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.

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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Fighting Trade Mispricing and Capitalizing on Oil and Gas in Kenya, Uganda, and Tanzania

May 19, 2014

Many experts have called Kenya, Uganda, and Tanzania the “next frontier” of gas and oil production. In fact, these reserves have the potential to turn these nations’ economies from “mixed” to “success” stories. One large impediment to this possibility, however, is trade misinvoicing, which occurs on a massive scale. It I so serious that this problem threatens their governments’ ability to capitalize on the potential gains associated with the discovery of oil and gas.

The discovery of oil in Kenya and Uganda, and gas in Tanzania has thrust each of these nations into the world’s energy spotlight. In 2006 Uganda found massive amounts of commercially-viable quantities of oil in the Albertine Graben, located along Lake Albert and the DRC border. In fact, some believe the Albertine Graben may hold more than 6 billion barrels of oil. Talks over development plans and refining options and Uganda’s recent re-take of the Ngasa oil discovery have delayed production in Uganda, however.

Six years later, Kenya sent the world and the markets a buzz when the government announced Canada’s Africa Oil Corp discovered oil in the northern region of Turkana. Kenya, in conjunction with neighboring Ethiopia and South Sudan, intends to begin construction on a transport corridor and oil pipeline into the port of Lamu in 2014. And neighboring Tanxania had already discovered additional reserves of oil, as well as natural gas.

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Secrecy, Corruption, and Illicit Financial Flows in Asia

April 30, 2014

When it comes to transparency and development, Asia is home to many paradoxes. China is ready to overtake the United States as the world’s largest economy, but also home to rapidly rising income income inequality. Hong Kong, China’s Special Administrative Region, is meanwhile the world’s fastest growing tax haven. And, as you will see in the presentation below, Asia is also home to alarming levels of endemic corruption and of financial opacity.

High income inequality can undermine social cohesion, create barriers to social and economic mobility, and result in increased corruption and cronyism. Meanwhile, illicit financial flows erode governance, constrain domestic investment and economic activity, and reduce governments’ ability to provide social services, such as healthcare and education. Both are indicative, but also side effects, of economic growth. The continent of Asia is perhaps the world’s most complex and fascinating example of these interactions. Enjoy.

 

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Guinea’s Transition in Democracy and Transparency in Mining

April 28, 2014

Guinea is the world’s largest producer of the mineral Bauxite, which is the main source of aluminum. Guinea also possesses reserves of hydropower and solar power, and it exports other valuable minerals: it’s the world’s fifth largest producer of iron ore and it also produces gold and diamonds.

Historically, however, Guinea has experienced tremendous difficulty in profiting from this potential. Correspondingly, Guinea has high rates of poverty, high inflation, and low levels of tax revenues. According to a joint study by Global Financial Integrity and the African Development Bank, Guinea lost about 10 percent of its GDP in illicit financial flows between 1980 and 2009.

Since it gained independence from France in 1958, Guinea has been dominated by three major authoritarian leaders, each seizing and solidifying power using military force and rigged elections. Guinea reached a turning point, however, on governance in recent years, holding its first free and competitive democratic presidential and legislative elections in 2010 and 2013, respectively. According to Freedom House, Guinea has shown steady improvements in transparency and governance, since the election of President Alpha Condé in 2010.

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Happy Tax Day (U.S. Taxes by the Numbers)

April 14, 2014

If you’re anything like me, you may have spent an hour waiting in line at the U.S. post office yesterday. I realize I’m a blogger, and a graduate student, and in my twenties — and all of these factors made me rather unlike the typical pen-and-paper-tax-filer — but there’s just something so satisfying about addressing an envelope (and sometimes a check) to the U.S. Department of the Treasury.

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Incorporation Standards in Banking: A Race to the Bottom

April 10, 2014

Sometimes—even usually—competition is a good thing. It lowers market prices; it sent a man to the moon; and it’s responsible for thousands of Olympic medals. In many cases, competitions–or races–are responsible for innovation, efficiency, and better performance. In these cases, an individual actor’s pursuit of victory leads to the betterment of society, a market, or a generation of athletes. However, sometimes competitions—or races—instead lead to worse outcomes for society. Often called a “race to the bottom,” these kinds of competitions include, for example, international degradations of environmental and labor standards.

This kind of race also happens in U.S. banking, where individual states’ pursuits of bank deposits have led to a degradation of bank security for the entire nation.

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Ending Corporate Tax Loopholes

March 31, 2014

Tax expenditures—government spending through the tax code, also called loopholes—have increased dramatically in the last twenty years. In some ways tax expenditures are good; for example, they can be used as incentives to encourage corporate and private behavior that provides a social benefit. On the other hand, these expenditures both lower government revenue and can skew the horizontal and vertical equity of our tax system. For example, corporate loopholes can result in dramatically different effective corporate rates for nearly identical companies.

These loopholes have dramatic effects on effective tax rates. 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 with this: “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.”

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Post-2015 Development Agenda: Moving to Self-Sufficient, Sustainable Development

March 28, 2014

For fifteen years, eight goals have represented the yardstick by which development is measured. These are the Millennium Development Goals (MDGs) adopted in the United Nations Millennium Declaration at the beginning of the century, and represent a commitment to a noble new partnership to drastically reduce poverty worldwide. It is through this Declaration that all 193 member states of the United Nations and 23 organizations have agreed to achieve a set of eight goals by 2015.[1]

Now that we are rounding into the last year of the Declaration, the UN and other aid organizations are developing the post-2015 Development Agenda and asking the important question: “So now what?”

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Symbolic or Substantive? Financial Sanctions Against Russia

March 21, 2014

I’ve noted before that sanctions, while certainly well-intentioned, are often meaningless in practice. In large part, this occurs because of many of the opacity issues in the international financial system. As a result of these flaws, whether intentionally or not, sanctions are often (although not always) purely symbolic. So in the case of Russia, which is now on the receiving end of the so-called “toughest sanctions since the Cold War,” are financial sanctions symbolic or substantive? Given the current dynamics in Russia and abroad, are they likely to work?

If you’ve been reading the news at all, you already know that events are unfolding fast in the Crimea. Just last week, Crimea was very much a part of Ukraine. After a referendum vote on Sunday, when an overwhelming majority of residents voted in favor of independence and membership in the Russian Federation, the jurisdiction’s lawmakers formally seceded from Ukraine. Yesterday, Russia formally annexed Crimea.

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