False profits: robbing the poor to keep the rich tax-free

This is the third Christian Aid report highlighting how banking secrecy and lax regulation adversely impact on the developed and developing world. This is the same secrecy and lax regulation that has been behind much of the financial chaos currently engulfing economies worldwide.

In this report, Christian Aid quantifies for the first time the damage done to individual countries by trade mispricing. It’s massive. Christian Aid commissioned international trade pricing expert Simon Pak, president of the Trade Research Institute and associate professor at Penn State University in the US, to analyse EU and US trade data and estimate the amount of capital shifted from non-EU countries into the EU, the US, the UK and Ireland through bilateral trade mispricing.

The totals he arrived at included prices that had either been artificially depressed or artificially inflated for tax purposes. Some of the prices, he warns, would primarily have been doctored for money-laundering or capital flight purposes, but even in those cases, there would have been a tax consequence. His findings are also based on the assumption that the data analysed was free from reporting error.

In spite of the enormous sums Professor Pak’s research exposes, they are just the tip of the iceberg. For he could only analyse publicly available trading data. Information held by tax havens, whose stock in trade is banking secrecy, would, if known, reveal a far more serious picture. Such jurisdictions are favoured by many multinational corporations.