Beijing’s Interest in Offshore Tax Evasion Limited to Corrupt Officials
Fifty-one countries signed the Multilateral Competent Authority Agreement in Berlin on Oct. 29 to fight offshore tax fraud and evasion. The agreement aims to put an end to banking secrecy by sharing tax-related information with member states.
Missing from the signatory list are the United States and China. China’s absence seems somewhat strange given its global “fox hunt” for corrupt officials who have fled the country.
Hunting Foxes vs. Beating Tigers
The United States has good reasons to stay out. With the enactment of its 2010 Foreign Account Tax Compliance Act or FATCA, the United States has been pioneering the fight against tax evasion.
The Organization for Economic Cooperation and Development (OECD) has played a leading role in the development and negotiation of the Multilateral Competent Authority Agreement. OECD Secretary-General Angel Gurria commented that the United States has provided strong support in the process.
China, on the other hand, has made no comment on the Agreement and has not been mentioned by the OECD. Beijing’s indifference to the international anti-tax evasion campaign forms a sharp contrast to its highly propagandized effort to hunt down runaway officials.
Tax evasion is a serious federal felony in the United States. For Chinese, however, hunting corrupt officials and recovering taxes are two very different things from an ethical perspective. The former targets corrupt officials who fled the country with illegally obtained assets, while the latter involves all wealthy Chinese who have transferred their wealth abroad.
Besides members of the red magnates, these wealthy people also include private business owners who have transferred money abroad. Therefore, the capital affected by tax recovery efforts is not 100 percent illegal income.
However, the amount of money involved in corrupt official hunting and tax recovery is very different.
Since the 1990s, 16,000 to 18,000 Communist Party cadres and government officials have fled China, taking with them 800 billion yuan (about US $130 billion at today’s exchange rate), according to Party mouthpiece Xinhua News Agency.
In a report published on Jan. 21, the International Consortium of Investigative Journalists (ICIJ) revealed that nearly 22,000 offshore clients with addresses in mainland China and Hong Kong hold companies in tax havens. (See “Leaked Records Reveal Offshore Holdings of China’s Elite“)
Among them are relatives of the “red nobility,” the wealthy, and Chinese congress members, according to the report.
“By some estimates, between $1 trillion and $4 trillion in untraced assets have left the country since 2000,” the report stated.
Compared to the 800 billion yuan that corrupt Chinese officials took abroad, the $1-4 trillion is a much larger amount. Furthermore, quite a large portion of the $1-4 trillion was obtained illegally.
Beijing is reluctant to cast the net to “catch the tigers” while enthusiastically “hunting foxes” globally, because the two campaigns target different groups.
“Fox Hunt” Targets Eloped Corrupt Officials
The “fox hunt” is a campaign to hunt down officials and senior management of state-owned enterprises who have fled the country with embezzled or illegally obtained money.
China launched the campaign globally in July with much publicity. In a series of eight articles called “China’s Fight Against Runaway Corrupt Officials,” Party mouthpiece People.com.cn provided a comprehensive account of the global manhunt.
The latest news is that China agrees to follow the international practice of sharing the illicit assets with countries that help capture the fugitives and recover the money. In the meantime, although China has not yet signed extradition treaties with the United States, Canada, or Australia, these three countries have been collaborating with China in various ways to hunt down economic fugitives.
The majority of the runaway officials used to work in lucrative departments such as finance, state-owned monopoly enterprises, transportation, land management, construction, taxation, trade, and investment.
In the past, the number of captured fugitives was never disclosed. Now, however, China has provided official statistics for the first time: 6,694 defecting economic crime suspects were brought back to the country from 2008 to 2013 through extradition, repatriation, persuasion, and prosecution abroad.
