For years, the world’s super rich and multinational corporations have used offshore centres to conceal profits, evade taxes and hide their wealth. Can this daylight robbery be stopped?

A few years back, Eurodad, which lobbies for debt relief for poor countries, published a limited-edition book entitled Global Development Finance Illicit Flows Report 2009. The Brussels-based institute had gathered data from the International Monetary Fund, the World Bank and other credible sources on money moving in and out of the tax havens. There was just one catch: every page of the book was blank.

Eurodad wanted to show the difficulty of sifting details on the wealth that the world’s richest, most powerful, and corrupt have hidden in offshore centres such as Switzerland and Luxembourg.

Obscured by layers of fictitious companies, official secrecy and complex financial instruments, trillions of dollars are stashed away in tax havens.

The International Consortium of Investigative Journalists (ICIJ) published the Paradise Papers – details of dozens of people and multinational corporations, which use offshore centres to hide their assets and commercial deals.

England’s Queen Elizabeth II, children of former Indonesian dictator Suharto, doctors in Asia receiving payments from a medical equipment manufacturer, iPhone maker Apple and Nike – are all among those exposed.

Many of them say they have done nothing illegal – and technically, they may be right. 

Activists protesting against Irish rock band U2's tax practice were pushed out by security at Glastonbury music festival in 2011.
Activists protesting against Irish rock band U2's tax practice were pushed out by security at Glastonbury music festival in 2011. (Getty Images)

Where the accounts have no name 

As Irish rock band U2 took the Pyramid stage at the Glastonbury music festival in 2011, there was a commotion in the crowd. Activists of the direct action group Art Uncut had unfurled an inflatable balloon, which read, “U Pay Your Tax 2?” and security was trying to remove them.

For years, U2 and its lead singer Bono have relied on offshore centres to shave their tax bill. Bono faces criticism for defending this financial trickery while at the same time campaigning to fight poverty. He also lobbies for debt relief of developing states, which themselves are victims of tax havens.

Bono is one of the more prominent beneficiaries mentioned in the Paradise Papers, the cache of over ten million documents, leaked from an offshore law firm Appleby.

Through a shell company in low-tax Malta, Bono, whose real name is Paul Hewson, invested in a shopping mall in Lithuania. He insists everything was legitimate.

The same tax havens used by Bono and others allow multinational corporations and corrupt officials to funnel money out of some of the poorest countries. 


It’s not always about tax. Accounting wizardry and outright deceit of transfer pricing, intra-company loans, the misinvoicing of trade numbers all rely on offshore centres to host their deception.

Between 1970 and 2010, thirty-three sub-Saharan African nations including Nigeria, Sudan, Angola, Gabon, Ethiopia and Democratic Republic of Congo saw a flight of capital to the tune $814 billion, according to a report by the University of Massachusetts Amherst.

That is way more than the debt – $189 billion – that all these countries together owed the rest of the world in 2010.

“If the capital that leaves Africa illegally is invested on the continent, it can meet the Millennium Development Goals of cutting poverty by half,” the authors noted in the report.

Those who use offshore centres straddle the gap between tax avoidance and evasion. But experts say the debate around that subject is pointless.

“I don’t see any distinction between avoidance and evasion. Often this distinction is used to suggest that what is happening is okay and legitimate,” George Turner of the Tax Justice Network told TRT World.

“They both start with the same intention, which is not to pay taxes, and end up with the same effect. It’s just kind of two ways of doing the same thing.”


At the heart of offshore tax havens lies a deliberate attempt to obscure the identity of the owner and their hidden wealth, something that on its own merit raises a lot of questions.

What is a tax haven anyway? 

No one agrees on a clear-cut definition of what constitutes a tax haven, also known as offshore centres.

Nicholas Shaxson, author of the book, Treasure Islands, writes that a place which helps people and companies circumvent rules and regulations in other jurisdictions, can be categorised as a tax haven.

For example, there is Ireland, which lures multinational corporations with very low corporate tax rates, and the United Kingdom, where a company can be registered on paper for $16 in just 24 hours.

There are more than 50 offshore centres, which offer different services, all essentially geared towards hiding ownership details of bank accounts and investments.

Not all offshore jurisdictions are used for tax evasion. For instance, a businessman with a Swiss bank account can invest in a mutual fund registered in Luxembourg without worrying about tax inspectors finding anything out. Essentially, the Swiss play the role of a middle man, account holders pay a minimum tax rate in the country, but the movement of their money out of Switzerland is cloaked in secrecy. 

The Paradise Papers and similar leaks show that ultra-rich individuals use a host of shell companies which are domiciled in different offshore jurisdictions to obscure the paper trail of ownership. 

Appleby, the law firm at centre of the Paradise Papers leak, is based in the offshore jurisdiction of Bermuda.
Appleby, the law firm at centre of the Paradise Papers leak, is based in the offshore jurisdiction of Bermuda. (Getty Images)

Very often these companies only exist on paper with dummy directors that are arranged by law firms hired by the tax evaders to set up the companies.

“Tax evaders have some of the finest advisers on their side,” says Niels Johannesen, an economic professor at the University of Copenhagen, who has also worked for auditing giant PwC as a tax adviser in Luxembourg.

“Their advice, along with the layers of secrecy, makes it real hard for outsiders to see what is happening.”

With trillions of dollars at stake, a whole industry of tax advisers, investment consultants, accountants and bankers have sprung up in and around offshore jurisdictions.

Thomas Torslov and Ludvig Wier, both economists, found that there were more than 260,000 LinkedIn profiles of people offering services related to transfer pricing – a technique multinational corporations employ to hoodwink tax collectors.

“At the same time, there are only 3,000 government tax auditors,” Torslov told TRT World.

Large corporations make thousands of cross-border transactions every day, making it impossible for tax authorities to sniff out the illegal ones.

Until a bank or taxpayer himself reports the wealth, detecting such transactions depend on whistle-blowers, leaks such as the Paradise Papers and journalists’ investigations. 

Iceland's Prime Minister Sigmundur David Gunnlaugsson stepped down amid massive protests in 2016 after it was found that he had accounts in offshore tax havens.
Iceland's Prime Minister Sigmundur David Gunnlaugsson stepped down amid massive protests in 2016 after it was found that he had accounts in offshore tax havens. (AP)

A multi-trillion dollar quagmire

French economist Gabriel Zucman, in his book The Hidden Wealth of Nations, says that the world’s offshore wealth exceeds $7 trillion, which is around 10 percent of the global financial household wealth.

That money is enough to settle almost all the debt of developing and poor countries.

Only a fraction of the offshore wealth is held as bank deposits. Most of it is invested in mutual funds, stocks and bonds. As money dissolves into the global financial market, it becomes difficult for authorities to figure out who owns what.

Zucman’s analysis of the Swiss banks reveals that half of the wealth in offshore centres belongs to European citizens, mostly French and Germans.

But the share coming from developing countries is catching up fast, he notes.

“[Individuals from] the African continent had $150 billion in Swiss banks, more than (what comes) from the US whose GDP is seven times bigger (than the African continent),” Zucman says.

Global Financial Integrity (GFI), which researches capital flight, says between $620 billion and $970 billion escape developing countries every year.

Most of it is illegally taken out through the misuse of trade invoicing, which happens when the value of exported or imported goods are manipulated to keep capital out of the country.

Nearly 60 percent of this capital flight from developing countries ends up in developed countries such as the US and the UK, GFI says.


An analysis of 150 high-profile cases of global corruption, bribery and embezzlement, carried out by the World Bank’s Stolen Asset Recovery Initiative, found that in most cases the culprits have relied on a fictitious company registered in one of the offshore centres.

Examples are aplenty.

In the early 1990s, Raul Salinas, brother of former Mexican President Carlos Salinas, wired $100 million to the US via Panamanian shell companies, which Citibank helped him create.

Former Zambian President Frederick Chiluba used a British Virgin Island company to purchase a block of flats and a hotel in Belgium. It was during Chiluba’s tenure that the country’s valuable copper mines were privatised.

Some of the biggest financial disasters of the past 17 years have been linked to offshore jurisdictions. The implosion of Enron, Bernard Madoff’s Ponzi scheme and the collapse of Lehman Brothers all had one thing in common: a web of offshore entities were used to hide their financial affairs.

US multinationals including Apple, Alphabet and Coca-Cola have piled up $2 trillion in cash reserves as they refuse to repatriate profits back home from offshore jurisdictions.

Reverse prosperity

One scandal that stands out in the Paradise Papers relates to Glencore, the world’s largest commodity trading company.

When a multinational company wants to evade tax in a country, it moves money from its subsidiary there to one of its shell companies in an offshore centre – the basic aim being to understate taxable profit.

Glencore has been accused of having done it all in the poor West African country of Burkina Faso where it runs a valuable zinc mine.

It used intra-company loans and fictitious payments to deprive Burkina Faso’s government of millions of dollars in taxes, ICIJ’s investigation found. 

Glencore is accused of taking profits out of poor countries by using a host of offshore firms.
Glencore is accused of taking profits out of poor countries by using a host of offshore firms. (AP)

Every year, multinationals move $200 billion dollars from developing countries to offshore centres to avoid tax payments.

Since some developing countries rely more on corporate tax revenue, such slippage has a disproportionate effect on the amount of money spent on schools, healthcare and roads.

Thomas Torslov and Ludvig Wier told TRT World that they have found that multinational corporations are much more aggressive in transferring their profits when they are in a developing country.

“Even though the dollar figure might be lower right now compared to the world, we expect it will grow as the companies expand,” Wier says.

“Our study shows that a multinational corporation in a developing country is twice as likely to report zero profit when faced with the opportunity to move the profit outside then if it were in a developed country.”

Tech companies have made tax collectors' jobs even harder.

Apple, Google and Skype have moved codes and algorithms, which are difficult to be priced, to offshore centres. They charge their subsidiaries for using this intellectual property and move profits to tax havens in the process.

“That’s because the laws and rules that govern tax payments were made a hundred years ago. They were made in another time when things were simpler,” Torslov says.

“Because we are using old rules on very modern firms, the firms are able to twist these rules in their favour.” 

Contrary to popular belief, the illicit flow of money out of Africa far exceeds the development aid and loans the continent receives from developed countries.
Contrary to popular belief, the illicit flow of money out of Africa far exceeds the development aid and loans the continent receives from developed countries. (AP)

Like many other economists and activists, Torslov and Wier recommend that the profits of big firms should be taxed proportional to the sales they make in each country.

“Instead of asking where are the profits, ask how much of iPhone sales were made in an individual country and tax the profit according to that,” Wier says.

It is a radically different system but not unusual. The US has been using it for years to settle tax distribution between its various states.

No silver bullet

Governments around the world have increased efforts to curb tax evasion and have begun to co-operate by sharing financial information of each other’s citizens.

Until 2014, the only way to get information about someone’s assets in another country was to make a formal request for it.

Led by the OECD, an organisation of rich countries, more than 100 jurisdictions have now adopted the procedure to automatically exchange financial information of non-residents.

But it remains to be seen how effective this will be in taming a multi-trillion dollar industry.

And authors of the Stolen Asset Recovery Initiative report have a stern warning.

They say whenever authorities will try to lift the veil of secrecy, the culprit will search for new ways to hide his wealth. 

“New forms of deception will be developed in response,” the report’s authors wrote. 

“The quest for a silver bullet is illusory.”

Source: TRT World