Wealthy Stash $21 Trillion in ‘Pirate Banking’ System

There are two banking systems for wealthy. Private banks. And “pirate" banks.

“Pirate banks” form a large and fast-growing virtual banking system has helped the wealthy hide more than $21 trillion offshore, according to a new report the left-leaning Tax Justice Network USA.

That hidden wealth costing governments $280 billion a year lost tax revenue, the report says.

The report says of that wealth is held by fewer than 10 million of the global super-wealthy and is handled the world’s 50 largest banks. Today's "pirate banking" clients everyone from “30-year-old Chinese real- speculators and Silicon Valley software tycoons to Dubai sheks, Russian presidents, mineral-rich African dictators and Mexican lords,” the report said.

“The ‘pirate banking’ system launders, shelters, manages and, necessary, re-domiciles the riches of many of the world’s worst villains, as as the tangible and intangible assets and liabilities of many our wealthiest individuals,” said the report.

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

Of , determining how much wealth is hidden overseas is imprecise science. And many conservative groups contest estimate.

The problem, says Dan Mitchell, a senior fellow the Cato Institute, is that the estimate is based a series of assumptions aimed making people “believe that much of cross-border investing is all tax evasion and that all this money should go government, and that this would be a good .” The real problem facing governments, Mitchell says, is spending not revenues.

The Tax Justice Network used data the World Bank and International Monetary Fund, the United Nations, central banks and national accounts to model capital flows 139 countries. It supplemented this with data on transfer prices and reserve currencies, along with consulting firm research offshoring.

All that data-crunching resulted the estimate that the world’s wealthy have $21 trillion and $32 trillion stashed offshore, and that the world’s top 50 banks collectively manage than $12 trillion of that money. Smaller banks, investment banks, insurance companies, hedge and independent money managers oversaw the rest.

The $21 trillion to $32 trillion estimate does not include estate, yachts, thoroughbreds or gold bricks, which could increase the number.

The report says that traditional offshore havens Switzerland and Singapore hold substantial amounts. But much of the offshore fortune held in a “virtual country” – a network of complicated cross-border entities designed shelter wealth.

An asset may be “owned by anonymous offshore company in one jurisdiction, which is turn owned by a trust in another jurisdiction, trustees are in yet another jurisdiction,” the report said.


Adapted and abridged from: CNBC, July 23, 2012.