Opinion: Bailed-out banks facilitate $21tn offshore cash hoard

By Nick Mathiason, Bureau of Investigative Journalism

Investigative economist James Henry exhaustively trawled through financial information held by the IMF, World Bank, Bank for International Settlements, central banks and national treasuries to come up with the most definitive report ever written on the super-rich and offshore wealth.

Henry’s Price of Offshore Revisited report, commissioned by Tax Justice Network (TJN), shows:

• between $21 trillion and $32 trillion of financial assets is owned by High Net Worth Individuals in tax havens. This does not include real estate, art or jewels.
• a conservative 3% return on that $21tn taxed at 30% would generate $189bn – a figure easily eclipsing what OECD industrialised nations spend on overseas development aid.
• the top 50 private banks collectively managed more than $12.1tn in cross-border invested assets for private clients, including their trusts. This is up from $5.4tn in 2005.
• fewer than 10 million members of the global super-rich have amassed a $21tn offshore fortune. Of these, less than 100,000 people worldwide own $9.8tn of wealth held offshore.

Accompanying the Price of Offshore Revisited is a separate paper [co-written by this author]. It reveals that data used by individual countries to assess the gap between rich and poor is inaccurate. And as a result, inequality is far more extreme than policymakers realise.

This is because economists calculating inequality fail to include the vast majority of offshore cash in their findings. So the wealthy are far better off than the studies suggest.

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David Cameron wants to turn the UK into a tax haven

$21 trillion (£13tn) worth of assets are being 'hidden' by a global super-rich to avoid tax. The recent report by the Tax Justice Network, penned by James Henry (a former chief economist at the consultancy McKinsey), got widespread coverage. George Osborne says it’s time to put a stop to it. David Cameron says it’s time we got a slice of that cake (actually, a bigger slice than we already have). We invited Richard Murphy to explain:

By Richard Murphy

Adviser to the Tax Justice Network and the TUC on taxation and economic issues. He is also the director of Tax Research LLP.

David Cameron seems to want to turn the UK into a haven for tax avoiders. At least we now know where we stand. In wooing French tax exiles, Cameron makes a mockery of democracy.

He promised to 'roll out the red carpet' to French businesses while attending the G20 summit in Mexico, saying in June 2012,

"If the French go ahead with a 75% top rate of tax we will roll out the red carpet and welcome more French businesses to Britain and they will pay taxes in Britain and that will pay for our health service, and our schools and everything else."

But hang on a minute. His chancellor said in March, "I regard tax evasion and indeed aggressive tax avoidance as morally repugnant". What's more, George Osborne pronounced himself "shocked" at the amount of tax avoidance in the UK. And yet, here's his boss saying the door's open to all and sundry French tax avoiders who want to set up camp in the UK.

As for the businesses these tax exiles own, let me assure Cameron that they will stay put in France, because that's where their markets are and in the days of the internet the business owner does not have to live over the shop – something Cameron and Osborne have not yet noticed. So we won't win there. And that's inevitable – look at the world's tax havens and you'll see that nothing but the pretence of money shuffling occurs in those places.

As a result Cameron's words are on this occasion, as on so many others, literally meaningless. In that case it is what Cameron's words imply that matters. Let me note a few more of them in that case:

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Rip-off News round-up. Our pick of the last week's media (Thu 26th July)

$21trillion (£13tn) worth of assets 'hidden' by tax dodging global super-rich 
A global super-rich elite had at least $21 trillion hidden in secret tax havens by the end of 2010, according to a major study by a former chief economist at the consultancy McKinsey. BBC NEWS

(Taxmen around the world want to know where it's hidden - and so do some former spouses)

UK economy on its knees as shock growth figures show disastrous 0.7% plunge in output
Figures fuel criticism that Chancellor George Osborne's austerity measures are choking off the recovery. The UK's economy is 0.3 per cent smaller than when the coalition came to power in the second quarter of 2010 DAILY MAIL
(We can't afford to see another job lost. Well, maybe one, Mr Osborne)

Four in ten Britons will cut back on food
In the coming months four in ten Britons will be forced to cut their food budget as households experience the tightest squeeze in living standards since the 1920s, says Which? TELEGRAPH

Payday lenders agree new rules, but they are only voluntary
Four trade bodies - representing 90% of the lenders - have committed to make fees and charges clearer and to give more protection to those in difficulty. But the rules are only voluntary, and one consumer group has described the new code as merely rebranding. BBC NEWS
(Meanwhile in some wonderful parallel universe somewhere they've made the repayment of gouging loans voluntary too.)

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Don’t be ripped off by a Parliamentary Inquiry into bankers. Only a full Judicial Inquiry will do

By Ann Pettifor 

Fellow of the New Economics Foundation.

[Click here to sign the e-Petition.]

Power corrupts, and financial market power has corrupted financial and other markets. It has done worse. It has corrupted politics. That is why Britain will be ripped off by a Parliamentary Inquiry into banking. It will go nowhere, lack both credibility and teeth, and will inevitably be discredited. Above all, it is most unlikely to rein in bankers.

That is why we launched our  e-Petition the very day the Barclays LIBOR scandal broke on 27^th June, and why we are still calling on Britons (and all UK residents) to sign this Peoples’ Petition here for a full Judicial Inquiry into...  

“the fraud, wrongdoing and ethics of British banks, their management and their staff, and the role of the British Bankers Association. The terms of reference of this inquiry should also include the manipulation of interest rates on about £225 trillion of assets. The inquiry must have full powers to compel witnesses to appear on oath, and to obtain all forms of evidence.”

Within a few days, over 10,000 had already signed the petition, and very soon others – including Ed Miliband and the Labour Party – joined in the call. 

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US Senate catches HSBC laundering money for rogue states, terrorists.. and drug lords

Chris should be proud of another world beating British bank

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Corporate culture - are we culturally a nation of looters?

The summer of 2011 saw the London riots in full view of local, national, and closed circuit television. Heedless of their audience ordinary Britons smashed and grabbed. Over the ensuing months thousands of convictions and punishments were handed out to citizens who had never faced a magistrate before and will probably never do so again. It takes an extreme hooligan to kick in a shop window. But once the window has been kicked in, it seems there are thousands of us who would step through and snatch stuff.

Corporate Britain saw the windows kicked in back in the 1980s when financial services were de-regulated. We quickly saw what well bred city gents turn into when nanny isn’t around. Bankers and traders leading the scramble for loot were followed over the years by the other professions. Some dashed through immediately while others waited a decade or so to see if anything would be done to stop the looting. Eventually, finding that lawmakers, regulators and public opinion were indolent and impotent, they too stepped over the line. Financial Services were joined in the looting by Energy, Insurance, Transport, Telecommunications and others. It wasn’t just the direct looting of us ripped-off Britons individually. The looters stepped into public services. Defence procurement, IT projects, the outsourcing to the private sector of policing, health, education and infrastructure build. The looting continued through decades of Conservative and Labour governments. Successive politicians, many of whom grew mightily wealthy, have a simple question to answer:

Please Tick:     Were you a Fool or a Knave?

            _            Fool

            _            Knave

            _            Fool and Knave

The ‘Big Bang’of 1986 was the sound of kicked glass shattering, and the echoes continue to reverberate today.

Like rioters in a court, the summer months of 2012 exposed a great deal about corporate culture.

• Barclays became the first of many big banks to have its Libor tricks declared by the Governor of the Bank of England and the Chairman of the US Federal Reserve to be fraudulent, exposed and punished.
• British banks, censured by the FSA, faced paying billions in restitution for scamming businesses into Interest Rate Swaps.
• HSBC was forced to apologise to the US government for laundering drug money, putting profit before probity.
• GlaxoSmithKline was fined US$3billion for selling dodgy drugs and bribing doctors to prescribe them.
• Traders were caught out rigging the market for oil and petrol.
• G4S left the Olympics inadequately guarded because they were more focussed on counting their profits than accounting for their guards.

Dies mirabilis, the British Bankers Association, arch apologist and denier, cancelled its 2012 summer party having recognised that “our industry needs to think long and hard about its collective behaviour”. Deprived of their Pimms and champagne the bankers skulked off to collect their thoughts over stronger stuff in their boardrooms.

Much was exposed, but was anything learned? The following exchange between the MP Jesse Norman and Bob Diamond, when Diamond was giving evidence to the Treasury Committee, suggests not:

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Rip-off News round-up. Our pick of the last week's media (Thu 19th July)

NHS pays £1,600 a day for nurses as agency use soars to cope with rising staff shortages

Experts said the disclosures show how hospitals' attempts to improve their efficiency have backfired. Jobs are being cut, only for temporary staff to be hired at vastly inflated rates - with private agencies receiving more than seven times the rate paid to nurses on the pay roll. TELEGRAPH

Miliband slams pension fees 'rip-off'

At present, some people are paying up to 4% or 5% in fees and charges on their pension schemes, which could swallow up as much as £50,000 of every £100,000 they pay in over the course of their working life, he said. INDEPENDENT
("We decided to do nothing about this during our 13 years in government, and then bring it up in opposition. Genius!" he didn't say)

Was the petrol price rigged too?

Motorists may have been paying too much for their petrol because traders may have manipulated oil prices in the same way they rigged LIBOR interest rates. TELEGRAPH

("What else do you expect us to do in our lunch breaks?" said a LIBOR trader)

Labour attacks lettings agencies who 'rip off' landlords and tenants

Labour will look at how to cap rising rents in the private sector, said Hilary Benn, the shadow secretary of state for communities and local government. He also admitted that Labour made a mistake in office by not building enough "social homes", thereby creating problems for the current housing market. GUARDIAN

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Record numbers of shops have started their sales early

KJ sticks to the oldest sales trick in the book...

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What's the difference between a banker and Rumpelstiltskin?

Having explained how 'interest rate swaps' work in a previous post, we asked Honestly Banking to explain why they were sold.

The best fairytales are not just empty whimsies. The best ones seek to educate us about the hazards of greed, gluttony, pride, lust and all the other stuff we’d really like to do but probably oughtn’t. The Bully-Banks guest post on this blog compared their ripped-off situation to Little Red Riding Hood in the clutches of the wolf. Their situation also brought to our mind another salutary fairytale: Rumpelstiltskin. 


In the Rumpelstiltskin story a king decided the way to save his finances was to put the burden on a young girl, threatening her with death unless she turned straw into gold. The desperate girl takes a deal from a malevolent demon that provided her with gold for the king but as part of the deal she must give him her firstborn child. The demon guessed the unsophisticated girl, needing to avoid impending death, would not appreciate what she had promised. The trouble started when the demon came to collect.

In Ripped-Off Britain the government decided the way to save its finances was to put the burden on small and medium businesses (which make up 60% of the private sector), to turn the recession back into growth and employ all those sacked public sector workers. The desperate businesses took deals from malevolent bankers who provided them with the gold, but as part of the deal required the businesses to sign an “interest rate swap agreement”. The bankers guessed the unsophisticated businesses, needing to avoid impending ruin, would not appreciate what they had promised. The trouble started when the banks came to collect.

The demon gives the girl a chance to get out of the deal if she can discover his name. The FSA has given the businesses a chance to get out of the deal if they can explain the scam and get public opinion on their side.

Explaining the scam is not as easy as it sounds. Even Ed Miliband, leader of the Labour Party, with two degrees in economics (Oxford University & London School of Economics) conceded he didn’t understand it. In a Sky report, Ed said:

"I visited a guy called Alan who runs a signage company in Putney. He was in tears. It's a chilling story about what the banks are doing to people.

He has lost about a £1m because of the banks. He got sold a 'dual interest rate swap'. I have a master’s degree in economics and I can’t understand it."

The only person who knew Rumplestiltskin’s name was the scamp himself. Perhaps the only people who understand Interest Rates Swaps are bankers. So we asked a banker, our occasional guest blogger from Honestly Banking to explain a bit more how and why banks managed to get businesses to take this product. He responded thus:

Interest Rate Hedges fall basically into two categories; Swaps that effectively fix a rate and Caps that give you a ‘no higher than’ rate. All the other structures, such as collars are generally methods of hiding premiums and increasing bank profits.

When these structures are priced and sold the bank will make use of the ‘Yield Curve’, which shows the market’s expectation of future interest rates. If the curve is dropping away in the future, i.e. the market expects interest rates to fall, the bank makes more profit with a longer-term hedge that keeps the interest rate they receive up when market rates fall. Interpreting Yield Curves is fraught with danger. An example yield curve is given below.

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G4S Olympic security shambles

Chris, Fee and KJ find a silver lining to having G4S involved in the Olympic Games

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