The billionaire crisis: easy come, easy go
Rapper Notorious B.I.G. may have said it best when he sang, “Mo money, mo problems.”
The global uber rich have no shortage of complaints right now, given volatile markets where we have witnessed the combination of the commodities downtrend, the unwinding of petrodollar flows, banks getting fined for managing secret accounts and the arrival of negative interest rates.
On top of all of that, those opting to stash cash offshore have found that the practice is a lightning rod for criticism.
In the recent Panama Papers leak, 11.5m files from an offshore law firm revealed the degree to which prominent names in business, politics and entertainment take advantage of offshore financial planning opportunities. Following the revelations, a number of leading economists including Nobel Prize winner Angus Deaton, former IMF chief economist Olivier Blanchard called for an end to tax havens, saying they “serve no useful economic purpose” and do not “add to overall global wealth”.
Others have taken a more colourful approach to denouncing tax havens. During a recent anti-corruption summit in London, protesters transformed Trafalgar Square into a “tropical tax haven” with palms, ice cream sundae shops and sand to protest London’s prominent role in facilitating access to offshore services.
Offshore havens contend, of course, that international trade and business can’t thrive without access to neutral and tax efficient jurisdictions. There argue there are many legitimate reasons for using their services, among them providing business people who operate in dangerous business climates with the option to put their assets out of reach of corrupt authorities or criminals, or to get around hard currency restrictions. Others use offshore for reasons of multinational inheritance and estate planning.
From all perspectives it’s a controversial topic and one unlikely to go away soon.
Hence we’re bringing the controversy to this year’s FT’s Festival of Finance* on July 1 The HAC Royal Artillery Gardens, just by Moorgate.
Discussing all of the above, plus more, will be FT Alphaville’s Paul Murphy alongside Gabriel Zucman, author of the Hidden Wealth of Nations, Ronen Palan a tax haven expert from City University, Richard Murphy from Tax Justice and — representing the tax havens — Howard Bilton chairman of The Sovereign Group.
Reasons why it’s suddenly harder to remain a billionaire?
World’s smallest violin at the ready, but yes, the super-rich do suddenly have it a bit harder than before. From mansion taxes and the risk of being named and shamed as an offshore tax beneficiary, to finding trustworthy financial advisers to manage your fortunes without eroding them or having to disclose how many properties in London’s Belgravia you really own — preserving one’s mega wealth has never been more challenging.
Those feeling the pain so far this year: Berkshire Hathaway’s Warren Buffett, Mexico’s Carlos Slim and Microsoft co-founder Bill Gates – all of whome have taken a huge hit losing billions after the global sell-off triggered by China’s stock market.
Are we already seeing the repercussions of corruption and tax clampdowns, capital reversals and negative rates?
Wealth distribution data from Knight Frank’s reports suggests the next decade will see fewer super wealthy created. Statistics prepared for the 2016 report by wealth intelligence company New World Wealth meanwhile showed that 6,000 people dropped out of the UHNWI wealth bracket in 2015 – a 3 per cent slide. They blamed the downward shift on slower economic growth and the more volatile financial climate.
In other news, Saudi Arabia is suddenly cash strapped. Who’d have thought that two years ago?
Are some people who use offshore structures doing so for illegal reasons?
In a speech last year in Singapore, David Cameron said “the corrupt, criminals and money launderers” take advantage of anonymous company structures. The government is trying to do something about this. It wants to set up a central register that will reveal the beneficial owners of offshore companies. From June, UK companies will have to reveal their “significant” owners for the first time.
But Cameron has also disclosed he made money from an offshore investment, after the Panama Papers revealed that his father set up a Bahamas company in the 1980s.
What’s inequality got to do with it?
In his latest book, The Hidden Wealth of Nations, Gabriel Zucman, offered insight into how much wealth may be hidden in tax havens like Switzerland, Luxembourg and the Cayman Islands, and how this may be linked to the rise of the one per cent.
One of Zucman’s most intriguing observations is that the world’s financial liabilities are worth about $7.6 trillion more than the world’s financial assets. On the surface there are only three explanations for this: aliens have been accumulating trillions of dollars of claims against Earthlings, innocent mistakes by statistical agencies add up to an enormous gap, or, most believably, the world’s ultra-rich have squirrelled away trillions of dollars from the authorities to avoid paying tax.
If all that tickles your fancy, come join us on July 1 and tell us how you really feel about the travails about the UHNWI.