In many ways, both illicit financial flows and corruption are undefined and relative. For that reason, they’re both notoriously difficult to measure. The difficulty in measuring them in the first place may be part of the ambiguity surrounding their connection. Ambiguity aside, however, these concepts are highly interrelated. Here’s how.
What is corruption in the first place? Transparency International uses the following working definition of corruption: “the abuse of entrusted power for private gain.”
I imagine that definition is purposively vague and inclusive on purpose. Corruption isn’t just bribe paying, although that’s often it. It’s not just in business relationships, but also political, social, and even athletic ones. Corruption isn’t necessarily illegal, although it’s often so. And in some cases, while it may be illegal, it isn’t always enforced, which makes it legal in practice. For TI’s purposes, such a definition allows better, more inclusive measurement of this complex phenomenon.
This year, when the Think Tanks and Civil Societies Program at the University of Pennsylvania (TTCSP), made its annual list of the world’s most relevant think tanks, it chose four Financial Transparency Coalition members among its ranks. They included Global Witness, Tax Justice Network, and Global Financial Integrity, which ranked #32, #54, and $63 (respectively) for Think Tanks with the Best Advocacy Campaigns. FTC member Transparency International was also highly celebrated on the list, appearing a full twelve times, many of which were top ten spots. Among others, TI ranked #12 for Top Think Tanks Worldwide, #1 for Top Transparency and Good Governance Think Tanks, and #10 for Think Tanks with Most Significant Impact on Public Policy.
Every year, TTCSP releases this index to “acknowledge the important contributions and emerging global trends of think tanks worldwide.” And “gain understanding of the role think tanks play in governments and civil societies.” It compiles the list by eliciting nominations and receiving comments from literally hundreds of individuals and organizations around the world. These include current and former directors of think tanks, public and private donors, policymakers, journalists, scholars, civil society representatives, and academics. For a think tank to even be eligible for the list, it must receive no less than five independent nominations and then undergo two rounds of rankings from experts.
The rankings are a clear reason to celebrate the success of our FTC members, but they may also provide us with an opportunity for a moment of introspection.
The Philippines has made significant progress on its quest to confront corruption and tax evasion under the guidance of President Aquino. However, a new report by Global Financial Integrity shows one important—and growing—component of the problem is trade mispricing, specifically import under-invoicing, and its role in facilitating tax evasion in the Philippines.
In June 2010, Benigno Simeon Cojuangco Aquino III assumed his position as the 15th President of the Philippines. As a Senator, before his election to the Presidency, Aquino pursued an anti-corruption agenda. For example, Aquino contributed to the Preservation of Public Infrastructures bill—which raised standards in public infrastructure construction by penalizing contractors involved with faulty and low-quality construction—and the creation of a Congressional Oversight Committee to ensure the proper use of intelligence funds.
Since assuming the presidency, Aquino has pursued an agenda of economic growth and anticorruption. As part of this agenda, Aquino has also aggressively gone after tax dodgers and appointed the ruthless Kim Henares to head the Bureau of Internal Revenue. Henares has sent federal prosecutors after actresses, a doctor, and other auspiciously-wealthy individuals.
The Financial Transparency Coalition issues play an important role in the context of global income inequality. By discouraging tax evasion and corruption among the world’s wealthy individuals and corporations, the FTC recommendations could play an important role in alleviating egregious and dangerous income disparity.
When we talk about global inequality, we are usually referring to one of two issues: (1) inequality between nations and regions and (2) inequality between individuals. Inequality between nations usually refers to the huge disparities between the average incomes of people in different countries. The other kind of inequality, that between individuals, refers to the overwhelming disparity of incomes between the world’s richest and the world’s poorest people.
Many of the world’s wealthiest individuals live in rich nations and many of its poorest live in poor nations, but not always. In fact, the world’s current wealthiest individual is Carlos Slim Helu, a telecom mogul from Mexico—the same nation where nearly half of the population lives in poverty, including 11.5 million men, women and children in extreme poverty. Likewise, Mukesh Ambani, whose net worth totals $21.5 billion, and Prince Alwaleed Bin Talal Alsaud ($20 billion), live in India and Saudi Arabia, respectively. While neither of these nations is among the poorest in the world, nearly one third of India’s population lives below the poverty line and one quarter of Saudi Arabia’s does.
Victor Yanukovych lives on 340 acres of land on the banks of the river Dnieper in Ukraine. His home, a five story mansion named Mezhyhiriya, is decorated with marble, crystal, and precious woods. It is difficult to overstate the luxury of this palatial building. Its cedar doors are worth $64,000 each, the wall paneling in […]
Last week, the Wall Street Journal reported that the U.S. Justice Department has indicated it will step up its enforcement of anti-money laundering (AML) rules among financial institutions and boost its efforts to safeguard U.S. banks from illicit financial flows. As the article points out, this comes as no surprise to those of us who have watched this issue—prosecutors in the United States have been bringing more cases against banks using the Banking Secrecy Act and DOJ has aggressively pursued both domestic and international banks for deficient money laundering controls.
The DOJ’s efforts are laudable, but unfortunately they expose a systemic deficiency in another area. In fact, while the United States has made commendable strides in many areas—and the Obama administration has repeatedly promised to crack down on financial secrecy—there is at least one, glaring hole in the progress: on beneficial ownership.
There are plenty of reasons for the United States (and indeed all countries) to strengthen rules on beneficial ownership, but one obvious reason is to enhance AML efforts. The connection between the two is fairly straightforward: criminals obscure their identities using anonymous shell companies (or “phantom firms”) to launder the proceeds of crime. Without knowledge of the “beneficial owner” (or the flesh in blood person) of an account, law enforcement officials are stymied in their efforts to trace illicit funds.
The New Year is a great time for resolutions. Of course most of these resolutions are made on a personal basis. But resolutions can also be made on a national and international level. So in that spirit, here are five resolutions from the FTC and some of our Coalition members. These reforms and priorities, if […]
This year saw a great deal of progress on financial transparency. From the G20 Summit in St. Petersburg to 10 Downing Street, the world has committed to more transparency both in words and in actions. Specifically, the events of this year have shown the world is eager to cooperate on issues of transparency and there is significant momentum building for significant and sustainable change. Here’s a review of some of the big events in 2013.
Many of the developments in 2013 showed the world is more willing to cooperate on issues of transparency. At its heart, transparency requires cooperation. Financial opacity serves only the nation who implements. Transparency indicates a willingness to cooperate because it is fundamentally a reciprocal benefit.
This year’s G8 Summit in Lough Erne saw a number of important commitments from the world’s eight wealthiest economies. Specifically, the leaders of these nations agreed to work toward sharing “information automatically to fight the scourge of tax evasion” and that “multinationals should report to tax authorities what they pay where” with “comprehensive and relevant information on the financial position of multinationals… in a standardized format focusing on high level information on the global allocation of profits and taxes paid.”
Last year, inspired by TIME Magazine’s Person of the Year, I picked ten individuals as nominees for a “Transparency Person of the Year.” Keeping with TIME’s definition, these would be people who influenced the news, for better or worse, on issues related to financial transparency. Keeping with the tradition, here are my picks for 2013.
DAVID CAMERON. The United Kingdom’s Prime Minister has led a charge to change worldwide standards on beneficial ownership. In October of this year, the Prime Minister promised to make information on the beneficial ownership of companies available on public registries. Through these registries, the UK will require companies, trusts, and foundations, to not only gather information about their beneficial owners, but also to publish it in the public domain, allowing journalists and members of civil society to access this information and hold criminals accountable. Cameron’s efforts may inspire action in the EU and on this side of the Atlantic, creating momentum toward stronger rules on beneficial ownership worldwide.
GERALD RYLE. After a three year investigation, the International Consortium of Investigative Journalists and their director, Gerald Ryle, published information about the illicit and questionable dealings of ten offshore jurisdictions including the British Virgin Islands, the Cook Islands and Singapore. The ICIJ data include details on 122,000 offshore companies or trusts, nearly 12,000 intermediaries, and 130,000 records on the people and agents who are behind these companies, either secretly or otherwise. Armed with these data, 86 investigative journalists from 46 countries mined the information and published stories about tax evaders and other criminals, in what is now the largest cross-border investigative collaboration in journalism’s history.
What is “fair”?
There are lots of different ways to see it. According to the Americans for Tax Fairness tax fairness means making corporations and wealthy individuals “pay their fair share.” For those at CATO, tax fairness is an Alternative Minimum Tax (or flat tax).
Ultimately, though, tax fairness is a normative concept.
It’s helpful, then, to consider what society as a whole considers fair. People’s opinions about this question matters, not only in a theoretical sense, but also because we want to maximize society’s happiness overall. To accomplish this, we need a tax system that aligns with society’s preferences.
While people do not have homogenous preferences on tax fairness, economists have found that people generally prefer greater societal equity established through the tax code.
Senator Tom Coburn, a Republican from Oklahoma, has articulated tax fairness this way: “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.”
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.
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.”