More than one-third of global investment has disappeared into corporate shells and suspected tax havens as a new study reveals the true scale of “phantom” flows of money.
Foreign direct investment (FDI) is thought of as economically useful as it can result in ‘real economy’ activity, to build factories or infrastructure or set up companies, as opposed to portfolio investment which refers to the purchase of shares and other financial assets and is seen as shorter-term.
Around $2.5 trillion of FDI flows around the world each year, and the OECD estimates there is a total outstanding stock of around $31 trillion of such investment.
But a study by researchers at the International Monetary Fund, University of Copenhagen and the National Bank of Denmark indicates as much as $12 trillion of this has not been put to any clear use at all.
“A stunning $12 trillion—almost 40 percent of all foreign direct investment positions globally—is completely artificial: it consists of financial investment passing through empty corporate shells with no real activity,” said the researchers in a report in the IMF’s Finance and Development publication.
“These investments in empty corporate shells almost always pass through well-known tax havens. The eight major pass-through economies—the Netherlands, Luxembourg, Hong Kong SAR, the British Virgin Islands, Bermuda, the Cayman Islands, Ireland, and Singapore—host more than 85pc of the world’s investment in special purpose entities, which are often set up for tax reasons.” (more...)
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