Treasure Islands - Nicholas Shaxson [19]
But that sum just represents the taxes lost on money wealthy individuals hold offshore. A much bigger transfer of wealth is occurring through illicit financial flows across borders from developing countries into secrecy jurisdictions and rich countries. The most comprehensive study of this comes from Raymond Baker’s Global Financial Integrity (GFI) Program at the Center for International Policy in Washington. Developing countries, GFI estimated in January 2011, lost a staggering $1.2 trillion in illicit financial flows in 2008—losses that had been growing at 18 percent per year since 2000.45 Compare this to the $100 billion in total annual foreign aid, and it is easy to see why Baker concluded that “for every dollar that we have been generously handing out across the top of the table, we in the West have been taking back some $10 of illicit money under the table. There is no way to make this formula work for anyone, poor or rich.” Remember that the next time some bright economist wonders why aid to Africa is not working. We are clearly talking about one of the great stories of our age.
In a separate study subsequently endorsed by the World Bank,46 Baker estimated that only about a third of total illicit cross-border flows represent criminal money—from drug smuggling, counterfeit goods, racketeering, and so on. Corrupt money—local bribes remitted abroad or bribes paid abroad—added up to just 3 percent of the total. The third component, making up two-thirds, is cross-border commercial transactions, about half from transfer pricing through corporations. His research underlines the point that illicit offshore flows of money are far less about the drug smugglers, mafiosi, celebrity tax exiles, and fraudsters of the popular imagination and mostly about corporate activity.
And out of this emerges another profoundly important point. The drug smugglers, terrorists, and other criminals use exactly the same offshore mechanisms and subterfuges—shell banks, trusts, dummy corporations, and so on—that corporations use. “Laundered proceeds of drug trafficking, racketeering, corruption, and terrorism tag along with other forms of dirty money to which the United States and Europe lend a welcoming hand,” said Baker. “These are two rails on the same tracks through the international financial system.” We will never beat the terrorists or the heroin traffickers unless we confront the whole system—and that means tackling the tax evasion and avoidance and financial regulation and the whole paraphernalia of offshore. It is hardly surprising, in this light, that Baker estimates that the U.S. success rate in catching criminal money was 0.1 percent—meaning a 99.9 percent failure rate.
And that is only the illegal stuff. The legal offshore tax avoidance by individuals and corporations, which further gouges honest hardworking folks, adds hundreds of billions of dollars to these figures.
Almost no official estimates of the damage exist. The Brussels-based nongovernmental organization Eurodad has issued a limited-edition book called Global Development Finance: Illicit Flows Report 2009, which seeks to lay out, over a hundred pages, all of the comprehensive official estimates of global illicit international financial flows.47 Every page is blank.
Eurodad’s gimmick underscores a vital point: There has been an astonishing blindness on the part of the world’s most powerful institutions to this system that has effected the greatest transfer of wealth from poor to rich in the history of the planet. As the sociologist Pierre Bordieu once remarked, “The most successful ideological effects are those which have no need for