Task Force Blog

Posts by Ann Hollingshead

About the Author:

Ann Hollingshead is a Financial Transparency Coalition blog contributor, whose posts appear weekly. Formerly a Junior Economist at Global Financial Integrity, Ann is now pursuing a Master of Public Policy (MPP) from the University of California Berkeley. Follow her on Twitter: @AnnHollingshead.

Why Tax Inversion Is Wrong

August 22, 2014

This week the Treasury Department began assembling administrative options for deterring or preventing U.S. companies from inverting—or reorganizing overseas to avoid paying federal taxes. This move follows on the heels of a strong statement from President Obama who accused inverting firms of “cherry-picking the rules.” As he put it: “My attitude is I don’t care if it’s legal, it’s wrong.”

Particularly common among pharmaceutical and life-sciences companies, inversions are primarily a means for U.S. companies to avoid corporate taxes. In an inversion, a smaller foreign company “acquires” a large U.S. firm, allowing the domestic firm to reincorporate overseas and pay a lower foreign tax rate. Usually, this process does not change the operational or functional structure or location of the company – it just changes the way that company has to pay taxes.

Historically, these tax inversions haven’t been all that common. In fact, according to the Congressional Research Service, only been about 76 companies have inverted or planned to do so since 1983. The practice has become much more frequent, however, which is why inversion has garnered the spotlight from Treasury. Of the 76 inversions since 1983, 47 occurred in the last decade, and 14 occurred just this year.

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The U.S. Africa’s Leaders Summit and Illicit Financial Flows

August 14, 2014

Last week the White House wrapped up the three-day U.S.-Africa Leaders Summit, which President Obama convened to strengthen and enhance relations between the United States and African nations. One of the stated missions of the Summit was to advance America’s “commitment to Africa’s security, its democratic development, and its people.”

As such, a core promise of the Summit was more American investment in the African continent. Specifically, the Summit set the stage for more than $33 billion in new commitments to support economic growth across Africa. President Obama pledged $7 billion in new financing; U.S. companies announced $14 billion in deals in a variety of sectors, including energy and construction; and alongside the World Bank and Sweden, the United States also promised an additional $12 billion in investments for the President’s Power Africa initiative.

Foreign investment can play an important role in economic development. One study, for example, found that foreign direct investment (FDI) promotes economic growth in developing countries by increasing the transfer of advanced technology and creating higher productivity in those nations. Other studies suggest that recipient nations of FDI can also benefit from increases human capital as their residents receive employee training through the investing company. Finally, and perhaps most importantly, several studies note that host nations benefit from FDI to the extent that it contributes to increased corporate tax revenue.

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Recent Efforts to Regulate Bitcoin Fall Flat

July 31, 2014

This week several analysts reported that the European Union is considering regulating and taxing the digital currency, Bitcoin. Specifically, the EU is looking to impose a Value Added Tax (VAT) on trades in bitcoin. Meanwhile, its plans to regulate the digital currency—whether imminent or not—are still unclear.

Bitcoin presents short- and long-term risks to financial crime. Like tax havens and other jurisdictions with lax laws on beneficial ownership, Bitcoin presents criminals with an opportunity to keep their money and their transactions secret. Specifically, Bitcoin users don’t need to present an ID to receive a Bitcoin address—or key—so they are not necessarily tied to a flesh and blood person. This means Bitcoin transactions unidentifiable as long as the user takes care to anonymize his or her IP address.

In the United States law enforcement officials have early and often expressed deep concerns about the digital currency. Both the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury and the U.S. Department of Justice have released official statements regarding the regulation of virtual currencies. FinCEN has also already imposed money laundering controls on Bitcoin usually reserved for traditional wire transfer services, like Western Union. These controls include bookkeeping requirements and mandatory reporting for transactions of more than $10,000.

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How to Include Developing Countries in the OECD’s Standard for Automatic Tax Information Exchange

July 24, 2014

This week the Organization for Economic Cooperation and Development released the full version of its new standard for automatic tax information exchange. Under the standard, governments would collect data from financial institutions on investment income, financial assets, and account balances paid to non-resident accountholders. On an annual basis, participating governments would exchange that information automatically with other jurisdictions.

In a statement, OECD Secretary-General Angel Gurria said the launch “moves us closer to a world in which tax cheats have nowhere left to hide.”

This impetus for this new standard came from a mandate by G20 nations and the OECD will formally present the plan to the next meeting of the world’s leaders in September. The standard also follows from a great deal of bilateral and multilateral progress made by the United States and European Union on automatic tax information exchange.

For any of these efforts to have a real impact on economic development and reductions in poverty, it must translate to action in the developing world. That’s because tax revenues are, and will continue to be, the world’s most sustainable source of development funds. Yet if these systems and agreements exist only between developed nations and tax havens—and until developing countries participate in a similar system or agreements of their own—the progress we’ve made will have little effect on economic development and acute poverty.

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Can the Vatican Bank be a Moral Leader in Transparency?

July 17, 2014

In its list of Most Influential People this year, TIME magazine called Pope Francis a “moral leader in word and deed.” In the commentary on this accolade, President Obama said this of the pope: “His Holiness has moved us with his message of inclusion, especially for the poor, the marginalized and the outcast. But it […]

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Switzerland’s Two Faces of Secrecy

July 11, 2014

For about five years now, nations around the world have called on Switzerland to change its secret ways. Over these years Switzerland’s banks, which hold nearly one-third of the estimated $7 trillion in global wealth kept offshore, have borne much of the brunt of the U.S. Department of Justice’s campaign against banks facilitating tax evasion by American citizens. Other nations, such as India, have also followed suit. And although Switzerland has attempted to cultivate an image of international cooperation – the reality of Swiss banking secrecy has been more of the same.

For the purposes of outward appearances, at least, Switzerland has caved to some of the international pressure. After much debate in 2009, Switzerland surprised the world when, at the last moment, it decided not to step in and forbid banking giant UBS from handing over the names of tax-evading Americans to the Internal Revenue Service. In 2012 Switzerland began making overtures toward cooperation when it agreed to make anonymous advance payments to German tax authorities for undeclared money. In 2013 Switzerland joined the OECD’s Multilateral Convention on Mutual Administrative Assistance on Tax Matters. Under this agreement, participants must aid each other in tax collection efforts, and the agreement also includes some provisions on automatic exchange of financial information.

While these public agreements and appearances represent, in many ways, a new voice for this nation, for all practical purposes they do not represent a shift from the status quo.

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Holding FIFA Accountable

June 30, 2014

What do you call an entity with huge amounts of money, a monopoly on a hugely popular good, and no transparency or accountability structure whatsoever? The answer is not a corporation or a corrupt dictator. It’s FIFA.

FIFA (in French: Fédération Internationale de Football Association) has a long history of bribery, questionable profits, scandals, and shadowy deals.

As Tax Justice Network has shown, the organization has created its own “tax bubble,” forcing nations out of tax revenue by negotiating tax exemption from all types of levies, including income and sales taxes. Christian Aid has, for example, shown that in the current World Cup, Brazil lost about $530 million in foregone tax revenues as a result of these tax breaks.

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The Right Level of Accountability: Will the Fine on BNP Paribas Be Enough?

June 27, 2014

On Monday, U.S. authorities are set to announce a massive $8.9 million fine on the French bank BNP Paribas. The fine is part of a deal under which the bank will pay for allegedly breaching U.S. sanctions with Iran, Sudan, and Cuba and handling $30 billion in transactions from those nations. Fines like this, even […]

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Funding and Banking ISIS

June 20, 2014

The Islamic State of Iraq and Syria, or ISIS for short,[1] recently became the world’s wealthiest terrorist organizations. In fact, with an estimated net worth of $2 billion, according to the International Business Times, ISIS may have more cash than the gross domestic product of several small countries including Gibraltar, the Virgin Islands, and Palau.

ISIS has achieved this feat in a relatively short time span. Over the last few years, ISIS has made a lot of money in some traditional avenues: mainly through activities like plundering, pillaging, and extortion. ISIS has also gained controlled several oil wells in Syria since late 2012, from which it makes a sizeable profit, and the organization has also been involved smuggling from all types of raw materials and antiquities. In its early days, the bulk of ISIS’s support came from wealthy donors in Kuwait, Qatar, and Saudi Arabia (more on this later). However, the organization’s latest exploits are what really have ballooned its cash flow.

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Using Banking to Tackle Colombia’s Cocaine Problem

June 9, 2014

Late last month, during peace negotiations in Cuba, Colombia’s Marxist-Leninist rebel army organization, the Revolutionary Armed Forces of Colombia (also known as FARC) signed an agreement with the Colombia government to jointly combat illicit drugs. This is a relatively surprising accord, since many analysts believe FARC receives significant funding from this very trade. Estimates place FARC’s proceeds from the cocaine trade in Colombia around $500 to $600 million annually, mainly through a “tax” FARC places on coca farmers and their coordination of the cocaine smuggling networks.

Under the agreement last month, however, FARC agreed that it would completely divorce itself from the trade. This could represent a step forward for the Colombian government in controlling this illicit industry. In fact, Colombia, along with Peru and Bolivia, dominates the world’s supply of cocaine. In 2009, these three countries together cultivated an estimated 158,800 hectares of coca bush and produced about 1,000 metric tons of cocaine.

This agreement also came about a month after Colombia executed a different strategy for controlling the drug trade: a drug bust. In fact, in Colombia’s largest drug bust in about a decade officials seized about seven tons of cocaine headed to a Dutch port.

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The Noble, but Impossible, Task before the Ukraine Forum on Asset Recovery

May 30, 2014

Photo courtesy of Flickr user DeepstereoLast week Ukrainians cast their ballots for a new president. It was the first election for the position since the nation ousted its allegedly-corrupt former President, Viktor Yanukovych.

Before he fled to Russia, Yanukovych lived on 340 acres of land on the banks of the river Dnieper in Ukraine. His former 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, the wall paneling in the staircases is valued at $200,000, each individual chandelier cost about $100,000. The entire value of the property is estimated at around $200 million. Really, words can’t do it justice. You should just take a look at the pictures.

According to Ukraine’s acting prosecutor general, Oleh Makhnitskyi, initial intelligence suggests Yanukovyh’s stole “tens of billions of dollars” in public funds from his nation. Ukrainian prosecutors also believe that Yanukovych was able to fuel his personal assets with the alleged proceeds of corruption because he could hide assets in an opaque international financial system and network of phantom companies.

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Beyond Banking: Financing Terrorism with Bitcoin

May 27, 2014

While we still have a long way to go, the last decade has made it much harder for terrorists to hide money from authorities.  About fifteen years ago, an article in the Washington Post argued Osama bin Laden was able to “shroud his finances in such secrecy and with so many front companies that American officials acknowledge it could take years to decipher them.”  At the time, U.S. officials understood that the key to bin Laden’s power was his extensive wealth.  Yet they were stymied in their ability to track his or other terrorists’ resources as they did not have the capability to comprehensively track, freeze, and seize his assets.

All of that has changed since 9/11. Notably, the USA Patriot Act significantly altered anti-money laundering enforcement by officials in the United States.  Among other advances, the Patriot Act sought to prevent foreign shell banks from gaining access to the U.S. financial system; encouraged cooperation and information sharing among law enforcement, regulators, and financial institutions; and required financial institutions to establish anti-money laundering programs.  As Tom Cardamone, managing director of Global Financial Integrity put it: “9/11 really focused everybody’s attention on money laundering and terrorist financing and how you get at it. The Patriot Act did that to a great degree.”

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