JOURNAL: Wealthy Stash $21 Trillion in 'Pirate Banking' System Posted By: Robert Frank

Wealthy Stash $21 Trillion in 'Pirate Banking' System



Posted By: Robert Frank | CNBC Reporter & Editor



There are two banking systems for the wealthy. Private banks. And

"pirate" banks.



"Pirate banks" form a large and fast-growing virtual banking system

that has helped the wealthy hide more than $21 trillion offshore,

according to a new report from the left-leaning Tax Justice Network

USA.



That hidden wealth is costing governments $280 billion a year in lost

tax revenue, the report says.



The report says much of that wealth is held by fewer than 10 million

of the global super-wealthy and is handled by the world's 50 largest

banks. Today's "pirate banking" clients include everyone from

"30-year-old Chinese real-estate speculators and Silicon Valley

software tycoons to Dubai oil sheks, Russian presidents, mineral-rich

African dictators and Mexican drug lords," the report said.



"The 'pirate banking' system now launders, shelters, manages and, if

necessary, re-domiciles the riches of many of the world's worst

villains, as well as the tangible and intangible assets and

liabilities of many of our wealthiest individuals," said the report.



The report was written by James Henry, a former economist for McKinsey & Co.



Of course, determining how much wealth is hidden overseas is an

imprecise science. And many conservative groups contest the estimate.



The problem, says Dan Mitchell, a senior fellow at the Cato Institute,

is that the estimate is based on a series of assumptions aimed at

making people "believe that much of cross-border investing is all

about tax evasion and that all this money should go to government, and

that this would be a good thing." The real problem facing governments,

Mitchell says, is spending not revenues.



The Tax Justice Network used data from the World Bank and

International Monetary Fund, the United Nations, central banks and

national accounts to model capital flows for 139 countries. It

supplemented this with other data on transfer prices and reserve

currencies, along with consulting firm research on offshoring.



All that data-crunching resulted in the estimate that the world's

wealthy have between $21 trillion and $32 trillion stashed offshore,

and that the world's top 50 banks collectively manage more than $12

trillion of that money. Smaller banks, investment banks, insurance

companies, hedge funds and independent money managers oversaw the

rest.



The $21 trillion to $32 trillion estimate does not include real

estate, yachts, thoroughbreds or gold bricks, which could also

increase the number.



The report says that traditional offshore havens like Switzerland and

Singapore hold substantial amounts. But much of the offshore fortune

is held in a "virtual country" – a network of complicated cross-border

entities designed to shelter wealth.



An asset may be "owned by an anonymous offshore company in one

jurisdiction, which is in turn owned by a trust in another

jurisdiction, whose trustees are in yet another jurisdiction," the

report said.