Table of Contents
What is Black Money?
Black money refers to all funds generated through illegal, underground practices or unrecorded legal income that does not get taxed. Those earning black money, for the most part, have three options: concealing the money, spending it on the black market, or executing a money laundering scheme to introduce them into the economy proper (‘turn black money white’).
Underground markets create a complex economy, which consists of diverse activities that violate any number of financial laws and rules.The amount of black money in circulation is obviously difficult to accurately estimate. If regulators or investigators knew exactly how black money existed, that would effectively defeat the purpose.
The Zero Theft Movement, along with our community, is working to eliminate black money from the U.S. economy. When we can account for these funds, the government receives the proper taxes it’s legally due, and citizens can (hopefully) enjoy better services.
How Black Money Works
Black money keeps the underground economies running. You will find these ‘shadow markets’ running in countries everywhere, in all stages of socioeconomic development. These activities bypass or dodge institutional laws, rules, regulations, and penalties governing commerce.
As black money is a broad term, it includes more minor misdemeanors (e.g. not paying taxes on the small income made through a side job) to serious crimes (e.g. money laundering). Although rare, black money can be necessary or even good if you cannot access certain goods or services due to an oppressive, corrupt government.
Underground economies typically fall into four categories: illegal economies, unreported economies, unrecorded economies, and informal economies.
The illegal economy
The illegal economy refers to income generated by economic activities that violate legal statutes of commerce. Drug and arms trafficking, for example, contribute to the illegal economy.
One example of a case exposing the illegal economy came in 2012. CNN reported on the trial of Viktor Bout, an arms dealer serving 25 years in prison, who had allegedly set up a global network of shell companies to conceal his activities: “To date, 12 American shell companies linked to Bout have been identified–incorporated in Texas, Florida and Delaware.” He reportedly made around $6 billion through his various dealings.
The unreported economy
Perhaps the most common form of black money comes from the unreported economy. In essence, this refers to unpaid taxes.
Think of, for example, a cash-only business that does not provide receipts to customers. As there’s no official record or documentation, the store could get away with not paying taxes on its sales. While the transaction itself violates no law, the store owner has committed tax fraud.
You might wonder about the prevalence of this kind of black money. The U.S. ‘tax gap’ (amount of taxes due minus amount of taxes collected) can provide some answers. The Internal Revenue Service (IRS) estimates the tax gap at $381 billion for FY 2011-2013. That’s close to 17% in missing tax revenue.
The U.S. Public Interest Research Group claims, “Fortune 500 companies are holding more than $2.6 trillion in accumulated profits offshore for tax purposes. Just four of these companies, Apple, Pfizer, Microsoft and General Electric, account for a quarter of the total. Just 30 Fortune 500 companies account for 68 percent or $1.76 trillion of these offshore profits.”
The unrecorded economy
The unrecorded economy consists of economic practices that bypass the reporting requirements of government statistical agencies. Black money can come from the deliberate concealment of information for legitimate or illegitimate reasons or due to difficulties with data collection.
This type of dark money typically presents a problem in countries transitioning from a socialist accounting system to UN standard national accounting. Little certainty exists as it pertains to the size of these unreported economies.
For example, you can take the case of accounting in Vietnam. Past conflicts, upheavals, and the transition to a market-based economy created a plethora of unique accounting issues. Thanh Chu, in a Doctoral thesis for the University of Wollongong, writes: “…the introduction of market accounting, especially that of international accounting and auditing standards, into the current Vietnamese accounting system has been facing a lot of difficulties due to the regulatory structure of finance, accounting and tax.”
The informal economy
The informal economy refers to the economic activities that do not offer the benefits and rights incorporated in the laws and administrative regulations on property relationships, commercial licensing, financial credit, social security, etc.
Informal economies are not taxed, regulated by the government, or a part of the gross national product (GNP). Common unreported employment involves cash payments without receipts, such as housekeeping and landscaping. While the work itself does not involve any violations of the law, the informal economy violates the law as the black money remains hidden from the state for tax, social security, or labor law purposes.
The Dangers of Black Money
We have alluded to some of the issues of black money above, but let’s take a closer look now.
Of course, the first major danger of black money boils down to how the individual/business gains the funds. For instance, human trafficking generates $150 billion worth of black money annually. There’s no ifs, ands, or buts about black money gained through human trafficking; it’s simply wrong. The same cannot really be said about a young adult failing to declare the thousand or so bucks they’ve made from babysitting.
When you have lots of black money at stake, those involved will likely do whatever they can to conceal their activities. This can lead to widespread corruption, where bribing law enforcement and/or government officials becomes standard practice. For instance, Mexican drug cartels have reportedly corrupted border patrol agents in order to smuggle their ‘merchandise’ onto U.S. soil.
Also, a nation loses revenue when individuals and corporations evade taxes. This is a form of ‘financial leakage.’ Tax evasion, as well as some forms of tax avoidance, means the government has less funds to improve and expand high-quality social services or potentially pay off its debts. Furthermore, as a good portion of black money won’t ever enter the banking system, it can make it harder for legitimate businesses and entrepreneurs to acquire loans.
Underground economies also make it impossible to accurately know the financial health of a nation. Typically, because dark money remains concealed, a country’s financial wellbeing often gets underestimated. These unreported earnings cannot be included in a country’s gross national product (GNP) or gross domestic product (GDP). Thus, a nation’s estimates of savings, consumption, and other macroeconomic variables would be misleading. These inaccuracies adversely affect planning and policymaking.
What to do about Black Money?
With the leak of the Panama and Paradise papers, many of us got an idea just how large and connected these underground economies really could be. According to our corporate tax breakdown, individuals routinely pay close to 90% of all U.S. tax revenues while corporations pay about 7%.
To combat the global underground network, the U.S. has developed a number of anti-money laundering (AML) efforts and laws. Money laundering actually wasn’t outlawed until 1986, with the passing of the Money Laundering Control Act. Recently though, Congress successfully included a provision to ban anonymous shell companies in the 2021 National Defense Authorization Act.
Black money is a global issue, involving potential trillions of unrecorded funds circulating behind the scenes. Furthermore, the illegal businesses often generating this money promote corruption and human rights abuses. The Federal Bureau of Investigation (FBI) estimates that white-collar crimes in the U.S. alone cost $300 billion annually.
Does that sound right to you? It might, or it might not. But it’s about time we investigate the matter and find out if there’s any foul play plaguing our economy.
We at the Zero Theft Movement are working to achieve economic justice by holding Congress accountable with facts and evidence. On our independent voting platform, our community collaborates to calculate the best estimate for the monetary costs of corruption in the U.S.
Citizens investigators research potential cases of ‘theft’ (unethical, not necessarily illegal, actions that have ripped off the public) and author proposals. The community votes on whether (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas are and start working on addressing them systematically.
Many ethical businesses and corporate executives exist. The Zero Theft Movement just wants to eliminate the ill-gotten gains that should be going directly to citizens or indirectly to them through proper, high-quality government services.
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.