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I originally posted this under a disingenuous title. Better luck on this round...
"With the use of tax havens and other elements of an increasingly complex "shadow" financial network, vast sums of illegal money are being shifted throughout the global economy virtually undetected.
"Illicit money is usually generated by one of three kinds of activity: bribery and theft; organized crime; and corporate dealings such as tax evasion and false commercial transactions."
"Friedrich Schneider, an Austrian economist, suggests that money laundering on behalf of organized crime and other illegal sources...amounts to some $600 billion per year."
"Drug trafficking, racketeering, and terrorist financing are among the leading causes of money laundering, while in recent years the financial corruption of rogue political figures...has received much attention in the press. In fact, organized crime accounts for only about a third of illicit money flows, while money stolen by corrupt government officials amounts to just 3 percent. The most common way illicit money is moved across borders- accounting for some 60 to 65 percent of all illicit flows- is through international trade."
"...a common strategy for hiding and moving large sums of money is falsified pricing in international trade. Prices are falsified in one of two ways. In the first, the invoice from the exporter is sent to an office in a tax haven where it is rewritten with an altered price. Then the new invoice is forwarded to the importer. Alternately, a false price may appear on the invoice sent directly by the exporter to the importer after they have agreed, usually verbally, to deposit a portion of the payment in a foreign account. Unlike invoices that are rewritten, this second form of mispricing is invisible in recorded international trade statistics but can be detected by comparing major and consistent deviations in pricing from normal world market prices. For example, research by Simon Pak and John Zdanowicz has shown systematic underpricing on invoices for US exports, including car seats exported to Belgium that were invoices at $1.66 each; ATM machines exported to San Salvador for $35.95 each; and forklift trucks exported to Jamaica for $384.14. By this strategy, the US exporter drastically reduces its US tax burden, while presumably receiving much larger sums from the buyer that may then be hidden in offshore banks.
"Within multinational corporations, the practice of mispricing can also be used as a tax avoidance strategy. Take the following simplified example: a company in country A makes photocopy machines that have a production cost of $1,000. The company establishes a dummy corporation in a tax haven that buys the copiers for cost $1,000 apiece. Since the corporation has not made any profit on the sale, no taxes are owed. The dummy corporation in the tax haven then sells the copiers to another subsidary in country C, at a price of $2,000 each. Now the company in country A is making a profit of $1,000 on each machine sold, but since the sales are through the offshore dummy corporation, the company pays only marginal taxes that are charged in the tax haven. The subsidiary in country C may in turn sell the copiers on the open market for $1,500 each, allowing it to claim, for tax purposes, a $500 loss on the $2,000 purchase price. But since the company in country A owns all of the parties involved in the transaction, it is actually making a $500 profit on each sale."
"The Isle of Jersey serves companies such as Bank of America and Morgan Stanley that are active in the London market, just as Panama, which is used by AIG and American Express, among other companies, serves the US market, and Vanuatu the Australian market. Mauritius is a channel for investments into India. Cypress is a preferred center for Russian money laundering, and the British Virgin Islands have become especially favored by Chinese businesses shifting illicit capital in and out of their home country.
"Providing the highest level of secrecy is Liechtenstein, Dubai, and the Turks and caicos Ilands. Bermuda and Guernsey use favorable tax laws to draw in billions of dollars in reinsurance funds from firms such as Scottish Re. The Cayman Islands, which hold nearly $2 Trillion in foreign-owned cash and other liquid assets, are home to more than ten thousand "collective investment schemes" such as hedge funds. Banks in Switzerland, London, and New York, among them Credit Suisse, Barclays, and Citigroup, serve very rich clients by directing transactions through more than twenty Carribean tax havens."
from Illicit Money: Can It Be Stopped? by Raymond baker and Eva Joly, in the December 3, 2009 edition of The New York Review of Books, p.61-62.
"With the use of tax havens and other elements of an increasingly complex "shadow" financial network, vast sums of illegal money are being shifted throughout the global economy virtually undetected.
"Illicit money is usually generated by one of three kinds of activity: bribery and theft; organized crime; and corporate dealings such as tax evasion and false commercial transactions."
"Friedrich Schneider, an Austrian economist, suggests that money laundering on behalf of organized crime and other illegal sources...amounts to some $600 billion per year."
"Drug trafficking, racketeering, and terrorist financing are among the leading causes of money laundering, while in recent years the financial corruption of rogue political figures...has received much attention in the press. In fact, organized crime accounts for only about a third of illicit money flows, while money stolen by corrupt government officials amounts to just 3 percent. The most common way illicit money is moved across borders- accounting for some 60 to 65 percent of all illicit flows- is through international trade."
"...a common strategy for hiding and moving large sums of money is falsified pricing in international trade. Prices are falsified in one of two ways. In the first, the invoice from the exporter is sent to an office in a tax haven where it is rewritten with an altered price. Then the new invoice is forwarded to the importer. Alternately, a false price may appear on the invoice sent directly by the exporter to the importer after they have agreed, usually verbally, to deposit a portion of the payment in a foreign account. Unlike invoices that are rewritten, this second form of mispricing is invisible in recorded international trade statistics but can be detected by comparing major and consistent deviations in pricing from normal world market prices. For example, research by Simon Pak and John Zdanowicz has shown systematic underpricing on invoices for US exports, including car seats exported to Belgium that were invoices at $1.66 each; ATM machines exported to San Salvador for $35.95 each; and forklift trucks exported to Jamaica for $384.14. By this strategy, the US exporter drastically reduces its US tax burden, while presumably receiving much larger sums from the buyer that may then be hidden in offshore banks.
"Within multinational corporations, the practice of mispricing can also be used as a tax avoidance strategy. Take the following simplified example: a company in country A makes photocopy machines that have a production cost of $1,000. The company establishes a dummy corporation in a tax haven that buys the copiers for cost $1,000 apiece. Since the corporation has not made any profit on the sale, no taxes are owed. The dummy corporation in the tax haven then sells the copiers to another subsidary in country C, at a price of $2,000 each. Now the company in country A is making a profit of $1,000 on each machine sold, but since the sales are through the offshore dummy corporation, the company pays only marginal taxes that are charged in the tax haven. The subsidiary in country C may in turn sell the copiers on the open market for $1,500 each, allowing it to claim, for tax purposes, a $500 loss on the $2,000 purchase price. But since the company in country A owns all of the parties involved in the transaction, it is actually making a $500 profit on each sale."
"The Isle of Jersey serves companies such as Bank of America and Morgan Stanley that are active in the London market, just as Panama, which is used by AIG and American Express, among other companies, serves the US market, and Vanuatu the Australian market. Mauritius is a channel for investments into India. Cypress is a preferred center for Russian money laundering, and the British Virgin Islands have become especially favored by Chinese businesses shifting illicit capital in and out of their home country.
"Providing the highest level of secrecy is Liechtenstein, Dubai, and the Turks and caicos Ilands. Bermuda and Guernsey use favorable tax laws to draw in billions of dollars in reinsurance funds from firms such as Scottish Re. The Cayman Islands, which hold nearly $2 Trillion in foreign-owned cash and other liquid assets, are home to more than ten thousand "collective investment schemes" such as hedge funds. Banks in Switzerland, London, and New York, among them Credit Suisse, Barclays, and Citigroup, serve very rich clients by directing transactions through more than twenty Carribean tax havens."
from Illicit Money: Can It Be Stopped? by Raymond baker and Eva Joly, in the December 3, 2009 edition of The New York Review of Books, p.61-62.
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