The Hidden Wealth of Nations

6 ideas

1. Measuring hidden wealth through accounting asymmetries

   Globally, every financial asset should correspond to a liability somewhere, so recorded world liabilities should roughly equal recorded world assets. Portfolio securities such as fund shares issued in places like Luxembourg and Ireland show up as liabilities, but the matching assets owned by households through Swiss and other offshore accounts go unrecorded. This produces a gap in which the world looks like a net debtor to itself, and that gap measures offshore household wealth.

2. Eight percent of household financial wealth offshore

   About 8 percent of global household net financial wealth, roughly $7.6 trillion in 2013, is held in tax havens, and most of it goes unreported to the owners' home tax authorities. The share is much higher for some regions, reaching tens of percent for Europe's wealthy, the Gulf states, Russia and parts of Latin America and Africa, so the damage is unevenly distributed.

3. Rich countries are net creditors, not debtors

   Once unrecorded offshore holdings are added back, Europe's apparent net external debt disappears and the euro area becomes a net creditor to the rest of the world. Public debt problems then look less like a shortage of national wealth and more like a failure to tax wealth that residents own but hide abroad.

4. Swiss banking as funds-management conduit

   Swiss banks manage a large share of foreign-owned wealth, but most of it is not invested in Switzerland. It is routed into mutual funds domiciled in Luxembourg and Ireland, so the haven's role is custody and secrecy rather than investment. Swiss National Bank statistics on foreign custody accounts let this chain be traced and quantified.

5. Automatic exchange fails without verification and sanctions

   Bilateral treaties and information exchange on request leave havens free to under-deliver, because banks can reassign accounts to shell companies, trusts and foundations, and noncompliance costs them nothing. Transparency only works if it is automatic and paired with enforcement that is costly enough to change the incentives of both banks and haven states.

6. Global register plus proportional tariff sanctions

   A worldwide financial register would record the ultimate owner of every stock and bond, which would make evasion through shells and nominees traceable. Wealth would be taxed at source, with credits for owners who declare. Havens that refuse to cooperate would face trade tariffs set to match the tax revenue they cost other countries, so that for small haven states the price of keeping secrecy is higher than what secrecy earns them.

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