Offshore Companies In Samoa Invested $1 Billion In China

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Samoa allegedly 2nd biggest tax haven for large Asian economies

By Jason Brown

APIA, Samoa (Samoa Observer, Jan. 27, 2014) – Samoa was the tenth largest source of foreign direct investment in China in 2012, according to figures compiled by overseas media.

Chinese companies registered under this country’s tax haven status are among those pouring billions back into China.

Roughly US$1 billion in foreign direct investment from Samoa to China is shown on a graph published by an overseas newspaper last week.

This represents around $2 billion tala of funds sent through companies registered here as offshore companies in Samoa.

Overall, "The sums involved are huge," said Tom Holland, an analyst for the South China Morning Post.

Out of US$118 billion in foreign direct investment in China last year, Mr. Holland estimates that some US$50 billion actually came from mainland China companies, hiding money overseas then bringing it back disguised as ‘investment’.

"Taking the money out is just the first step; it's all about sending it back under the guise of foreign investment and enjoying the taxman’s largesse," he wrote.

One study into tax payments in China showed that local companies paid an average 8 per cent on income while foreign owned companies paid just 3 per cent – less than half as much.

He headlined his piece, "The US$50b a year reason China’s elite love tax havens", quoting investment figures from CEIC, a Singapore-based data company.

Publication of investment figures by the South China Morning Post came a day after the release of 37,000 new records showing that Samoa is the second biggest tax haven destination for three of Asia’s largest economies.

Release of the leaked records the International Consortium of Investigative Journalism marks a second wave of revelations started by ICIJ in April last year.

Where last year’s exposes focused on relatively minor players, mainly in the west but also the east, last week’s revelations highlighted billions in hidden wealth among top Chinese officials, including the brother-in-law of President Xi Jinping.

Although officially waging a campaign against corruption, officials in China rushed to block websites carrying stories quoting ICIJ, and attacked release of the records as having a "hidden agenda."

This is despite President Xi promising to target the "tigers" as well as the "flies" of corruption.

"With the heads of many powerful state owned enterprises, titans of private industry — and the president's own brother-in-law — now revealed to be hiding massive wealth abroad, Xi's anti graft drive faces a make-or-break challenge to its credibility," commented the Vaughan Winterbottom,

writing at the Interpreter column for the Lowy Institute, in Australia.

The importance of Samoa to Asian businesses is shown by the fact that, while British Virgin Islands is the leading offshore finance centre for China, Hong Kong and Taiwan, Samoa is the second largest, all other centres are lumped together under the category of "others".

Unexpectedly, given the close links between Samoa and China, it was Taiwan that emerged with the biggest number of companies registered here – 43% of all registrations in Samoa, from Taiwan, in the database of 2.5 million records.

Taiwan had nearly 13,000 companies registered here, according to ICIJ database figures compiled by the Global Mail, an Australian news site.

Hong Kong was the largest holder of offshore companies, with more than 14,000 companies registered in tax havens – 7 per cent of them here in Samoa.

The same percentage applied to China holdings in tax havens, with 7 per cent of 7,000 companies registered in Samoa.

ICIJ stated that, by some estimates, between $1 trillion and $4 trillion in untraced assets have left the country since 2000.

The growing onshore and offshore wealth of China’s elites "may not be strictly illegal," but it is often tied to "conflict of interest and covert use of government power," said Minxin Pei, a political scientist at Claremont McKenna College in California.

"If there is real transparency, then the Chinese people will have a much better idea of how corrupt the system is [and] how much wealth has been amassed by government officials through illegal means."

Eastern use of offshore finance centres and tax havens is dwarfed by the amounts held in mostly Western countries.

However China has been identified by industry analysts as the biggest source of future growth in the offshore finance industry.

"PricewaterhouseCoopers, UBS and other Western banks and accounting firms play a key role as middlemen in helping Chinese clients set up trusts and companies in the British Virgin Islands, Samoa and other offshore centres usually associated with hidden wealth, the records show," reported ICIJ.

There was data on 122,000 shell companies and trusts, in connection with which 130,000 names came to light.

"From those names, more than 35,000 were Chinese," said Christoph Giesen from the German newspaper, Südddeutsche Zeitung, one of the media outlets examining ICIJ China data since last July.

The consortium held back details of the Asian companies until journalists from Beijing, Taipei, New York, Madrid, Washington, Berkeley and Munich had examined documents on 37,000 company office holders.

As well as writing stories, the consortium has also uploaded raw data to its online database for public review.

Stories from ICIJ and its media partners were carried by some 20,000 news outlets globally, according to a story count in Google News.

These latest revelations come as members of the Samoa offshore industry attended a workshop last week in Apia.

The workshop, held by the Samoa International Finance Authority, the country’s official tax haven regulator, was not publicly announced.

In fact, SIFA has not announced anything on its website, ever, with the page for press releases still completely blank.

Since the ICIJ exposes began last year, SIFA has refused to take any public steps in response to the controversy, other than adding a news feed from the BBC to its website.

However the news is general and does not focus specifically on offshore finance.

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