What lies beneath: Evidence from leaked account data on how elites use offshore banking

Safety deposit box

This paper uses account data leaked from an Isle of Man bank to investigate the characteristics of individuals and firms that store their money in tax havens.

Using internal documents that assign the ultimate ownership of companies and trusts that held deposits at the bank, I establish three things: First, most customers are from rich countries and are likely to be from the upper end of the income and wealth distributions of those countries.

Second, I show that a non-negligible amount of offshore wealth is connected to a small number of political elites (so called politically-exposed persons). On average, these accounts have substantially higher balances and are more likely to receive payments from other tax havens, which is consistent with politically-exposed persons having access to more resources than the average offshore client while also desiring to obscure that ownership.

Finally, I show that a substantial proportion of bank deposits are obscured from publicly-available statistics published by the Bank of International Settlements which are commonly used to measure offshore wealth. When I correctly assign deposits to their ultimate beneficial owner, offshore bank deposits owned by residents of tax havens drops by up to 32 percent and deposits held by residents of non-havens doubles. I conclude with recommendations on how reporting requirements need to change to improve the ability of regulators and the research community to detect and counter illicit finance.

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