Missing $20 Trillion: An Interview With Jose Antonio Ocampo on Tax Havens

José Antonio Ocampo, former Finance Minister of Colombia and World Bank presidential candidate, sat down with for a frank interview on the importance of international tax regulation as a necessary global public good.
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Jose Antonio Ocampo, Colombian minister of Finance and Public Credit, makes a speech at the Hong Kong Convention Center during the second day of the annual conference of the International Monetary Fund and World Bank Wednesday, Sept. 24, 1997. (AP Photo/Vincent Yu)
Jose Antonio Ocampo, Colombian minister of Finance and Public Credit, makes a speech at the Hong Kong Convention Center during the second day of the annual conference of the International Monetary Fund and World Bank Wednesday, Sept. 24, 1997. (AP Photo/Vincent Yu)

By Cristobal Vasquez of The Morningside Post

Recovery from the global financial crisis, which ravaged the world economy, may have been further along if $20 trillion stashed away in tax havens had in fact been taxed. The $20 trillion estimated by The Economist -- while difficult to verify -- makes clear the consequences of these vast resources circulating without regulation. At a minimum, levels of government indebtedness would be lower and more money for government spending would be available. Cooperation between countries, therefore, is key to alleviate the financial strains of tax evasion.

Many academics support the creation of global public goods as a solution to the complex interrelated challenges the world faces today; José Antonio Ocampo, of Columbia University, is one of them. The former Finance Minister of Colombia, UN Under-secretary-General for Economic and Social Affairs, and World Bank presidential candidate, sat down with The Morningside Post for a frank interview on the importance of international tax regulation as a necessary global public good.

What follows is an edited and condensed version of our conversation.

What can organizations such as the United Nations, the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) do to foster cooperation between countries?

It is all about how cooperation is designed and what the monitoring mechanisms are. What happens is that the way the international system has been designed and the interests that have been imposed are to control some things and not control others. Take the issue of capital for instance. Tell me, what capital is regulated? Illicit capital. The United States created a super elaborate system to control the flow of illicit capital, so it is possible to control it. However, what happens is that when it comes from Wall Street they don't want to control it, but when it comes from drug dealers, they do.

Then does New York become a tax haven?

New York is a tax haven, no doubt. Of course, it is a tax haven. Nonresident Latin Americans bring capital to the U.S. totally tax-free. And that by the way, is part of the hypocrisy that is around these topics. Capital associated with drug trafficking is controlled, but not other types, such as that on Wall Street. The system wants to control the taxation of U.S. companies when investing outside [the country] but does not want to charge taxes on the Latin American capital invested in the United States. So there is ambivalence and why not say, hypocrisy, in the way things are handled.

Are there other cities besides New York that have engaged in such practices?

All financial centers are tax havens in part, all of them. Now, there are some that are pure tax havens: Bermuda, Luxembourg and Ireland -- which is also a half tax haven. But New York and London, the two main financial centers of the world are tax havens for certain purposes. When the U.S. wants to make a capital tribute, it does not solely have to be for North American capital outside the U.S. but it also has to tax foreign capital that is in the U.S. However, this capital doesn't generate taxes here because it harms investment and this capital can go to other countries.

You mentioned international tax havens for foreign capital. Are there tax havens within the United States?

Here, there are also internal tax havens because there is competition between states. There is a federal income tax that applies to everyone, but there are many states that have no state income tax. Why are some businesses organized in some states and not in others? Because they do not have state income tax. It is the same thing. Here in New York we pay income tax to the U.S. government, to the State of New York and to the City of New York. We can't avoid it. Go to New Jersey or Connecticut and you don't pay certain taxes. In fact, all the neighboring states.
Why are many large multinationals, that actually have operations in New York, located in New Jersey? Because there, they pay lower taxes. Also within the U.S. itself, there is a problem of tax havens on a second level, to put it in some way, because it is only on state taxes, not federal.

What specifically makes New York and London tax havens, aside from the lack for regulation? Are there other factors that influence capital inflows?

No, they regulate capital in the sense that you can't bring illicit capital to New York. Eventually they will take it from you. What is not regulated are tax matters. The OECD has a system of exchange of information that is half fictional. This is the recent debate the G20 and the OECD are having about tax havens. Several member countries are tax havens, either for specific or general purposes. For specific purposes New York and London are tax havens; for general purposes, Luxembourg and Switzerland are. So, there are tax havens within the OECD countries, but at least there is a principle of exchange of information.

Would you say that multilateral organizations tend to overlook tax issues then?

The only organization that has a comprehensive system of cooperation is the OECD and as I said, we've seen how it leaks from several sides. The IMF has tax cooperation systems, but more like technical assistance and it also has very good research on these issues. The United Nations also has a technical committee on tax issues that I helped create.

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