Matrix On Point

Matrix on Point: Wealth and Taxes

Part of the Matrix on Point event series

How do the wealthy maintain their wealth through tax havens, and what can we learn about these opaque practices?

Recorded on April 3, 2023, this panel featured experts explaining aspects of the global ecosystem of tax avoidance, including how corporations and individuals move across multiple legal jurisdictions to maintain wealth and avoid paying taxes.

The panel included Duncan Wigan, Professor with Special Responsibilities in the Department of Organization at Copenhagen Business School; and Gabriel Zucman, Professor of Economics at the Paris School of Economics and Ecole Normale Supérieure – PSL, Associate Professor of Economics at UC Berkeley, Director of the EU Tax Observatory, and director of the James M. and Cathleen D. Stone Center on Wealth and Income Inequality at UC Berkeley.

The panel was moderated by Marion Fourcade, Professor of Sociology at UC Berkeley and Director of Social Science Matrix.

Co-sponsored by Social Science Matrix, the Network for a New Political Economy (N2PE), the Stone Center on Wealth and Income Inequality, and the Berkeley Economy and Society Initiative.

Listen to this event as a podcast below, or listen on Google Podcasts or Apple Podcasts.


Matrix on Point: Wealth and Taxes


[JULIA SIZEK] Hello, everyone. And welcome to our panel. I hope that you all had lovely spring breaks if you were here. My name is Julia Sizek. And I’m a postdoctoral scholar here at UC Berkeley’s Social Science Matrix. We’re delighted to welcome our panelists and you here today for our Matrix On Point session, that is entitled Wealth and Taxes, which will concern the global ecosystem of tax avoidance.

Today’s event is part of our Matrix On Point series when we address pressing contemporary issues. And this event today is co-sponsored by the Network for a New Political Economy, the Berkeley Economy and Society Initiative, and the Stone Center on Inequality.

But before we get started, I’m just going to let you know about some of our upcoming events at Matrix. On April 20, we will be having another Matrix On Point panel, entitled Border Crossing about the US-Mexico border. And on May 1, we will be having the Matrix Distinguished Lecture by Orlando Patterson. Now, I’m going to introduce our moderator who does not really need an introduction.

Marlon Fourcade is our director here at Social Science Matrix. And herself is trained in the variations of economic and political knowledge in practice across nations. She is the author of the book, Economists and Societies, which explores the distinctive character of the discipline and profession of economics in three countries. A second book, The Ordinal Society, investigates new forms of social stratification and morality in the digital economy.

So without further ado, I will turn it over to our moderator, Marion, for comment.

[MARION FOURCADE] Thank you so much. So I cannot imagine a better topic or a Matrix On Point event that is joined with the Stone Center on Wealth and Income Inequality, the new Berkeley Economy and Society Initiative, and the Network for New Political Economy, no better topic than the topic of wealth and taxes.

Today, wealthy individuals and corporations maintain and expand their wealth by lowering their tax exposure through political lobbying and also by carefully manipulating states abilities to see and tax them. The strategies for optimizing tax exposure are complex, opaque, and global. They mobilize armies of experts operating across national and subnational jurisdictions.

So today’s panel is about understanding how these strategies fit together to form coherent patterns of global wealth management. And it is also about pondering the social consequences of what Emmanuel Saez and Gabriel Zucman here have called the triumph of injustice or the social consequences of giving the wealthy a free pass as if they were outside the social contract and need not support collective institutions.

Now, the idea for this panel came together when Leonard Seabrooke, Professor of Organization at Copenhagen Business School reached out to us about his recent edited volume with Duncan on global wealth change. Leonard was supposed to be with us today. But unfortunately, time’s COVID infection forced him to stay back in Denmark. But we are very lucky to have his co-editor with us here.

So Duncan Wigan is Professor in the Department of organization at the Copenhagen Business School. His research shows how innovations in finance and multinational corporate organization change capitalist institutional forms and relations in the international political economy. He was co-author of the European Commission Horizon 2020 Framework Program Project called COFFERS– I love this name– Combating Fiscal Fraud and Empowering Regulators, COFFERS. And he was a researcher on the ERC Advanced Grant, CORPLINK, Corporate Arbitrage and CPR Maps– Hidden Structures of Control in the Global Economy.

His latest book published in 2022 with Leonard Seabrooke is Global Wealth Change– Asset Strategies in the World Economy. And in addition to these are some possibilities, he directs the master’s program public management and social development at the Sino-Danish Center in Beijing.

Berkeley is, of course, one of the greatest institutions in the world when it comes to research on taxation and income and wealth inequality. And of course, Gabriel Zucman was a very natural panelist here. Gabriel is associate professor of economics here at Berkeley and co-director of the James and Cathleen Stone Center on Wealth and Income Inequality here at Berkeley. He’s also professor of economics at the Paris School of Economics and the economa superior and director of the EU Tax Observatory.

His research focuses on the accumulation, distribution, and taxation of global wealth and has renewed the analysis of the macroeconomic and distributional implications of globalization. His book, The Hidden Wealth of Nations, develops methods to measure wealth held in tax havens. His award-winning book with Emmanuel Saez, The Triumph of Injustice, which I just mentioned, presents an analysis of the progressivity of the US tax system, taking into account all taxes at all levels of government since the creation of the income tax in 1913.

In 2021, he was named an Andrew Carnegie fellow. And he received the Excellent Award in Global Economic Affairs from the Kiel Institute for the World Economy in 2017 and the Best Young French Economist Prize awarded by Le Monde and Le Cecle des Economistes in 2018. So we are very lucky to have you both. And without further ado, maybe Duncan, you can take it away with your own presentation.

[DUNCAN WIGAN] Well, thank you very much for the invitation. And thank you for organizing this event. It’s not only sad that Leonard isn’t here because there’s COVID in his family. But it’s also sad because he’s always the one that’s got the good jokes. He did promise that he’ll text Marion a few jokes for me during the talk. But we’ll see if he manages that.

I want to talk about this added volume and the kind of project that has led up to it and the way we’ve framed this, the topology we’re trying to promote around looking at asset management strategies in the world, economy, and talk a little bit about the cases that have been developed around the concept. And then I’m going to finish by saying where are we going with world chains next or where we’re trying to go with world chains.

Next, I’ll start with a bit of framing and a bit of theory. Two old white guys relying on two old white guys. We view markets as embedded in societies. And I don’t think that’s a massive breakthrough for this audience. We’re using old institutional economics. We think that informal institutions and cultural institutions are very important for market maintenance and wealth chain maintenance looking at the social networks that replicate the structures that we identify in the world economy.

From Veblen, we take very seriously this division between industry and business or the division between the engineers and the absentee owners. And from Commons, we take very seriously this notion of reasonable value that’s negotiated in courts on the basis of consensus and expert opinion and the idea that value arises from something we’ve termed legal affordances. These are either positive provisions in the law that allow for arbitrage, allow for invisibility, or their absence is in the law that can be exploited. And given that we’re in California, we can think about whether Uber is a transport company or an information company in these regards and whether– and the consequences for sales tax collection of that distinction.

From Commons, we take this simple sort of structure, that every exchange has two lives. One is the life of the physical exchange, and it’s the journey of the commodoty or service from supplier to consumer. But every physical exchange is mirrored in law by a contract, by a set of rights and entitlements that enable the holder of that contract to position him or herself differentially in the world economy. And from this distinction, we think we need to make a distinction between value chains and what we’re calling wealth chains.

One thing you begin to see when you take that distinction seriously is the difference between a firm and a corporation. And that difference is the wellspring of our project. So number one is the vertically integrated national champion, where the wealth chain and the value chain are hardly distinguishable, except for the laws of incorporation within a particular jurisdiction.

Number two is the word of Robert Gilpin of the internationalization of the firm and the beginning of patterns of wealth management, marketing processes of internationalization. But again, we feel in this period and in this depiction, the wealth chain is secondary and chronologically after the value chain.

And following work of Neil Fligstein many years before us, I guess, the third depiction is the depiction of the multinational enterprise, not the multinational corporation, because that tempts us to conflate corporations and firms. But the multinational enterprise is about managing value chain entities and wealth chain entities through a corporate structure. And on the left, we have the dominance of the c-suite and the CFO and the CEO on that side. And on the right-hand side, we have the global professional services firms and all sorts of elite advisory firms that are guiding processes of corporate structure.

The firm is the world of the value chain. This is describing an economic activity. And the corporate structure is the world of wealth chains. This is a kind of a flippant reference to the distinction we’re trying to make. But it’s an important distinction. Because one of our purposes is to change policy language around how we understand the multinational enterprise.

For decades now, we’ve studied the multinational corporation as a value adding entity. And we’ve thought about distribution as a process that emerges out of a kind of battle between stakeholders over who gets to keep the value that is added in a globally dispersed production process. But I think it’s a problem for policy that it’s stuck in this world 30 or 40 years later.

I read a remarkable report from McKinsey Global Institute called the Global Balance Sheet. And I think it was written in 2021. And that shows that corporations and the economy or in the economy in general, broadly, asset revaluations account for as much wealth as operations. So we live in a world where assets and asset revaluations are as important to distributional outcomes as operation. So at least the wealth chain is now paralleling the value chain. And we need to take that seriously as a group of scholars interested in issues of growing inequality and fragility in the political economy.

So this is the value chain framework. It follows the commodity understood as tracing the flow of a commodity in dyadic relations between firms from production design, marketing, and distribution, relying heavily on the smile curve to understand who captures value from this process. And the GVC research paradigm has promised opportunities or to understand opportunities for development by participating in value chains. And value chains as learning systems that enable development through the capture of value added. And GVCs can be regulated and thrive on transparency.

And this is the topology from Gereffi et al, who identify five different value chains with power asymmetries and complexity, increasing as we move from the left with the market chain to the right with the hierarchy chain. And they identify these different chains on the basis of three criteria– the complexity of information needed to sustain the transaction; the ability to write down information and pass that piece of paper over to your supplier or not; and the capabilities of potential suppliers to meet the requirements of the transaction.

We’ve defined global wealth chains initially in 2017 as transacted forms of capital operating multi-jurisdictional for the purposes of wealth creation and protection. And we use these three criteria very much explicitly mirroring the value chain research. And that’s partly an analytical move but also, of course, partly a rhetorical move to kind of shift this policy language as a Steven Vogel’s Marketcraft would suggest that we need today.

So we think the complexity of information and knowledge transfer is important to the type of chain that we’ll see. The regulatory liability applied from the transfer is important to the type of chain will see, not codification, because wealth chains often rely on opacity to thrive and again, the capabilities of suppliers to create solutions to mitigate any challenges to the consensus around the transaction.

And we, again, explicitly mirroring Gereffi et al, use the same five types from market through modular to relational and captive and hierarchy to distinguish different types of chain on the market. This is a pure market transaction, where you will obtain a service or product simply by looking in the back pages of the economist to relational chains where the transaction relies on very close coordination between parties all the way over to the right to hierarchy chains where the supplier and client may be working together in-house or indeed maybe the same entity. And I’ll give some examples of this.

The other thing that we think is really important here are information asymmetries between the different actors involved in the chain. So we have suppliers and clients and regulators here. And often the job of the supplier is to stretch the information, asymmetry stretched that bottom line between the regulator and the client. I’ll try and make this a little bit more concrete now.

So we came up with this topology. And it’s important that we recognize that a topology isn’t about identifying real types out there. It’s about identifying ideal types. And it’s a methodological strategy. But we thought we’d better put some labels on our ideal types at the outset. So this is the market chain. Again, you can just go and buy these things on the back pages of your favorite business magazine.

We see here with the information asymmetry, the only way the regulator seems to be able to get information on what’s going on here is through leaks. And of course, leaks have been incredibly important in recent years, with seemingly every two years a massive leak happening in an apparently uncoordinated way. But I’m sure, the activists have been thinking about the timeliness of their leaks, and Oei and Ring have come up with something called leak-driven law. So these leaks are extremely powerful.

Then we have these strange modular chains, where the product is differentiated according is generic product, differentiated according to clients. We can think about expat banking services here, run from Guernsey and Jersey, where according to the amount of wealth, you have different service packages will be offered to you.

What’s strange here is this is happening absolutely in plain sight. The information asymmetries are very low here. But a political action doesn’t seem to be forthcoming. So there seems to be some sort of elite consensus that if you’re an expat worker, you deserve not to pay taxes in the place where you’re extracting wealth from.

Then we have relational change. This is the world of high net worth individuals or asset protection. Trusts, where in theory the regulator is closer to the client. Otherwise, the client wouldn’t be so concerned about protecting from his or her ex-husband or his ex-wife the assets that have been accrued over a lifetime. But the supplier is astute at making sure that the regulator never comes close to those assets, using such things as flee clauses written into contracts that prompt the supplier to change the form of the capital if there is any sniff of regulatory intervention.

Then we have captive chains on here. We initially thought about the big four designing highly esoteric products and smaller shops than mimicking those products and selling them broadly. I think now we know that it’s actually boutique law firms that are at the top of that chain. And the big four are really doing mass production. And then there are bottom feeders that are copying these products from the big four.

And then in the higher your hierarchy chains, we see the information asymmetries for the regulator are almost insurmountable. And we can think of renaissance capital. We can think of bar cap. We can think of the sophisticated structures used by firms, like Apple in this way. But these were ideal types. And then when we asked our friends and colleagues to work with these types, they immediately did what was right and proper and said they don’t really often exist in the real world. And we need to break them down. And we see here that we have, out of 14 chapters, I think there are only four who nominate that chain that they’re talking about as one particular chain.

I’ll tell you a little bit quickly about what the chapters are about. So from Gondwana and Burgos, we have a study on soybeans and export mispricing in order to pay lower customs duties when the soybean or process soybean leaves Argentina in this case. From our colleague at CBS, Oddny Helgadottir, who was initially going to come and join us here, she’s looking at high-value art markets, which are maintained in art three ports on the basis of close relations between the galleries and the storage centers and the artists and the clients, who are all interested in one maintaining price and maintaining opacity around that price.

And that opacity and ambiguity about price, obviously, allows room for very discretionary reporting or of wealth. But that market is becoming so generic that. It’s becoming modularized, so we can all get involved at some sort of level in the art market.

Now, Mariana Santos who looked at how wealth management firms are cultivating the children of the ultra-high net worth individuals as next generation clients through all sorts of effective techniques. We have Matti Ylonen looking at advanced pricing agreements, where governments offer a great deal of certainty to multinationals about what– about the transfer prices they are going to agree to within the multinational corporate structure.

Rasmus Christensen looking at how technology technocracy and expertise in the OECD constrain the extent of regulatory transformation. Colin Haslam, and Adam Leaver, and Nick Tsitsianis– sorry– looking at public utilities in the U and the French firm;s Veolia’s wealth chain that extracts value from public utilities in the UK, in this case, water. Dick Bryan, Mike Rafferty, and myself, we wrote a chapter– it was awful– about intangible assets. Jamie Morgan looking at a hierarchy chain of private equity firm, which are taking over Boots PLC in the UK.

Martin Hearson looking at tax efficient supply chain management, where he argues that the value chain has been turned on its head. And that the substance of the value chain is now following wealth chain priorities. Saila Stausholm, who was then one of our students but now is at Max Planck, looking at mining contracts. And Clair Quentin looking at elite barrister opinion in the UK. And that these elite barristers have been accused of selling false opinions for money and described perhaps, not politically correctly, as prostituting themselves to the highest bidder in selling these opinions that carry the utmost authority in court.

Mia Dahl, who was a master’s student of ours at the time– and I’ll show you in a second what she came up with. But she made the first effort to actually distinguish between what is a wealth chain and what is a value chain. Unfortunately, she didn’t want to do a PhD with us and went off to the Kennedy School. And now she’s working as a journalist in Chile looking at wealth chains in the mining sector there. So that’s an overview of the book.

This is what Mia came up with on the basis of all this data identifying wealth chain entities on the basis of where they are and on the basis of the subsidiary categorization, whether it’s financial or operational, and on the basis of number of employees. And now, we’re moving on to what we’ve been doing a little bit more recently with the project. And there are two extensions that I want to talk about. And these are very much work in progress. So I’m very interested in collaborating on these projects.

But the first one is about what happens when we take accounting seriously, because wealth chains aren’t only about tax, they’re about accounting and law more broadly and finance more broadly. And we look at this image from Lazonick O’Sullivan in 2000 in shareholder value. And what we see is very much a kind of value chain, value added, value capture idea about what’s going on in the multinational enterprise with a zero sum distributional conflict between different claimants on the value added that emerges from the chain.

And with Adam Leaver at Sheffield University, we’ve been doing some work on the impact of fair value accounting on wealth chain strategies. And the important thing here is we put the wealth chain first. And in this paper, which we hope will come out in The Economy and Society at some point, in this paper, we argue that firms are often treating their value chain as collateral for wealth chain activities.

So the simplest example– I took this, because I’m not an accountant– is on the right. If we treat the parent company as in the group, and we look at the subsidiaries from a kind of value chain perspective, we simply look at where the retained earnings are in those square boxes and where the losses are. And here, we would say, OK, if we look at the whole group and we add everything up, this firm has 20 something in retained earnings, which may or may not be distributed.

But when we start looking at how these accounts are actually operated, a very simple point is that subsidiaries don’t pass losses up. They only pass the retained earnings up. And once we look at the wealth chain on the left-hand side, the retained earnings are hundreds here. And those can be clearly distributed.

The more complex or more difficult for me to describe activities that are occurring here are around fair value, because fair value shifts the accounting regime from a backward-looking historic cost approach to a forward-looking estimate approach to valuation in the accounts. So you can think about a subsidiary selling an asset to another subsidiary. And because it’s an asset purchased at arm’s length, the other subsidiary can revalue it on a fair value basis. Therefore, you end up paying 10 to subsidiary 1, taking the asset into subsidiary 2, revaluing it to 100, and paying up a massive dividend again. And of course, the management is incentivized by this in terms of the payments that they will receive but so are the shareholders more broadly.

And the second extension, which we’re working on now, is called sink holes in global wealth chains. And we want to sell a project called SHOW, because, as you can tell, we like acronyms like COFFERS and SHOW, because they seem to get you some money. But one thing that we think is happening in wealth chain is that firms are organizing assets so they don’t have to report on them, or they are not responsible for reporting on them. So we start with a question is, how come overall emissions are going up when all the firms in the world are reporting lower emissions?

And then we think, well, maybe there are three ways that they’re doing this. The obvious one is sell the asset to a low-reporting entity like private equity or an entity in a country where the reporting requirements aren’t high or don’t exist at all. So locate your dirty assets in no or low-reporting jurisdictions.

But the really interesting thing that we think– and this is part of another project where we’re involved with and again work with Adam [? Leiva ?] and a soon-to-be PhD student with us, David Castro. And we’re looking at the multinational corporate structure as an accounting device. We think we discover something quite interesting here. This is all in the oil and gas industry.

Companies seem to be shifting from joint ventures which even if the participation is less than 50%, they have to report on. And they have to report on it in terms of emissions to something which under IFRS 11 is called joint operations. And BP in their latest financial statement state 94%, 94% of our enterprise are involved in joint operations.

The really interesting thing about joint operations is no one needs to report on them at all. So 94%, so BP can becoming greener and greener and greener. But 94% of its subsidiaries are involved in– and we can’t gauge the size or the proportion of the operations as yet in joint operations. But 94% of the subsidiaries are operating through these legal forms. That mean that– potentially seems to mean to us that a lot of the oil and gas industry’s operations are simply we can’t see them.

So part of this project is to try and identify the invisible corporation. But first of all, we have to work really hard to see what’s going on in here. And of course, this is the multinational enterprise. And these are levels of control. And if we took this apart, we could begin to be identified quite hierarchical chains in the financial area up at the upper at the top, where the wealth management is occurring.

But at least as some initial lead into the invisibility problem here– I’m sorry that the text is a little bit light. But on the right, unfortunately, that’s the US. And green denotes that there is limited information on the activities of this entity. And blue– and we can call blue, for shorthand, Delaware. Blue means there’s no information. And we can look at Canada on the left, no information.

The purple are the unconsolidated entities in Shell’s corporate structure. Again, we don’t know yet. But part of the thing we want to work on in the next couple of years is, where are the black holes in this corporate structure?

Unconsolidated simply means it’s not reported at the top level of the firm. No information means it’s placed in a legal environment where there was no obligation to provide information.

Limited information means you can’t– the information provided isn’t commensurable with a full set of accounts. So all of these create obstacles if we are trying to see through the corporation.

All of the characteristics of these subsidiaries seem to mean that a large part of the multinational enterprise we simply cannot see. And we don’t know anything about it. But we have to work more to see what we can see first. And that’s what we are hoping to do in a cross-disciplinary project.

So in conclusion, Len told me to only make three points. So here they are. Wealth not value makes us look not only at the firm but the corporation as distinct. The firm is the world of the value chain.

Wealth parallels value in terms of output in the world economy now. And we need to focus on corporations and corporate structures. We need to change the policy language around the multinational enterprise and start talking about wealth because wealth increasingly determines who gets what from the world economy.

And in order to do that, we need to build banks of cases on the basis of typologies, we say. Cases can tell us about what’s going on in corporate networks, and importantly, can tell us about the social systems that permit the replication of global wealth chains.

And as I’m sure– I hope Gabriel will confirm. Cases are important because the activities in wealth chains are often unobservable in standard data. So that’s all I wanted to say.

[MARION FOURCADE] Thank you very much, Duncan.

[GABRIEL ZUCMAN] Well, thank you. Thank you so much, Duncan. Thanks a lot, Marianne. And thanks to all of you. It’s really a great pleasure to be here today. I’m a big believer in interdisciplinary approaches. And so it’s wonderful to have a space here on campus where we can learn from what colleagues in other disciplines are doing. So thanks a lot for that.

My own approach, although I’m an economist, is perhaps somewhat outside of the canon of what economists do. And I’d like to describe today that approach, how I’ve tried to study wealth, wealth concealment in particular.

And I thought that one way to describe it is that it’s somewhat of a detective approach but not a detective in the sense that it’s going to look at specific case studies or individual cases.

Those are very important to raise awareness, to understand some of the processes. But a quantitative detective approach, meaning that I’m trying to put numbers on the overall magnitude of whether it’s rising wealth inequality or whether it’s the size of wealth that’s hidden in tax havens.

And why do I think that this qualitative detective approach is important is that at the end of the day, it’s really essential if you want to be able to say things about policy and, in particular, to evaluate the progress or the lack of progress that’s done at a policy level in things like the fight against tax evasion.

So what I wanted to do is to explain a little bit of the methodology involved, some of the main results, and talk a little bit about policy implications. So in terms of methodology, one thing that I’ve tried to do is to use anomalies in macroeconomic statistics to quantify things that are hard to observe or to measure otherwise.

And it’s not an easy thing to do because in macroeconomic data, you have all sorts of inconsistencies, all sorts of anomalies, all sorts of problems that have nothing to do with tax evasion or with offshore wealth or with issues like this.

So you need to really understand very well what the data mean and what it doesn’t mean. But one thing that’s very striking is that– and people have noticed that since the 1970s– is that when you look at the planet as a whole, the world as a whole, appears to be in debt to some other planets.

If you look at the total assets of all countries and the total liabilities of all countries, in principle, this should add up. There should be as much assets as debts. But that’s not the case.

And people have been noticing this. As I said, since the 1980s, the IMF has been commissioning a number of reports. It looks like each year, there are more liabilities than assets. And similarly, there’s more income that’s paid to some other foreign planet than income that’s received by planet Earth.

And looking into those anomalies with some care, you can trace some of that, not all of it, but some of that to precisely the issue of offshore wealth because what happens is that when rich households have offshore bank accounts– let’s say a French resident has a bank account in Switzerland.

What people do with their offshore accounts is that they make investments. The money in tax havens, it doesn’t sleep. It’s invested in financial markets. So typically, they would invest let’s say in US equities, in Microsoft shares or Apple shares.

Now, what’s being recorded in global economic statistics is that the US statisticians, they recorded liability. They see that there is some foreign investors, a Swiss bank that owns stakes in Apple or Microsoft.

Prior to statisticians, they record nothing because they don’t know about these offshore accounts that’s owned by a French resident in Switzerland. So no asset, no liability. And in Switzerland, the statisticians there, they see everything. But they see that, OK, this is some offshore business.

Those assets are assets that belong to French people. And there are claims in the US. And so it’s neither an asset nor liability for Switzerland, which is why at the end of the day, you got less assets that are recorded than liabilities.

And so using those anomalies and other data sources, I estimated that the equivalent of about 10% of global GDP is held in financial wealth in tax havens. So think of portfolios of bonds and equities and mutual fund shares that rich households have in bank accounts in the Cayman Islands or in Switzerland and so on.

And that 10% is a global number that masks a lot of heterogeneity at the country level. So that number ranges from just 1% or 2% in countries like Denmark, for instance, or Norway– Scandinavian countries tend to have relatively little offshore wealth– to as much as 30% in Argentina, 50%, 45% in Russia, more than 50% in a number of Middle East oil-exporting countries.

So I think with that approach, which is an indirect method, which has all sorts of limitations obviously, but we’ve been able to make a bit of progress in terms of quantifying an issue that was very hard to quantify before because of the huge opacity that exists around offshore wealth and obviously offshore tax evasion.

So another approach from a methodological perspective has consisted in using policy changes that reveal the magnitude of tax evasion exposed. And so you had a number of policy initiatives like that in recent years that have been really useful.

One example here is in the case of the US. Just after the financial crisis of 2008, 2009, at the beginning of the Obama administration, the US government took a more aggressive stance on tax havens. And it forced a number of Swiss banks to exchange information with the IRS under the threat of economic sanctions.

And so there was this pressure that was put on Swiss banks. And so what happened is that in the years immediately following that, you can see that a number of US taxpayers started to declare offshore accounts that they used to have but that they didn’t report previously.

In principle, if you’re a US taxpayer, you have to report foreign accounts that you own in a form that’s called an FBAR if the account value is more than $10,000. And before 2008, 2009, a number of people who had bank accounts in tax havens didn’t report those accounts.

But what you can see is that in 2009, 2010, 2011, all of a sudden, lots of US-owned bank accounts in tax havens start to be reporting in those FBARs. And when you look at the distribution of who discloses owning a previously reported account– in the x-axis of the graph, taxpayers are ranked by their income. They are ranking in the income distribution in the US.

So p0, 50 is the bottom 50% of earners. Unsurprisingly, low-income Americans, they don’t have bank accounts in the Cayman Islands. What is somewhat surprising, it’s the very, very steep gradient that you can observe within the very top of the income distribution.

So the graph really zooms into the top 1%, all the way up to the top 0.001%. And you see that the higher up you move all the way up to 0.01%, the higher the probability to suddenly disclose the previously undisclosed haven account, to about 5% for the top group that we consider here.

At the same time, the US also created– had a kind of tax amnesty, which is known as the Offshore Voluntary Disclosure Program, so OVDP. You can see the same pattern in terms of what fraction of taxpayers in each group of the income distribution use this amnesty to voluntarily declare previously hidden assets. You see the same gradient with income.

There have been lots of studies that have followed that approach to study the distribution of offshore wealth. I see [INAUDIBLE] here in the room, has done similar work, very important work in the Netherlands, for instance.

Here is a recent work that has been done by former Berkeley graduate students, Juliana Londono-Vélez and Dario Tortarolo in Argentina, looking at another policy change to learn about the distribution of tax evasion exposed.

And here, they look at a tax amnesty that took place in Argentina in 2016. And it’s really an incredible thing. Following this amnesty, people from Argentina– in that amnesty, they disclosed owning assets worth 21% of Argentina’s GDP.

So if you remember the first graph here with my colleagues, five, six years ago, we had estimated that the amount of offshore wealth owned by Argentine people was around 35% of GDP, really high in an international comparison.

And so after that, there was a tax amnesty. And just in that amnesty, which obviously didn’t reveal everything but apparently revealed a pretty large chunk, 21% of GDP in previously hidden assets were disclosed.

And second, if you look at who disclosed owning offshore wealth, well, this is the picture that emerges. So you know that Argentina– you might know that Argentina has a wealth tax and so for the rich.

And so roughly speaking, the top 2% richest taxpayers have to report on their wealth annually. And so what the graph shows is the increase in reported wealth over time. And you can see the huge jump in reported wealth by the very wealthiest groups of the distribution, following the tax amnesty.

So for people in p98, p99, so at the bottom of the top 2%, there’s no change in how much wealth they report. Those individuals didn’t own a lot of offshore wealth or didn’t participate in the amnesty.

In the bottom half of the top 1%, there is some of an increase. But then you have really a huge increase in how much wealth all of a sudden is reported by super rich taxpayers in Argentina after 2016.

Essentially, the amount of wealth that they report is multiplied by two or three just following the amnesty. OK, so it’s like those groups were hiding at least half or 2/3 of their total wealth prior to 2016.

The consequence of these two things– that offshore financial wealth is quite large, and that it’s super concentrated towards the top of the wealth distribution– is that to varying degrees as the graph here shows, offshore wealth accounts for a large fraction of total wealth at the very top.

So this is illustrating this fact by looking at the level and the composition of the share of wealth owned by the top 0.01% richest people in a number of countries. And offshore wealth is significant everywhere.

But it’s particularly large in, for instance, Russia where, according to our estimates, more than half of the wealth of Russian oligarchs essentially is held offshore. A lot of it is in EU offshore financial centers, like Luxembourg, like Cyprus, Malta but also outside of the EU.

All right, so that’s financial wealth. And until recently, we didn’t know a lot more than that. Recently, there’s been a lot of research and some progress in estimating the size of offshore real estate, which is large and growing.

With my colleagues, we’ve been working on the case of Dubai because we got access to essentially comprehensive property registry data on who owns real estate in Dubai at the property level. So we have about 800,000 properties in Dubai, one of the United Arab Emirates.

And you might say, well, who cares? It’s just one territory. But it’s very large. We were struck to find that the total amount of foreign-owned real estate in Dubai in 2020 adds up to about $146 billion, which, to put that in perspective, there’s very good data in France on foreign ownership of real estate in France, in the entire country, so Paris, the Riviera, Normandy, the entire country.

And the number for France is $140 billion. So you have more offshore wealth in Dubai, offshore real estate, than in France, major destination for cross-border real estate investment. There’s also more offshore wealth in Dubai than in the UK, which is, in particular, in London, another very important destination for cross-border real estate investment.

So we were quite struck by that. And then when we look at who owns that wealth, we find that just this real estate in Dubai adds up to as much as 5% or 10% of GDP for a number of low-income countries, primarily neighboring countries but not only, like Jordan, Afghanistan, Syria, Lebanon, and so on, and so on.

And we’re just talking about Dubai. There’s a lot of, as I said, offshore areas in London or in Singapore or in New York or in Paris and so on. So this is really quantitatively quite significant. And this is very highly significant for inequality.

And you can see that if you look at this graph here that just compares the average property value owned in Dubai by residents of certain countries. So for instance, Sierra Leone, Afghanistan, Mozambique, and so on, compare this average property value to the average income in the home country of these properties’ owners.

So the average value of Dubai real estate owned by residents of Sierra Leone, elites from Sierra Leone, is equivalent to 3,740 times. That’s 3,748 times the average per capita income in Sierra Leone. OK, so that gives you a sense of the concentration of that wealth and how in any form of tax evasion this is.

OK, so let me talk a little bit about policy. And I want to say first that there’s been a number of improvements over the last decade in the fight against tax evasion and wealth concealment.

The most important, one being that there’s now an automatic exchange of bank information between offshore financial institutions and many of the world’s tax authorities. And that’s a big progress because 10 years ago, most people, experts in that area, thought that it was impossible, that it would never happen.

Now, look, if Switzerland wants to have strict bank secrecy laws, they said, how can you make them change their mind? That’s their right. And they don’t want to cooperate. There’s nothing that can be done. But that was wrong because, of course, there are things that can be done.

And we see that, in fact, indeed, today, there is this automatic exchange of bank information whereby in principle, bankers in Switzerland or in the Cayman Islands have to report automatically each year about the wealth of their customers and the income that these customers to the different tax authorities in the US, in the EU, and in a number of developing countries.

So that’s a big progress. But of course, the problem is that it’s not enough to outsource regulation to bankers. And here’s a screenshot of a headline just a few days ago, March 29.

Just a few days ago, a US Senate report found that the big Swiss bank, Credit Suisse, violated the plea deal it has with the IRS because it had continued to help US taxpayers hide assets in Switzerland.

So about 10 years ago, Credit Suisse pleaded guilty of a criminal conspiracy to defraud the IRS by helping US taxpayers to hide assets. And as part of this plea agreement, they promised essentially to, oh, we’ll stop doing it. Promise.

Trust us. We’re not– it’s something of the past. There were compliance issues, but it’s another era. And now it’s full transparency. It will never happen again. And yeah, except that sometimes it happens. It happens again.

And that’s essentially one of the key problems with policy in this area, is that everything is based on the assumption that the very providers of financial opacity and tax avoidance and sometimes tax evasion services can be trusted to thoroughly and very honestly implement the spirit of the law.

And look, some of them are honest people and do that. But also sometimes, as I said, they don’t. And so that’s why more needs to be done to address those issues. And we need new instruments, new forms of international cooperation, and new institutions.

Most importantly, it’s really important to create financial transparency that’s independent of whatever information offshore bankers are willing to provide. And I call that the global asset registry.

So the idea is just to build on the real estate and land registries that already exist in almost all countries and to expand them to include financial assets and not only real estate and land. And then ultimately, to combine those registries, either at the level like the EU level, and perhaps ultimately at the global level.

Now, you might say, oh, global asset registry. No, that seems like really an ivory tower utopian idea that will never happen. Look, it’s not going to happen tomorrow. That’s for sure.

But I think we also understand the way that such forms of international cooperation can emerge. And the way that they can emerge is with what is initially unilateral action by some countries or by small coalition of countries.

That’s what happened for the automatic exchange of bank information. Essentially, it was, at the beginning, the US threatening offshore banks with economic sanctions. And under the threat of those sanctions, banks are going to cooperate with the US. And then other countries followed suit.

And I think it’s very important to learn from that episode. And what we learn from that episode is that oftentimes, the way to get to global agreements is not to start from the notion that there should be unanimity or global agreement but have some countries be leaders, pave the way. And then others would join.

And I’ll just end by saying that for the future, what’s going to be really critical is to change the approach that has prevailed in terms of how we regulate globalization.

So the form of regulation of globalization that has existed since the 1980s has been characterized by the fact that all the treaties that exist are essentially silent about taxation, about tax cooperation, and financial transparency.

So in free trade agreements, for instance, there’s lots of things about the protection of property rights for multinational companies and trade barriers and stuff. And none of this is ever conditional to any form of minimal taxation.

And so for the future, to make real progress, it’s going to be critical to put taxes and financial transparency at the heart of free trade agreements. Thank you very much. I look forward to the conversation.

[MARION FOURCADE] Thank you so much, Gabriel. Thank you both. So we have about 20– well, a little less than 20 minutes for questions. So maybe we can begin. And [? Leon– ?]

[AUDIENCE MEMBER] I want to thank both of you for great talks. It’s really, really interesting. So one of the things that I find a little puzzling is that– so there’s a kind of war, right, and within governments. And that is on the one hand, governments would like this money to come to them.

So they have a huge interest in collecting it, the money that’s actually owed to them. But on the other hand, they have really powerful people who they’re dealing with all the time who don’t want that money to come with them and want to keep it to themselves.

And I’m wondering how that fits into what you might think is going to happen here, Gabriel. Or as corporations do the same thing, that seems to me to be the tug of war between those two forces.

[GABRIEL ZUCMAN] Yeah, I think I agree. It’s important to be clear about what are the obstacles for progress. And clearly, the fact that in tax havens, you have a lot of wealth that belongs, let’s say, to Russian oligarchs but also to US oligarchs and oligarchs from other countries, to the top 0.01% of all other countries.

It’s probably one of the key reasons why we’ve seen so little progress in recent years, and in particular, in the context of the Russian invasion of Ukraine.

I think if you recall what happened one year ago, at the beginning of the war, there was briefly some discussion, and including high level discussion that seems somewhat serious about moving towards creating these registries for wealth held in tax havens as a way to measure and perhaps freeze and perhaps tax some of the wealth owned by Russian oligarchs in tax havens.

And the reality is that one year after, we see that very little has been done, almost nothing. What’s been done is really symbolic things like seizing yachts and some real estate in London, things that are very visible.

But the bulk of the wealth of super rich Russian people obviously is not yachts and real estate, it’s financial assets. It’s stakes in businesses and portfolios of equities and bonds.

And the fact that there has been essentially no progress on that, I think it’s consistent with what you say, which is there is a lack of political will even in that context to create these transparency.

[DUNCAN WIGAN] Yeah. Yeah, I think maybe we have to distinguish between evasion and avoidance when we think about what governments want to do and what they’re willing to do here. Being at least part of London, I will say that the government often represents a group within a society.

And I think Britain is subject to something called a finance curse. And the financial industry has captured government and has for a long time. And part of that, the structure, that grip rely on is what Nick Shaxson calls the spider’s web or the imperial legacy, which is more than 50%. And [INAUDIBLE] tell us it’s more than 50% of the offshore world is ex-British empire. So I’m not sure we can expect all governments to actually want to close this down in simple terms, particularly around avoidance.

[AUDIENCE MEMBER] It seems to me that there’s a terrible mismatch in capacities afoot here. We have, on the one hand, professionals, lawyers, accountants, business professionals, wealth management people, who are the best educated, the most-skilled people, and who are nimble, and whose careers are built on the Whac-A-Mole of if they catch us here, go there.

And on the other side, we have, in the United States at least, a Congress that knows more about Jewish space lasers than they do about this. That’s a real problem it seems to me because you can’t expect that all of a sudden, all the lawyers and accountants coming out of law and business schools are going to stop offering the opportunity for a creative solution to your tax problems.

They may be offering only legal solutions. But there’s an endless number of permutations that they seem to discover no matter how many crude laws are passed. And on the legislative side, you have Jewish space lasers. They have no concept whatsoever of almost anything. And they surely wouldn’t understand your presentation.

And if they cared about it, they wouldn’t understand. If they were not captive, they would not understand. If they turned it over to the IRS and said, design us a program, they’re operating under DOS operating systems. They couldn’t do it.

Who’s going to do it? Who’s going to figure out ways to capture all of this wealth and catch up with the professional Whac-A-Mole experts who keep redesigning the solution? I particularly think of two things– the BP chart, the 94%, and that fantastic, unreadable chart about Shell.

They can’t trace– they can’t audit Donald Trump whose money all comes from Russian oligarchs who’ve been laundering money as long as any of us have been standing here. And they can’t even audit his tax returns.

There’s no sophistication at all to what he’s doing. He’s just got long chains and lots of lawyers who say no and lots of accountants say no. So how do we ever get into the point where we can actually grab a hold of this system and shrink the size of this escaped money, evaded and avoided? Mostly avoided, I think.


[DUNCAN WIGAN] No, no, no. I think it’s really interesting. And you’re talking– the British government having said that the British government is servant of something called the finance curse. The British government has, at least on the face of it, been on the lead on some things on beneficial ownership in the EU, et cetera, and transparency around trusts in the EU.

But you can say what you want. But if you shrink your tax service systematically over 40 years– you started by saying capacity. And absolutely, you can have all the public commitments you want. But if you don’t have any people to do the work, it’s a problem.

And of course, it’s a problem in– government workers, they’re seen as an expense whereas private– these lawyers are seen as a boon to British GDP. [LAUGHS] So there’s this whole sort of attitude towards government as a regressive cost on the private sector that prevents the investment. And I think it’s really interesting that the Canadians invested massively in their tax service I think about 10 years ago.

And then I saw some analysis of this that with the marginal benefit of adding one more tax inspector, just they never got that. There’s constantly– one person was always generating more than they cost. So then there’s a real question about [? capture, ?] I think, yeah.

[GABRIEL ZUCMAN] I think that there are two views. There’s one view, a pessimistic view that says, look, in a sense– I simplify, but governments are captured. And these problems are with us forever. And there’s not much that can be done.

And I don’t subscribe to that view. I subscribe more to the other view, which is that tax avoidance and tax evasion actually changes a lot historically. And it has changed a lot. Sometimes practices that are tolerated or even encouraged were outlawed in the past.

Extreme forms of tax avoidance like for multinational companies, creating shell companies in Bermuda, and booking, like Alphabet in 2019, $20 billion in revenue in Bermuda.

This is something that’s tolerated. And that’s been even encouraged by US policymakers for many years. But in the 1950s and 1960s, when the corporate tax rate was much higher by the way, it was just deemed not in the role of a corporate executive to try to do that, to try to do this aggressive form of tax avoidance. It’s something that has become normal only since the 1980s.

And the fact that there are so much change over time that’s linked to changes in social norms about what should be the purpose of a firm, in particular, or social norms more broadly about inequality and the role of government, I think is what makes me relatively optimistic is that, in fact, those problems can have solutions in the future because also these norms and these attitudes will change in the future.

[AUDIENCE MEMBER] All right, thanks. Yeah, I wanted to ask a question first to Duncan. OK, a little closer. All right, yeah. So first, to Duncan, I wanted to ask– so we talked a little bit about Credit Suisse and UBS from 15 years ago and how the US Department of Justice really changed their practices by enforcing the fraud laws.

And I was wondering– so when you were talking about climate, the Securities and Exchange Commission in the US, I think they just published the proposed rule on climate disclosures, including the so-called Scope 3 disclosures, which was like the big battleground. And this is about disclosures within the supply chain.

So at least on the side of the corporations, as opposed to the individuals, it seems like that might be promising because if you don’t disclose properly, then you’re exposed to securities law enforcement.

And could this be expanded to wealth? And then I also wanted to ask a question of Professor Zucman. One thing that you and your colleagues have written about in the past is the problem of this incentive that’s created by extreme concentrations of wealth to actually keep– or rather buy low taxation rather.

So low taxation then makes it so that actually– so if you’re going get taxed at 80%, then grabbing the next $10 million isn’t as beneficial as it would be if you get to keep almost all of it.

And so this feedback mechanism you’ve identified, now, of course, this isn’t arguments about incentives. Obviously, you have to be questioned empirically whether they actually operate that way. But I just wanted to see if you could say something about– the last thing I read from you about that was years ago.

So I wanted to see what the current research suggests to you about how operative that dynamic is and now whether we still need to be focused on breaking that. Thanks.

[DUNCAN WIGAN] Yeah. Yeah, this disclosure is– I think we have to wait and see what happens. But indeed, if we have rules like that, and we have Scope 3 in a serious, substantive way, then that is definitely a huge leap in the right direction.

But what I understand is there’s an argument going on about whether it’s based on an accounting definition of the materiality of the relationship to your financial results, and if it is– hello, lawyers– are by rule.

And it seems that within that lobbying process and part of the Time Mirror project, which this is being developed under, are looking at the different groups who are fighting about exactly that what that rule will say.

And the accountants told me that if it says materiality, well, this is just another great, big lawyer fight that will happen. But you’re right, absolutely. If we get proper Scope 3, it’s a serious intervention, yeah.

[GABRIEL ZUCMAN] Yeah, and the effect of the tax system and incentives, the best we can do is look at the historical record. And so as you know, the US from the 1930s to 1970s had very high top marginal income tax rates, above 90% in the post-World War II decades.

And so we know. We can look at what happened at that time. And what’s really striking is that in the ’50s, ’60s, you had almost no taxpayers that declared income in the top brackets subject to these quasi confiscatory top marginal income tax rates.

This is something that had disappeared. And so those tax rates applied to income above the equivalent of several millions of today’s dollars, let’s say 5 million, and you see a collapse in the number of taxpayers who declare earning more than $5 or $10 million at the time when those top marginal income tax rates of 90% are enacted.

And so it does really look like– yeah, look, if there’s no incentive to earn more than $10 million, people are going to put less effort into bargaining super high wages or into also creating all sorts of scams that might enrich them.

Look at the expense of other actors in the economy. And so you really saw a big decline in income concentration. It’s not definitive evidence. But that’s essentially the best we have to quantify these things.

[AUDIENCE MEMBER] Yes, [INAUDIBLE]. Thank you for the presentation. I was really curious to hear more about the joint operations with BP. And I was wondering how far that extends to other companies. And if that also affects laws and climate goals that have been implemented.

Is this a way to avoid reducing emissions by saying that you’ve reduced them even though you’ve just covered them up somewhere? And if so, is there’s a sense about how much that’s affecting the ability of governments to regulate global climate emissions? Thank you again for the presentation.

[DUNCAN WIGAN] That’s what we want to find out. So we’ve got a bank of 20 cases like this, which we’re working through. But it takes forensic accounting work because you have to look at the notes and the accounts, and go back over years, and see how those notes have changed, and what type of form of collaborations that these companies are entering into.

And that’s not easy because different firms report, in fact, with different language. So one of the firms we’re looking at is Exxon. They report under US cap. And they don’t use the same language of joint operations, which the IFRS use.

So we can generate the maps basically using a machine and using our very clever friends. But to do the work, we have to do case studies of firms or batches of firms. And we need to navigate different accounting systems and their legal definitions of what this collaboration is.

And it seems that it can be done. When we look at Exxon, we find something that looks very like joint operations, which we see in the BP accounts. Another thing we would like to do is trace the amount of these and when they start arising. And is there a correlation between increasing reporting requirements and a shift towards these joint operations?

But honestly, we actually don’t know yet. And it’s a job we’re going to be doing I hope with over the next couple of years.

It does seem to me that what’s happening is firms faced with reporting requirements on assets, which are returning them huge amounts of profit, will seek ways of maintaining the assets and the income that arises from those assets but disavowing themselves or the obligations that would be associated with the assets according to law and regulation.

That’s what our hunch is. And we’re in a weird world where as researchers, we like to fight bad things. So– [LAUGHS]

[MARION FOURCADE] We are running out of time. I just want to thank you both for your terrific presentations and also for fighting the good fight at the edge of the tax evasion boundary. Thank you. Thank you for being here.

Thank you to the online audience. I apologize for not asking them one question. But we’ll try to– by Len. And so hello, Len. And come back to Matrix. Thank you.



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