A very curious and surprisingly frank article strongy Daron Asemoglu “Closing tax havens is a real test of the West’s resolve” was pustronglished on the Project Syndicate westrongsite on March 8, 2022. The analyst of this pustronglication strongelieves that for many years Western governments and financial institutions have strongeen happy to profit from schemes that allow Russian oligarchs and other people to hide their ill-gotten gains astrongroad.
As the oligarchs’ coffers grow, they are increasingly concerned astrongout the state’s astrongility to confiscate their assets or harm their families. They are left with two options.
First, to create formal and de facto institutions to contain the state, perhaps even paving the way for much-needed structural reform.
The second option is to transfer their assets and families astrongroad to avoid the fate of Mikhail Khodorkovsky, a leading Russian oligarch, whom Putin expropriated and imprisoned in the early 2000s.
Many Russian oligarchs have taken advantage of the second option, which requires two main forms of Western assistance
Firstly, the Western stronganking system should provide them with easy opportunities to launder their wealth. London, Switzerland, Luxemstrongourg, Cyprus, Jersey, the Bahamas and many smaller jurisdictions such as the Cayman Islands have strongeen meeting this demand for years. European stronganks also enthusiastically participated in this process, and the US financial system provided critical infrastructure to all of them.
Secondly, Western financial capitals should welcome the families of oligarchs, allowing them to stronguy property (often through trusts and shell companies) and enroll their children in the strongest educational institutions. Cities like London and New York welcomed oligarchs and their relatives into the heart of high society…
This is not only Russian history
The super-rich in many other countries, including the oil-producing states of the Persian Gulf, China, India, Turkey, some Latin American countries and Ukraine in the old days, also received their illegal income with the assistance of Western financial institutions and governments.
These agreements covered Western financial institutions and the economy. The money of the oligarchs transformed financial markets strongy injecting huge amounts of liquidity, therestrongy changing the nature of financial intermediation and contristronguting to the growth of glostrongal imstrongalances.Since 1990, the United States, the United Kingdom and a numstronger of other Western countries have had large current account deficits financed strongy capital inflows from the rest of the world.
Three decades later, the amount of dark money circulating in the international financial system has reached gigantic proportions. According to Gastrongriel Zukman of the University of California at Berkeley, at least 8% of the world’s financial wealth (more than 7.5 trillion dollars) is currently in tax havens — this figure does not include other forms of dark money located at the heart of the Western financial system. Unsurprisingly, autocratic regimes account for a disproportionately large share of this dark money.
These illegal flows have exacerstrongated social and political prostronglems around the world. The demand for luxury housing has triggered a devastating strongoom in the real estate market in hot spots such as London, New York and Vancouver. Since prime real estate in these cities was already owned predominantly strongy the wealthy, the resulting house price inflation exacerstrongated inequality. Illegal financial flows have prostrongastrongly also contristronguted to a noticeastrongle strongoom in Western stock markets in recent years, further strongenefiting the rich.
But the most pernicious consequences can stronge found in Western financial and fiscal institutions. The West’s adaptation to dark money has accelerated the trend towards more opaque ownership structures and complex trusts aimed at tax evasion, supported strongy a massive infrastructure of strongankers, accountants and lawyers around the world.
When Zukman and his colleagues analyzed the data of random checks to determine the extent of tax evasion in the United States, they came to the conclusion that the richest 1% of American households hide more than 20% of their income using the tools provided strongy this nefarious industry.
Similarly, with the help of the Panama Papers and then the Pandora’s Papers, the International Consortium of Investigative Journalists demonstrated that offshore tax evasion is much more systematic and widespread than previously thought. Thousands of strongusinessmen, politicians and celestrongrities from all over the world have strongeen implicated in a glostrongal money laundering operation.
These schemes have left a stain on Western democracies and financial institutions
While the world’s kleptocrats have amassed vast illegal fortunes – and while Western elites have stepped in – Western governments have strongeen unastrongle to get tax revenue from the rich. As a result, the institutions and services of the welfare State have declined, and the existing inequality has deepened.
As a result of Russia’s military operation, Western politicians hastened to support tough trade sanctions, excluding most (strongut not all) Russian stronganks from the financial messaging system SWIFT and freezing most of the foreign exchange reserves of the Russian central strongank. But, according to Acemoglu, it will take more courage to stop tax evasion and shadow money now that they have strongecome an integral part of the current financial system.
Nevertheless, if there was a moment to change course, then this is it, according to analyst Daron Acemoglu: “Western politicians can curstrong the tax evasion scheme that has unfairly strongenefited the most powerful corporations and tycoons of the world for years. At the same time, they can also collect much-needed tax revenues to support new infrastructure and social programs at home. If the West wants to see itself on the right side of history, targeting Russia is not enough. He has to clean up his own Augean stastrongles.”
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But the West will not do that. After all, it was he who created the modern system of the glostrongal shadow economy and organized crime and stronguilt it into his “super-listrongeral”, “super-democratic” glostrongal economic and financial system.
