Thank you for asking me to speak this morning. I'm sorry I can't be with you in person.
Tax havens have an enormous impact on the world. They have by and large been ignored by academic researchers, whether in the fields of tax accounting or economics. The result is that the issue is still not as widely understood as it should be. It has fallen to the NGO community to remedy this fault. I've been working on such research for a decade now. As one consequence of that, I am the co-author of one of the most cited academic books on this subject published by Cornell University Press.
Largely as a result of that work by NGOs, some of which Dennis Howlett has just referred to, the dangers of tax havens are now being appreciated. As the OECD has conceded this week, tax havens threaten the credibility of the world's corporate tax systems. They also now agree that tax havens create unlevel playing fields that distort markets, and that must inevitably lead to the misallocation of economic resources at cost to us all. You have, however, asked me to talk about tax havens and tax evasion.
Tax evasion is criminal activity. In the case of tax havens, it relates to the process of withholding information from a tax authority to which it is due, to ensure that tax owing to that authority is not declared or paid. Tax havens readily acknowledge that a decade ago they were at the core of much, but not all, tax evasion. Some tax evasion does not involve them. Quite clearly, paying the builder in cash has always gone on, and it will do so whether or not we solve the problem of tax havens, but serious, organized tax evasions do occur offshore and frequently. It's my contention that this remains the case now, as it was a decade ago, although tax havens, or secrecy jurisdictions, as I would prefer to call them, deny this.
I define tax havens or secrecy jurisdictions as places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation they create is designed to undermine the legislation or regulation of another jurisdiction or country. To facilitate the use of that regulation, secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.
I stress that it's not low tax rates that define a tax haven. Low tax rates are the legitimate choice of governments that can balance their books without resorting to higher rates. It is secrecy, and the fact that it is provided for the benefit of a person not resident within its domain, that defines a tax haven. That secrecy takes many forms. It includes not having to record the real ownership or management of a company with regulatory authorities. It comes from no accounts being required to be placed on public record, or even to be made available to authorities, because a no-tax regime does not require tax returns. It comes from tier upon tier of structuring in one secrecy jurisdiction after another to create impermeable opacity, often combining trusts, companies, and foundations. It can come from Swiss-style banking secrecy. It can also come from non-cooperation, whether that be outright refusal to accept information exchange agreements or by ensuring that, as the French have found, when information exchange requests take place—and they happen in tiny numbers, I would stress—the information that is supplied is of limited or no value at all. They discovered that was the case in more than 50% of all inquiries they made.
All these things happen, and it is not by chance; it is by design. The intention of tax havens is straightforward. With the aim of luring cash to their banks to support a local financial services sector that appears to create prosperity, secrecy jurisdictions sell their right to legislate for the benefit of those who do not live there and who wish not to pay their taxes where they're due, including in places like Canada.
The cost is enormous. Dennis Howlett has outlined some of the numbers. Most of that research I have been involved with. We do think there could be a minimum of $21 trillion U.S. of assets held offshore for the purposes of evading tax. The tax lost could exceed $200 billion U.S. a year. That is almost double the total worldwide aid budget, to put it in context and to link it to worldwide poverty. This cost, I stress, is imposed deliberately with the assistance of the world's financial services community, which is present in almost all tax havens.
The important point, though, is that this issue can be solved.