin Islands. She was also a financial adviser for a company in which Sintra Trust was a shareholder, ComCentre Corp. (2002), and a “master client” for the M Trust in Labuan, Malaysia (2007-2009).

With the active and public support of President Aquino, Commissioner Kim Henares has been the most successful BIR head. PNoy has warned businessmen that if they do not pay correct taxes, they “will have to deal with commissioner Kim Henares herself and with (Justice) Secretary Leila de Lima at her back.”

Henares has said that her office will investigate leads from the ICIJ database that revealed names of people from more than 170 countries, including the Philippines, who are associated with secret offshore bank accounts in tax havens. Very few have legitimate reasons.

Hopefully this worldwide campaign against tax evaders, tax havens and money launderers will motivate these Filipinos to bring back their money which they earned here, invest it here and at the same time pay the correct taxes. If they still insist on using tax havens, then we must turn to this international agreement on information sharing and the investigation of groups like the ICIJ to publicly expose the names of Filipinos who have illicit cash deposits abroad. Because people like these are the villains in our dream of a Philippines without corruption and poverty who must be punished.

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Email: elfrencruz@gmail.com