[Editorial] Illegal capital outflow

The Seoul Central District Prosecutors’ Office indicted on Thursday the head of a doll exporting company on charges of illegally siphoning off personal assets worth 94.7 billion won overseas and evading taxes totaling 43.7 billion won.

The businessman, identified only by his surname Park, was suspected of having shifted his assets abroad for nine years since 2000 using his subsidiary in Hong Kong, paper companies in such tax havens as the Virgin Island and Labuan, and secret bank accounts in Switzerland.

Park’s alleged offshore tax evasion was detected by the National Tax Service last year. The case shows tax havens or Swiss bank accounts are no longer a safe place to park illegal wealth as the era of banking secrecy has ended. The court should punish Park sternly as a warning to others.

The Korea Customs Service recently reported that capital outflow to overseas tax havens has increased sharply. Last year, Korea’s trade with 62 countries classified as tax havens totaled $139.2 billion. But the amount of foreign exchange transactions with them amounted to $255.2 billion, suggesting non-trade capital transfers to these countries. The customs office has started an investigation to track down illegal foreign currency outflows.

The National Tax Service has also been stepping up efforts to crack down on offshore tax evasion. It has set up the Offshore Compliance and Enforcement Center to trace wealthy people and large businesses that use increasingly sophisticated techniques to shift personal or corporate assets abroad and evade taxes.

From June this year, businesses and individuals are required to report all foreign bank and financial accounts with more than 1 billion won to the NTS. This regulation is expected to help the tax office catch tax offenders more easily.

As overseas transactions increase amid globalization, more people and companies could be tempted to transfer assets overseas illegally and evade taxes. The government needs to stay vigilant to prevent illegal outflows of national wealth.