Legalised crime and the geography of corruption – London, New York, Geneva, Luxembourg, Hong Kong…

By Basheerhamad Shadrach

If the world were to end extreme poverty, and redeem nearly one seventh of its population that goes hungry every day, we require some 175 billion dollars each year for the next 20 years. This need constitutes less than 1 per cent of the combined income of the 30 richest countries of the world that constitute the Organisation for Economic Cooperation and Development (OECD). While the governments have the responsibility to help overcome poverty, it is ironical that governments of developing nations and the OECD combined lost between $190 billion and $225 billion in the 2012 to tax havens that ensure the billion people go hungry.

The people who sustain poverty

It is the greed combined with hunger for money that prevails among the top 50 global financial institutions ensures that the world cannot overcome poverty that quickly. The total estimate of 50 topmost clients’ illicit assets held with the topmost 50 banks is $12.5 trillion, three times more than the amount of money that is sufficient to make the world a better place to live, within our life time. The reported assets produce no gain for anyone other than the tax havens that help stash the wealth from paying legitimate taxes to governments.

Let’s look at the other side, the world that is classified as ‘low-income’ group of countries. The estimated cumulative debt of these 139 nations combined is $4.1 trillion at the end of 2010. And, the estimated hidden wealth of private elites from the very same 139 nations is $7.3 to $9.3 trillion. If these funds are redeemed, it would be possible for these nations to become creditors overnight! But, neither the corrupt individuals from the 139 nations nor the banks that have sheltered their wealth would want it.

So, who is responsible?

Now the main question is: who is the biggest culprit? Is it the private (corrupt) elite of the 139 low-income nations or the 50 richest clients from rich nations that have hidden their wealth? Or, the banking industry that offers tax-havens to all those who want to escape legitimate taxation of their lands? The bottom-line is that by making these assets dead, not one of them assists in any way, in any means to the worldwide fight against poverty. They are responsible for the making it difficult for the billion poor people to lead a decent life, depriving them of food, health care, educational facilities, livelihood opportunities and security. Moreover, their conditions, aided by the greedy nations continue to plunder world’s natural resources, leaving it totally unsafe for our next generations to enjoy the wonder of God’s creation. The rich, and the private elite in poor nations combined, have stashed between $21 and $32 trillion in 2012.

However, it is possible to redeem the funds invested in tax free 80 odd secret locations of the world. Among these are New York, London, Geneva, Zurich, Luxembourg, Singapore and Hong Kong. It is possible for us to name and shame these cities if only we join hands. With just under 3 years to go towards achieving the Millennium Development Goals, it is still possible to do something.

City of London Corporation

The City of London Corporation is one of those secrecy jurisdictions that create internationally regulations suitable to the benefit and use of those who do not reside in their geographical domain - the regulation that is designed to undermine the legislations and regulations of other jurisdictions. To add to this, the City creates a deliberate, legally backed veil of secrecy that ensures the jurisdictions making use of its regulation cannot be identified to be doing so. And, let us also not forget that the city of London is just a square mile city; it embraces its branch operations in its other tax havens such as Jersey, Guernsey, the Isle of Man, Cayman, BVI, Bermuda, and so on, making it an indivisible whole. And, that is what London has done!

The corporation still is an ancient, semi-alien entity lodged inside the British nation state. It is a "prehistoric monster which had mysteriously survived into the modern world" that only a few people care that London has a mayor and a lord mayor today. It is time that they should care because the corporation is an offshore island inside Britain, a tax haven in its own right. And to cap it all, the City does have a noble tradition of standing up for citizens' freedoms against despotic sovereigns, but this has morphed into freedom for money. We need to change this.

The impact of the City of London elsewhere

The London Summit owed to end the ‘Bank Secrecy’ and ‘tax havens’ era, where leaders from G20 nations spoke with one voice. That said that the idea and the practice of tax havens in the City of London and elsewhere is not something that concerns only the G20. The entire world, especially the citizens of all developing and low-income economies should be concerned about this. There are six good reasons to it.

First, tax havens aid individuals to evade tax in their homelands; the tax that is vital for its infrastructure development. Secondly, tax havens, such as the City of London, redistribute squarely the wealth generated in poor countries by the poorest of the world at their cost into the richest nations of the world. Thirdly, it increases corruption, among the government officials who authorise contracts and payments for government services rendered by parties. These illicit flows from poorest nations to the richest ones that offer tax havens is, in more than 65% of cases, by commercial entities, mostly to avoid taxes deliberately, thus forming a major chunk of corporate corruption.

Fourthly, tax havens such as the City of London Corporation create financial instability. Banking institutions that are threatened by onshore regulations often found solutions in tax havens, leading to the erosion of regulatory capacities of onshore institutions too, creating it difficult for even trading partners to know each other’s accounts. And, the hedge funds undermine the stability of world’s markets, creating the idea that trading horizons might be of less than a minute’s duration, thus distorting the concept of value. Most hedge funds are registered in the Cayman Islands with their fund managers sitting in the City of London.

Fifth, due to the fact that the activity of tax havens entirely dependent upon secrecy, which in turn is based entirely upon deliberate and artificial distortion of markets, it only a handful that are able to access others’ information. Markets have no choice but to operate solely upon speculations rather than on the basis of efficiency.

Finally, these tax havens weaken democracies. The connivance between the various democratic pillars of a society clearly is a threat to any nation’s integrity. There is more collusion today between the politicians and the bureaucrats; the politicians and businesses; between the bureaucrats and the business; between the media and the business houses; the administration and the executive.

Indian money abroad and the challenges facing it

In February 2012, based on a statement made to the Supreme Court, the Director of the Central Bureau of Investigation (CBI) said that Indians have more than $500 billion of illegal funds in foreign tax havens. There are also other estimates of $1.4 trillion, making it compelling for anyone to believe that Indians living in India have stashed more money than any other nation. One of the objectives of India’s anti-corruption protests headed by Shri Anna Hazare was to force government of India to enact the Jan Lokpal Bill, but equally so to also bring back the billions stashed in foreign banks.

India’s black money economy is between 23 to 26%, compared to an Asia-wide average of 28 to 30%, and, to an Africa-wide and Latin America’s average of 41 to 44% each. The average size of the shadow economy in 96 developing countries, studied by Schneider, is 38.7%. With its ambitions, the India’s growth story has taken a beat in recent years, despite the fact that its black money market is smaller in percentage as compared to Africa, Latin America and the rest of Asia. The mere size of India and the impact of the shadow economy are telling in its inability to achieve the millennium development goals.

India continues to be home to the most under-nourished children of the world whose situation is much worse than those born in Sub-Saharan Africa. With one maternal death reported every 10 minutes, India stands to miss out on its MDG targets. Of 850 million people of this world without adequate nutrition, 237 million live in India—slightly more than one in four. 49.2% of Indian households lack toilets of any kind. India has the lowest per capita education and health spending in the world.

With You, the passionate, and you, the protester, ‘Change’ is possible

In recent years, anti-corruption crusader, Anna Hazare was joined by Baba Ramdev, lawyer-politician, Ram Jethmalani, and the opposition parties have demanded governmental action to bring back stashed money abroad. Their crusade may be seen with colours of ambitions and motivations of different kind. With more awareness and advocacy on the issue, it is important to encourage non-governmental and legal entities to also join global efforts to highlight the cause and effect of tax havens abroad. The Time magazine did recognize the common people as the ‘Person of the year’ in the year 2006; and five years later, the protesters among the common people were named as the ‘Person of the year.’ This trend in the last five years clearly signifies the power held with common people, and the role played by the social media, and the ICT tools that connect, network, voice the voiceless and to amplify people’s concerns.

The Rules wishes to ignite the passion among the 2006 person of the year, and the resentment among the 2011 person of the year to change the world. The millions of those with passion and anger should now join hands with organisations such as the Tax Justice Network and the thinkers and leaders who wish to clean up the City of London and the likes. It is time for world’s cities, towns and villages to condemn the City of London, and practices it has legitimised for its own sake.