Offshore 'Underworld'

April 5th, 2013
in econ_news, syndication

Updated: 12:24am New York time, 05 April 2013

Econintersect:  An investigative journalism project of vast proportions has been conducted by a worldwide joint investigation involving The Guardian, BBC moneybagsmanSMALLPanorama and the Washington-based International Consortium of Investigative Journalists (ICIJ).   This work has documented a booming offshore industry aiding and abetting both tax avoidance and the concealment of assets.

The dealings of this 'underground economy' involve the use of a group of shells known as nominee directors.  The Guardian says that there are 28 of these fronts that are used by more than 21,500 companies around the world.

Follow up:

Today (04 April 2013) The Guardian reported that nearly 2 million emails and other documents, mostly from the British Virgin Islands (BVI), have been leaked revealing details about some of the estimated $32 trillion "stashed in overseas havens".

The Guardian says that more than 1 million shell companies have been set up in the BVI since the 1980s.  The BVI has a population of 27,800.

Among the many world political leaders identified in the latest expose is a person close to French President Francois Hollande.  From The Guardian:

In France, Jean-Jacques Augier, President François Hollande's campaign co-treasurer and close friend, has been forced to publicly identify his Chinese business partner. It emerges as Hollande is mired in financial scandal because his former budget minister concealed a Swiss bank account for 20 years and repeatedly lied about it.

Before going too far in forming an opinion, it must be recognized that all this activity (or at least most of it) is completely legal.  Tax avoidance is a legal minimization of taxes; concealment of assets is, in its simplest form, merely a matter of preserving privacy.  But still the operation has an unappealing appearance.  From The Guardian:

The nominees play a key role in keeping secret hundreds of thousands of commercial transactions. They do so by selling their names for use on official company documents, using addresses in obscure locations all over the world.

This is not illegal under UK law, and sometimes nominee directors have a legitimate role. But our evidence suggests this particular group of directors only pretend to control the companies they put their names to.

The companies themselves are often registered anonymously offshore in the British Virgin Islands (BVI), but also in Ireland, New Zealand, Belize and the UK itself. More than a score of UK agencies sell offshore companies, several of which also help supply sham directors.

If transparency is a virtue, what is the characterization of obfuscation?  And, although the characterization of the shell company charades is that they enable 'tax avoidance' The Guardian reports that promotion for the nominee directors have used such terms as "escape taxes" and "tax authorities won't be able to track you down".

The implication in assertions such as above is that there might be 'tax evasion' involved here as well as 'tax avoidance'.  While the latter is generally legal the former is often not legal.

Watch the following 3-minute video from The Guardian:


The following video by the Guy Fawkes blog accuses The Guardian of hypocracy in this matter:

It is not clear if Guy Fawkes blog is confusing the difference between tax avoidance and tax evasion.

A complete summary of articles published by The Guardian on the subject is available here.

Update (12:24am New York time, 05 April 2013):

The following positions statement has been posted by

Asked to comment if the apparent blow to tax havens was good news for the EU, Commission spokesperson Olivier Bailly seized the occasion to remind that the EU executive urges member states to take up the issue of tax evasion, including by adopting a common definition of what a tax haven.

He also said that tax evasion cost "more than €1,000 billion" per year in the EU.

Bailly reminded that the Commission had made “strong” proposals on tax evasion last 6 December and that it was still waiting the agreement of the member states.

In these thirty or do measures the Commission invites EU states to make a list of tax havens and adopt series of measures to avoid loopholes favoring tax evasion.

"For the Commission, there should be no complacency whatsoever for individuals, companies or countries that circumvent international law to organize tax evasion," he said.

Bailly avoided a direct answer to the question if Luxembourg is a tax heaven. He said that "very clear" rules applied to all member states on transmission of information concerning bank accounts. "We are rather trying to have a definition of practices that would be illegal, rather than a term which crystallizes tensions and misunderstandings", he added.


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