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How The Wealthy Hide Billions Using Tax Havens - YouTube
Channel: Business Insider
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- [Narrator] In 2016, 11.5
million files were leaked
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from Mossack Fonseca, the
world's fourth largest
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offshore law firm.
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These were called the Panama Papers.
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Hundreds of thousands of offshore entities
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and shell companies connected
to over 200 countries
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and territories appear in the papers.
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Prominent world leaders,
politicians, business people
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and the super wealthy were
exposed to have been using
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offshore accounts for tax
avoidance and other purposes.
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So, why should you care?
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Every year, about 70 billion dollars
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that the US could be
using for infrastructure,
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law enforcement, healthcare
or education is missing.
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It's hidden deep within shell companies
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and anonymous entities
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in places like the British Virgin Islands.
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Now, let's back up.
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What exactly is a shell company anyway?
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- Setting up a shell company
is really quite easy.
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You can go to a place like Panama
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or the British Virgin
Islands or Delaware or Nevada
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and usually the places
where you're doing it
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have tough laws where they will not reveal
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who the beneficial owner
is and they just layer on
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different aspects of anonymity.
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So for example, you
could have fake directors
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where you pay a little bit
extra and someone pretends
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to be the public face of this company.
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Just because you have a
shell company does not mean
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necessarily that you're
doing anything illegal.
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Say for example, you wanna
have some business activities
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but you don't want certain
business partners to know
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what you're doing.
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The more normal one is some
form of legal tax avoidance.
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I think that a lot of people in the US
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think that tax evasion and
tax avoidance is something
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that happens in a far
off place with palm trees
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and ocean breezes.
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And the reality is it's a big deal here.
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The US Treasury estimates
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that something like 300
billion dollars a year
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is laundered through the United States.
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Foreigners are coming in
and buying up property
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with anonymous shell companies
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and some of that is perfectly legitimate
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but some of it is clearly money laundering
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and corrupt officials and
other people using their cash
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to park it in property
and making it impossible
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for the people who live
there to afford it.
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And our government is claiming
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that it doesn't have enough
money for infrastructure
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or for healthcare or for
police or for education
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and at the same time,
there's just huge amounts
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of tax avoidance and tax evasion going on
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through this secrecy world.
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Worldwide tax authorities have collected
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more than a half a billion dollars
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based on the Panama Papers leak.
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- [Narrator] Of the
214,000 entities identified
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in the Panama Papers, about
one half of them are located
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in the British Virgin Islands.
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How did this tiny area
become such a huge tax haven?
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Mossack Fonseca is a Panama
based law firm founded in 1977.
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After instability in Panama
was pushing clients away
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during the '80s, the firm discovered
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the British Virgin Islands
were ripe new territory
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for anonymous shell companies.
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- Their vision was to be McDonald's
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of the offshore system, right?
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It was high volume, low cost
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and so they were going to pump out
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these anonymous shell companies
and make them available
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to a wider audience.
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In the beginning, that's a
great business model, right,
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because all you're doing is
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you create this anonymous shell
company, you give it a name,
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you don't care who actually
is behind it and you stick it
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in a folder and you forget about it
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until a year passes and
it's time to invoice
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for the renewal.
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Later on, there's more vetting.
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Governments start to realize
that these are being used
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by criminals and money
launderers and things like that
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and so they say, "We
need more information."
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And I asked Jurgen Mossack,
"Did you ever see that wonderful
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"I Love Lucy episode where
she's in the chocolate factory
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"and she's trying to keep
up with the conveyor belt
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"and it's going faster and faster?"
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And he said, "Yes."
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It was very much like
that at a certain point.
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- [Narrator] So we know it's a big problem
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but how is this still happening?
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- There's a lot of bureaucratic
inertia and timidity
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in the IRS for sure.
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But another big part of it is
that Congress has eviscerated
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the IRS and they've starved it
of funds, there's been a lot
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of retirements and so you've
deliberately hobbled the IRS
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and made it impossible for
them to go after this kind
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of tax evasion.
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A lot of this information
is being held in banks
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and in jurisdictions where
they do not cooperate
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with US authorities easily.
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The only way that the
IRS can really figure out
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what's going on is through these leaks.
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And it's really these
leaks in recent years
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that have allowed the IRS
and the rest of the public
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to really get a vision
of how this system works
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and how big it is, how all-encompassing.
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It's gonna take people being aware
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that the reality is we don't
have to accept the austerity
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that is being forced on us.
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The Europeans are ahead of us
on this because they got hit
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very hard after the financial crisis.
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There were major cutbacks
in multiple countries.
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And so when these leak
investigations started coming out
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and they found out that the
mega wealthy amongst them
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were not paying their fair
share, people got very upset
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about that and it really hasn't penetrated
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in the United States quite as much
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but I suspect that it will in the future.
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