The Wealth Hoarders, How Billionaire pay Millions to Hide Trillions, Chuck Collins, Polity Press, 224 pp, £15.99, ISBN: 978-150943496
During the trial in 1988 for tax evasion of Leona Helmsley, the New York hotelier and real estate billionaire known as the “the Queen of Mean”, her housekeeper testified that she had heard Leona say “We don’t pay taxes. Only the little people pay taxes.” Leona was convicted of tax evasion and served a prison sentence, but had she availed of the many schemes available to the wealthy to legally avoid taxes she would never have been indicted while possibly paying even less tax than through crude evasion.
Chuck Collins in The Wealth Hoarders investigates the activities of the army of lawyers, accountants and wealth managers who have created what he calls the Wealth Defence Industry to minimise the amount of taxes paid by the 0.1 per cent of billionaires who control most of the world’s wealth. Over the past thirty years this wealth had become ever more concentrated in the hands of a tiny minority. The world’s 2,153 billionaires own more wealth than the 4.6 billion people who constitute 60 per cent of the world’s population. In the USA, Warren Buffet, Bill Gates and Jeff Bezos own more wealth than the bottom half of the population of the USA put together. This concentration of wealth had been greatly facilitated by the Wealth Defence Industry, which has ensured that as the wealth is accumulated, its holders pay very little of it in taxes.
Collins outlines the development of the shadowy system of opaque trusts, “family offices”, shell companies and tax havens which the wealthy use to “shelter” their wealth against taxation in the countries in which it is earned. So successful is this system that the world’s wealthiest people often pay less in taxes than the lowest income earners in the countries where their wealth is generated. Warren Buffet has pointed out that he pays a lower rate of tax than his secretary and, to his credit, has advocated a minimum tax for the top income earners. Warren’s fellow billionaires by contrast “spend millions to hide trillions” as Collins shows in his exposé of the global tax avoidance industry.
Most people associate Swiss bank accounts with wealth concealment, and Credit Suisse was fined $2.6 billion for enabling US citizens to evade taxes, but the major banks have had to clean up their acts due to increased scrutiny, fines and reputational damage. Banks are now less important in the machinery of wealth concealment and tax avoidance than the firms of accountants and lawyers who have developed schemes to enable the concealment of at least $20 trillion in wealth. These firms enable the wealthy to avail of offshore tax havens, shell companies and complex financial transactions whose sole purpose is to avoid tax. The ethics of some of those firms was revealed when in 2015 an investigator for Global Witness, Ralph Kayser, purporting to be acting for an African government minister seeking to move hundreds of millions of dollars to the US, visited thirteen New York law offices seeking advice on how to move the funds, which he made clear were the proceeds of bribes. Twelve of the law firms, including that of the then president of the American Bar Association, responded by assuring Kayser that they could set up a scheme to conceal the funds. This episode showed that some of the Wealth Defenders are happy to facilitate the concealment of wealth acquired through crime.
Kayser’s cover story was a believable one because of the unbridled corruption of so many African politicians. Angola, despite having resources of oil and diamonds, is one of the world’s poorest countries and grew steadily poorer during the thirty-seven-year post-independence reign of President José dos Santos. In 2020 a Portuguese whistle-blower revealed that dos Santos’s daughter Isobel, Africa’s wealthiest woman, used her role as head of Angola’s state oil company to vastly enrich herself and her family. Although Deutsche Bank, Barclays and Citigroup refused to do business with dos Santos, the global accounting firm PWC had no qualms about the source of her wealth and provided the twenty companies she and her husband controlled with accounting services and tax advice. When the source of her wealth was revealed, dos Santos hired Irish PR consultant Rory Godson, a former Goldman Sachs executive known as “Rupert Murdoch’s man in Dublin” to plead her innocence.
Tax avoidance, as Collins points out, is a major engine of the ever-growing inequality in the distribution of wealth and the impoverishment of so many workers in both wealthy and poor countries. Most of the profits made by multinational companies in poor countries are channelled through tax havens so that those countries benefit little from the activities of the multinationals. For every dollar in aid given to Africa, two dollars are extracted in profits which are channelled through tax havens so that the African countries where the profits were made receive no tax revenue.
In developed countries the private equity funds owned by the wealth hoarders buy struggling firms, making workers redundant and stripping the assets of their employers. Private equity funds are also among the largest owners of offices and apartments in the world’s major cities, where they leave the apartments empty while they wait for them to increase in value while many remain homeless. In the aftermath of Ireland’s financial crisis, the Irish government, through Nama, sold a vast amount of distressed debt to US vulture funds, giving them control over thousands of houses and apartments in Ireland. In 2018 and 2019, three funds owned by Goldman Sachs, Ennis Property Finance, Beltany Property Finance and Liffey Acquisitions collected almost €1 billion in revenue on distressed Irish property loans. In 2016 Beltany Property attempted to evict a hundred families from their rented apartments in Tyrellstown so that they could sell the apartments at a large profit. Irish governments facilitate these practices through the preferential tax treatment of vulture funds and weak tenant protection. During their first five years in Ireland, the funds exploited a loophole in Ireland’s tax laws to pay no tax on their Irish profits.
The vast avoidance of taxes by the wealthy in developed countries raises the question of why the governments of those countries allow them to do so. Collins shows that in the USA, the wealthy ensure that politicians do not threaten their interests by lobbying and funding them. In some cases, such as the state of Delaware, which has no corporate income tax, the government has made tax avoidance a key public policy. Several small countries, including the Cayman Islands, British Virgin Islands and even EU member Malta, have made themselves into tax havens. Ireland is not quite a tax haven in the sense that those countries are, but our low corporate tax rate ensures that many of the world’s largest corporations channel profits made in other countries through Ireland to avail of this low rate. This channelling of profits through Ireland led to the EU Commission’s decision that Ireland’s tax treatment of Apple constituted unlawful state aid and that Apple owed €13 billion in taxes, nominally to Ireland but really to the countries in which the profits were made. Ireland vehemently rejected the Commission’s decision and supported Apple’s appeal against it. The Commission’s decision is currently being appealed in the European Court of Justice. Between 2013 and 2015 EU countries lost €5.4 billion in taxes from Google and Facebook due to their tax avoidance schemes.
In rich countries, the avoidance of tax by the wealthy results in the burden of taxation falling on low- and middle-income earners and the curtailment of the provision of public services. In Ireland, as in most rich countries, capital gains, which are often the result of speculation, are taxed at a lower rate than earned income. This favours the wealthy, as most of their income can be generated as capital gains.
The wealthy can also choose in which country they wish to be taxed and Ireland has around three thousand individuals and couples who are non-domiciled for tax purposes and therefore do not pay Irish income tax or capital gains tax on their worldwide income. In the UK, to be accepted as non-domiciled for tax purposes a person must pay £90,000; generous Ireland requires no payment. Dermot Desmond, John Magnier and Denis O Brien, who are non-domiciled for tax purposes, can live in Ireland for 183 days each year. When the 183 days are exhausted, they must enter and leave the country on the same day, an imposition which the Institute of Chartered Accountants had lobbied the government to abolish. While not a tax exile, Larry Goodman ensured that the profits earned by his Irish meat processing plants in 2018 were largely untaxed, being channelled through a Luxembourg holding company. When this tax avoidance scheme was revealed, Goodman closed the Luxembourg company and moved his operations to more secretive entities in Lichtenstein and Jersey.
Chuck Collins is probably not aware that an Irish accountant, Des Traynor, was a pioneer in the area of facilitating the wealthy to avoid tax. Traynor, a financial adviser to Charles Haughey, an executive of Guinness Mahon Bank and a director of CRH, Ireland’s largest indigenous multinational company, ran a private banking operation from CRH’s office from 1971 to 1995 for the benefit of two hundred of Ireland’s wealthiest people. Traynor operated secret accounts with Ansbacher Bank in the Cayman Islands which enabled the account-holders to avoid Irish tax. Traynor’s scheme was only discovered because Ben Dunne, disoriented after taking cocaine with a prostitute in a Miami hotel, attempted to jump from a balcony. Dunne’s behaviour caused his sister, Margaret Heffernan, to carry out an investigation of his use of funds in the family’s trust. The investigation revealed Ben Dunne’s payment of £2 million to Charles Haughey and Traynor’s handling of Haughey’s ill-gotten wealth.
Tax avoidance is a global problem and, as Collins argues, can only be solved by global co-operation. The EU and the OECD for the past twenty years have been trying to achieve international agreement on the taxation of corporate profits. Taxation is one of the very few areas of EU policy where unanimity in decision-making is needed. All Irish governments have vehemently opposed EU tax harmonisation as it would inevitably lead to an increase in Ireland’s 12 per cent corporate tax rate. Closing tax havens is almost impossible, as sovereign states fiercely protect their right to decide on their own tax regimes, but the OECD is making some progress in forcing greater disclosure by tax havens. In 2020 the EU added the Cayman Islands to a blacklist of “non-co-operating” tax regimes, but later removed it after the Cayman authorities made some cosmetic changes to their tax laws.
Some pressure can be exercised on firms of accountants and lawyers who, unlike the wealthy whose interests they defend, are domiciled in countries with regulatory regimes for their professions which could be used to curtail their activities. There has been some progress in information-sharing between countries on financial transactions through the global Common Reporting Standards. The EU’s anti-money-laundering directive requires member states to maintain registries of beneficial ownership, but these rules apply only in member states and not in the many tax havens where ownership may be concealed. President Biden has committed to closing tax avoidance schemes in the USA, particularly those based on trusts and other legal mechanisms for avoiding estate and property taxes.
The greatest contribution of The Wealth Hoarders is to reveal how the super-rich live in a world where they can not only avoid paying tax but any laws they find inconvenient. It is the existence of this world, called Richistan by Robert Frank in his book of that title, that is fuelling the increasing disillusion with globalisation and the rise of populist political movements. Chucks Collins was born into a wealthy family and at the age of twenty-one inherited a substantial fortune, which he gave to a charitable trust. He cannot therefore be accused of what that great champion of inequality, Margaret Thatcher, called “the politics of envy”.
Sean Byrne is lecturer emeritus in economics at Technological University Dublin.