Yesterday, Global Financial Integrity released the report, Illicit Financial Flows from Developing Countries 2002-2011, which found that developing countries lost $947 billion in illicit financial flows in 2011, and $5.8 trillion over the ten-year study period.
The subject of illicit financial flows is still a new one, and can be confusing. To help answer some common questions about the report, we’ve put together a quick FAQ below:
What Are Illicit Financial Flows? What Does This Report Measure?
Illicit financial flows are cross-border transfers of funds that are illegally earned, transferred, or utilized. These kinds of illegal transactions range from corrupt public officials transferring kickbacks offshore, to tax evasion by commercial entities, to the laundered proceeds of transnational crime.
This post is the third in a three-part series on policy solutions to confront trade mispricing from Mexico and the War on Drugs. It is adapted, with permission, from this feature article originally published by Policy Matters Journal. You can read the first and second posts.
In the United States, the War on Drugs has focused mainly on stemming the demand in the north and stifling the supply from the south. This effort has largely failed because the demand for illegal drugs is so large that narcotics dealers are willing to take significant risks to enter the North American drug market. A more effective method for fighting the War on Drugs would make it difficult for the cartels to hide or use the monetary proceeds from selling narcotics, thus making it unprofitable for them to do so.
This excellent report (cross posted and prepared by FTC Coordinating Committee member Global Witness) reinforces the necessity for transparency about the ultimate beneficial owners of companies involved in extractive deals – and NOT just the proxies or other companies in obscure ownership chains – but the real beneficial owners of companies!
Findings pose a challenge for the Extractive Industries Transparency Initiative
Click here to download this report.
Azerbaijan Anonymous, a new report released today by Global Witness, reveals a shadowy figure in the oil industry of Azerbaijan, a key EU energy supplier. A little-known businessman, Anar Aliyev, has gained ownership stakes, some highly profitable, in at least 48 deals with Socar, the state oil company of Azerbaijan, though it is not clear why he is involved and how his involvement is of benefit to the country. The research raises the concern that private individuals, including Anar Aliyev and others he may be fronting for, could be benefitting at the expense of the citizens of Azerbaijan. While Socar and its partners may well have acted within the law, the lack of transparency about how these companies came to be involved in the Azerbaijani oil industry raises serious questions over potential conflicts of interest and preferential treatment. This opacity highlights a credibility problem for the Extractive Industries Transparency Initiative (EITI), of which Azerbaijan is a long-standing member. Currently, a country can comply with the EITI’s rules while other key aspects of its energy industry are kept in the shadows, raising the risk of corruption. The EITI is beginning to tackle this issue by piloting the voluntary publication of extractive companies’ real “beneficial” owners ahead of making this a mandatory requirement in 2016, although the exact nature of the final requirement has not yet been agreed. “Our report raises serious concerns that the Azerbaijani people are not seeing the full benefit of their country’s oil boom,” said Simon Taylor, Global Witness Director. “To stamp out any suspicion, Azerbaijan’s authorities should incorporate the disclosure of the beneficial owners of its extractive and oil trading companies into its EITI process and explain Anar Aliyev’s relationship with Socar as a matter of highest priority.” Global Witness’ findings in Azerbaijan Anonymous include:
This post is the second in a three-part series on policy solutions to confront trade mispricing from Mexico and the War on Drugs. It is adapted, with permission, from this feature article originally published by Policy Matters Journal. You can read the first post here.
In the United States, the War on Drugs has focused mainly on stemming the demand in the North and stifling the supply from the South. This effort has largely failed because the demand for illegal drugs is so large that narcotics dealers are willing to take significant risks to enter the North American drug market. A more effective method for fighting the War on Drugs would make it difficult for the cartels to hide or use the monetary proceeds from selling narcotics, thus making it unprofitable for them to do so.
Cross posted from Transparency International’s website.
December 9 is International Anti-Corruption Day. It is a day when people around the world raise their voice against the abuse of power for private gain.
The Corruption Perceptions Index 2013, in which two-thirds of countries score less than 50, offers a warning that the abuse of power, secret dealings and bribery continue to ravage societies around the world. They will continue to do so as long as corruption pays off for the corrupt.
From the business executive who helps a corrupt official hide a bribe in an offshore bank out of authorities’ reach, to the judge who stops a politician’s case coming to court, there are too many fraudulent cases that are not investigated and too many legislative loopholes that need to be addressed.
This post is the first in a three-part series on policy solutions to confront trade mispricing from Mexico and the War on Drugs. It is adapted, with permission, from this feature article originally published by Policy Matters Journal.
In July of last year, the U.S. Department of Justice discovered that the banking giant HSBC “willfully failed” to apply money laundering controls to $881 million in drug trafficking proceeds, including those from two major Mexican drug cartels. Specifically, HSBC’s policies allowed high risk and suspicious account holders to open HSBC bank accounts in Mexico. A Senate Subcommittee on Investigations report condemns the actions of HSBC’s U.S. affiliate and provides details on its Mexican affiliate’s deficiencies, which included “a dysfunctional monitoring system; bankers who resisted closing accounts despite evidence of suspicious activity; and high profile clients involved in drug trafficking.”
The FACT (Financial Accountability and Corporate Transparency) Coalition today praised Representative Lloyd Doggett (D-TX) and Representative Rosa DeLauro (D-CT) for the introduction of the Sequester Delay and Stop Tax Haven Abuse Act. Among other things, this legislation would close or tighten tax loopholes that have been used by some of the most profitable multinational corporations – Apple, Hewlett-Packard, Microsoft and Nike – to avoid paying their fair share of taxes. Some tax loopholes allow corporations to use complex accounting schemes to make it appear that profits earned in the United States are actually generated in other countries, often a tax haven with little or no tax on profits.
As an added benefit, closing these loopholes will also generate over $220 billion over the next ten years, which can be used to delay some of the automatic budget cuts that Congress put in place through sequestration.
The FACT coalition contends that the use of these loopholes by corporations to move jobs and profits offshore drains the U.S. of much-needed resources and economic activity. As it stands, Congress is struggling to make up the required revenue needed to maintain our national security and provide for a functioning government.
Transparency International’s Corruption Perceptions Index 2013 offers a warning that the abuse of power, secret dealings and bribery continue to ravage societies around the world.
More than two thirds of the 177 countries in the 2013 index score below 50, on a scale from 0 (perceived to be highly corrupt) to 100 (perceived to be very clean).
“The Corruption Perceptions Index 2013 demonstrates that all countries still face the threat of corruption at all levels of government, from the issuing of local permits to the enforcement of laws and regulations,” said Huguette Labelle, Chair of Transparency International.
After decades of sanctions and years of negotiations, the permanent members of the UN Security Council (and Germany) have reached a temporary deal on Iran’s nuclear program. Under the agreement, for the next six months, Iran will halt activities that would enable it to make a nuclear weapon and allow international inspectors to dramatically increase their oversight of the program. In exchange, the United Nations and the United States will ease international economic and financial sanctions (including by unfreezing billions in Iranian assets abroad).
Not everyone is happy with the deal. Israeli Prime Minister Benjamin Netanyahu called it an “historic mistake.” Some lawmakers in Washington have expressed skepticism over whether the deal will actually impair Iran’s ability to pursue a nuclear weapon. And others have argued the decision to ease sanctions is a mistake—that now is actually the time for stricter controls.
Yet both opponents and proponents generally do agree on one thing: the sanctions against Iran worked. Since 2006, the United States, European Union, and United Nations have enacted increasingly tougher economic and financial sanctions on Iran. Economic sanctions included export restrictions on oil, automobiles, and arms. On the financial side, these nations have frozen the assets of Iranian entities and public sector, banks which do business with Tehran, and Iran’s currency. Together these sanctions resulted in significant negative economic consequences for Iran’s economy, including drags on oil revenue and GDP and increases in inflation.
In his riveting article “Push against offshore secrecy an uphill battle”, the Center for Public Integrity’s Michael Hudson provides fascinating background about the evolution of tax havens, including this bit of US history:
In 1921, the U.S. Congress raised questions about foreign subsidiaries that were used to “milk” their U.S. parent corporations, helping them cut tax bills. In 1937, U.S. Treasury Secretary Henry Morgenthau warned President Franklin D. Roosevelt that Americans were dodging taxes by setting up holding companies in the Bahamas, Newfoundland and elsewhere, resorting to “all manner of devices to prevent the acquisition of information regarding their companies.”
Hudson also examines what recent promises by G20 and other bodies might mean for the future of tax havens. A quote from the FTC’s Alvin Mosioma provides a sobering synopsis:
“Rich nations have a reputation for making grand pronouncements and not keeping them. That for us is a reason for pessimism,” Mosioma says. “It’s also a reason to keep the pressure on. We can’t wait for another decade of talking about this.”
Some of the world’s most infamous secrecy jurisdictions, such as the British Virgin Islands and Jersey are considering becoming more transparent, whereas several G8 countries lag behind, said campaigners today. A new report,  published by Global Witness and Christian Aid today on the eve of a meeting between the UK government and the heads of the Overseas Territories, grades each of the G8 countries and the UK’s tax havens as to how easy it is to find out the names of the ‘beneficial owners’ of companies – the people who ultimately own and control them.
“Tax dodgers, child traffickers, corrupt politicians and other money launderers all rely on the use of anonymous shell companies to hide their identity,” said Rosie Sharpe, Senior Campaigner at Global Witness. “To tackle this sort of financial crime, the names of the beneficial owners of companies need to be made public for all to see.”
Abuses of anonymous shell companies have received high-level political attention recently. At the G8 summit in June 2013 all the G8 countries as well as the UK’s Crown Dependencies and Overseas Territories produced plans to tackle hidden company ownership. Some are better than others. Those places that promise more transparency deserve recognition, whereas the places that have not yet embraced this move towards greater transparency deserve exposure.
The budget conference committee, which is currently charged with negotiating a compromise on the U.S. federal budget, has met publicly for a second time last week. The committee must deliver a report to Congress by December 15 and, to avert another shutdown, Congress must extend government funding by January 15.
Leaders in the budget committee leaders have said they “won’t waste time debating the areas where they already know there’s no agreement, but will focus on where deals can be cut.” Some Senate Democrats believe those compromises could lie in tax expenditures—including by eliminating “egregious” loopholes that wealthy individuals and corporations use to lower their net tax burdens.
Many have focused compromise in this realm on corporate tax loopholes. For good reason: while the United States has a statutory tax rate of 35% (the second highest among developed nations) corporations in this country pay an effective tax rate of just 12.6%. Senator Tom Coburn, a Republican from Oklahoma, has responded to these statistics, saying: “An individual’s or corporation’s tax rate shouldn’t be dependent on their ability to hire a tax lobbyist. It’s especially wrong to ask families who are struggling to make ends meet to subsidize special breaks for corporations.”