We live in an increasingly complex world, where more people than ever in the history of mankind are more connected in every possible way. Information and capital can make its way around the globe in seconds, even microseconds, while the amount of information we create in two years is practically greater than what had cumulatively been generated throughout the entirety of human existence.
Some things, though, haven’t really changed in thousands of years. Corruption in all its ways, for example, is ethically wrong. Those two factors can maybe help explain how this week, Noticias magazine revealed that Economy Minister Nicolás Dujovne is a confessed tax evader, making him at least the third high-ranking member of the government to present a serious conflict of interests involving offshore funds, behind President Mauricio Macri, Energy Minister Juan José Aranguren, and Finance Minister Luis “Toto” Caputo.
Only Noticias and Perfil reported the case, while the opposition immediately asked for Dujovne’s head on a stick. Dujovne is one of the wealthiest members of the cabinet, with a declared net worth of 97 million pesos as of 2017 (2018 filings haven’t been made available yet), up 31 percent or 23 million pesos from 2016. While the Economy Minister took up his post in January, 2017, replacing the ‘disgraced’ Alfonso Prat-Gay, he began to declare a series of assets starting January, 2016, ahead of the expected tax moratorium that became law in July, 2016, and helped the government raise US$116.8 billion from 240,000 Argentines who voluntarily entered into the beneficial plan. Among them Dujovne, which means the person currently in charge of collecting taxes and going after evaders is effectively a tax evader. Let’s go a little deeper and explain this further.
An investigation by Noticias has confirmed that among the 30 pesos million that the Economy Minister declared throughout 2016, almost up until the day he took office, a 20-million-peso stake in offshore firm Florentine Global was formalised through the tax moratorium. While Dujovne didn’t respond to Noticias’ questionnaire, he tacitly accepted his status as a tax evader by denouncing the leak of his tax information as stemming from the illegal activity of a criminal gang dedicated to selling secret data to the media. Dujovne was referring to a group of former AFIP (Argentina’s tax authority, currently under the umbrella of the Economy Ministry) employees who have been prosecuted for stealing and commercialising the list of citizens that entered into the tax moratorium. Indeed, Pagina/12 journalist Horacio Verbitsky published said list last August, which included Gainfranco Macri (the president’s brother), Nicolás Caputo (Macri’s best friend), Marcelo Mindlin (a businessman who bought Macri’s cousin’s construction business), and Alejandro Peña (Chief-of-Staff Marcos Peña’s second cousin). It’s important to note that as private citizens, they committed no crime entering into the moratorium, as did Dujovne at the time, before he became a public servant.
Yet, it’s type of behaviour, standing at the boundaries of ethics, is continually surfacing with this administration. The Macri family appears on both sides of the counter with deals like the sale of airline MacAir, the Correo Argentino tax deal (later repealed), and the reselling of wind farms to Genneia, all of which have been mentioned in these pages previously. “Toto” Caputo, the man responsible for negotiating with holdout creditors and for selling sovereign debt, owned and managed a hedge fund that traded said debt (which he denies). And there’s many more, like Spy Chief Gustavo Arribas, ex-sub-secretary Valentín Díaz Gilligan, and Finance Secretary Santiago Bausili.
The causes are understandable: Argentina is the fifth country with the most amount of offshore capital relative to GDP, behind Russia, Saudi Arabia, Venezuela and the United Arab Emirates, the US National Bureau of Economic Research has indicated. Estimates point to anywhere between US$125 billion and US$400 billion in undeclared capital overseas – between 20 percent and 64 percent of annual GDP. According to Noticias’ investigation, Argentina has the highest tax burden in Latin America along with Brazil, and in line with several advanced economies which don’t count with crumbling infrastructure and deficient public services. Indeed, since the 2001-2002 economic meltdown, the Kirchners consistently increased the pressure, taking the tax burden from 21.6 percent when they took office in 2003 to 32 percent in 2015, while primary spending skyrocketed (from 23 percent to 42 percent of GDP), and the fiscal deficit surged to 5.4 percent of GDP, fuelling runaway inflation, according to the Finance Ministry.
While the Kirchners generated the economic incentives for tax evasion, the global financial system facilitated it. The tools were readily available to anyone that was moderately wealthy. Tax havens abound, from Mossack Fonseca’s Panama to Bermuda’s Appleby and Asiaciti Trust’s Singapore. Financial intermediaries, like Caputo, know how to generate aggressive ‘tax efficient’ structures with shell companies structured like Russian dolls that effectively mask the true identities of their owners. The complexity of the global financial system is a consequence of globalisation, but it’s also pursued by major banks, multinational corporations, and even nation states including the US and Britain. While most countries, and even the G20 — currently presided over by Argentina, let’s remembner — condemn the use of tax havens, the global financial system is built on them. Tax evasion is costlier than corruption, according to the Tax Justice Network, costing 5.1 percent of global GDP, compared to 2 percent for graft.
The Macri administration risks losing credibility in its fight against inflation and corruption. Dujovne, for example, has 76 percent of his capital abroad, despite claiming he “really truly believes in this process,” referring to the aggressive reforms being pursued by this administration. Energy Minister Juan José Aranguren, who is sitting on a fortune of 104.7 million pesos and has 83 percent of it overseas, is a bit more aggressive: “My money is still abroad, as we manage to recover confidence in Argentina, we’ll repatriate it,” he said back in March. While the type of publicprivate corruption that was the law of the land during the Kirchnerite decade is many levels deeper down the rabbit hole of unethical behaviour, the normalisation of these practices among Macri’s ministers is detrimental to the nation. As Kirchnerite Deputy Agustín Rossi — seen as Cristina Fernández de Kirchner’s possible successor — put it: Argentina’s is the only government in the world that openly, and with conviction, defends the use of offshore firms.
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