Enough funds to pay for the entire primary health and education needs of the world’s developing countries are being siphoned off through offshore companies and tax havens, according to a body formed to expose the offenders.
Aid organisations are alarmed that money that should be used for building the infrastructure of the poorest countries is being hidden in havens by corrupt politicians and multinationals exploiting tax loopholes.
They say offshore centres undermine economies by restricting countries’ capacity to raise tax revenue and finance investments in health and education. They also provide a safe haven for money laundering, illicit arms dealing and diamond trafficking; and contribute to financial instability that led to the crises in the Indonesian and Thai economies in the 1990s. Offshore companies are being formed at the rate of about 150 000 a year.
In the 1970s there were just 25 tax havens; there are now at least 63, about half of them British protectorates or former colonies.
This month the Tax Justice Network, formed last year by tax experts and economists concerned about the trend, launched an international secretariat in London. It will work with the United Nations and other international bodies to reverse the practice of hiding money from governments around the world.
John Christensen, coordinator of the secretariat, said: ”Many developing countries are now dominated by elites using tax havens. Things have got worse in the past few years.” As new havens are formed, existing ones offer better deals. Christensen said havens transfer the burden of tax away from capital and towards labour and consumers.
UN Secretary General Kofi Annan has also expressed concern about money that should be spent on developing countries being moved offshore.
The secretariat believes the UN has a vital role to play in tracking the money. ”The remedies have to be global and the UN is the only body able to do it,” said Christensen. ”The World Trade Organisation has failed.”
Tax havens have also attracted the attention of John Kerry, the United States Democratic party’s presidential candidate, who has indicated that, if elected, he will pursue companies that hide their profits abroad. In April the US general accounting office said 61% of corporations paid no federal income tax in the late 1990s. Tax havens contain only 1,2% of the world’s population and 3% of the world’s GDP, but 26% of assets and 31% of the profits of US multinationals are held there.
Almost every part of the world now has access to havens. Europeans can use established ones such as Jersey and Liechtenstein or newer ones such as Cyprus and Malta. The Asian Pacific has the Pacific Islands and Singapore, while India and Southern Africa have the Seychelles and Mauritius, and North America the Caribbean islands and Central America.
The list of political figures who have availed themselves of the system includes Haiti’s ”Baby Doc” Duvalier, Zaire’s President Nzanga Mobutu, Sani Abacha, the former president of Nigeria, and Raul Salinas, the brother of former Mexican president Carlos Salinas. In 1999 the Economist estimated that African leaders had $20-billion in Swiss bank accounts alone, twice the amount that sub-Saharan Africa spends on debt servicing.
The latest Oxfam report on tax havens, on which Christensen worked, suggests that the amount secreted in tax havens is equivalent to six times the annual cost of universal primary education and almost three times the cost of universal primary health. Sony Kapoor, the secretariat’s economic adviser, agreed: ”Tax evasion … is inhibiting development in poor countries and eroding existing welfare in rich states.”
Among the international organisations seeking to address the problem are the Organisation for Economic Cooperation and Development, the EU, the UN drugs control programme and the Financial Action Task Force, set up by the G7 countries. Charities and churches across Europe, particularly in France, are also becoming involved.
Richard Murphy of Tax Research, which works closely with the new organisation, said it was important that wealthier countries were seen not to be dictating terms to poorer countries.
”You cannot dictate to nation states their level of taxes,” he said, ”but you can require that they only tax what is theirs to tax.” — Â