According to a recent editorial from The Guardian, the illicit activities that drive capital flight, such as drug trafficking and terrorist financing, are actually supported by legal infrastructure. Namely, the lack of transparency in regions designated as “tax havens” allows for elaborate tax avoidance schemes and money laundering that funds these sorts of activities. As an example, banking company HSBC reportedly held a Cayman Islands subsidiary that “handled some 60,000 accounts,” which “drug lords used . . . to fuel their jet-set lives.”
According to the influential newspaper, politicians must address the issue of tax haven abuse. In affected countries such as the United Kingdom, steps must be taken that increase both transparency and corporate tax accountability:
“Experts suggest the UK should embrace a range of remedies, from pressing for automatic information-sharing agreements with other countries to increasing the level of corporate transparency in its own crown dependencies and overseas territories.
A publicly available registers of trusts – the vehicles commonly used for tax avoidance in tax havens – would also be a positive step. So, too, would a decision by the UK government to support ‘country by country’ reporting, whereby companies are required to show the profits and the tax they pay in each country within which they operate, an accounting initiative that would encourage transparency and accountability and highlight when tax havens were being used.
Politicians must also step forward. Ed Miliband has made the right noises by calling for Jersey, Guernsey and the Isle of Man to reveal the identity of British tax evaders with money hidden on the islands. But more needs to be done to make more accountable those in the City who push tax havens. Highly remunerated executives must be held responsible for what happens on their watch in these often poorly supervised territories. For this reason, tax campaigners are pushing for a new law that recognises a crime of ‘wilful blindness’. Under this scenario, executives and their financial advisers would be held accountable if they failed to ask searching questions of those clients for whom they opened dubious accounts in tax havens.”
The Task Force on Financial Integrity and Economic Development also encourages country-by-country reporting as an essential step toward tax reform. Not only would this policy allow for regulation of corrupt business practices, but countries could more easily hold corporations accountable for tax payments that affect local budgets.
Disclaimer: Unless specifically stated to be the views of the Financial Transparency Coalition, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Financial Transparency Coalition.