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Campaign for a country by country reporting standard

Richard Murphy
June 2010: Call to action

Download here!

Guidance for engagement

Investors, governments, tax authorities, the IASB

Download here!

Background briefing

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Call to action: We have a unique chance to make new global rules for company reporting

  • to make companies publish what they pay for oil, gas and minerals
  • to get information essential to fighting tax evasion and corruption

A new global standard for extractive company reporting is under development right now. It has the potential to make oil, gas and mining companies:

  • publish what they pay to the government of each country in which they operate
  • publish what they extract, the costs of production, the production revenues and the reserves for each country in which they operate.

This new standard is called an International Financial Reporting Standard (IFRS). It is being developed by the International Accounting Standards Board (IASB). A formal Discussion Paper has been published. This contains discussion of some of the proposed requirements for country-by-country reporting that Publish What You Pay and the Tax Justice Network have been pushing for a number of years.

But there are big gaps and weaknesses in the proposals and opposition from industry actors risks turning this crucial moment into a missed opportunity. A lot is at stake. Powerful interests are opposed to reforms and will likely pressure the IASB to maintain the status quo.

The time for action is June and July 2010

We are in the middle of the consultation period on these proposals. This is a big opportunity. But it cannot be missed. The deadline for comments to the IASB is July 30th.

What you need to do……and how this pack can help you

Our top target, the IASB, formally prioritises the views of investors and companies, but we also think it will listen to government agencies and the media. We think it should also listen to civil society. So you will make a huge contribution to the campaign if you can:

  • Get investors to support what we’re asking for: in the section called ‘Guidance for engagement’, we give you information on how to frame the issues in ways that will appeal to investors, ways to identify and target investors, and a 3-page summary/letter to send to them.
  • Get governments and tax authorities to support what we’re asking for: later in the same section, we give you guidance on the different government departments to think about, arguments to use with tax authorities and a 5-page summary/letter to send to them.
  • Get the IASB to listen to your voice: later in the same section, we tell you how you can submit your own comments, encourage you to generate media coverage, and show you how to identify and lobby members of the IASB, its Trustees and Advisory Council.

There are other possible targets, like extractive companies and national associations of accountants. But these are best investigated case-by-case so we haven’t included them in this general Campaign Action Pack.

What to ask for: the problems with the proposals, and what needs to change

1. Companies should be required to report for each and every country in which they operate

We do not accept the current proposal to allow companies in the extractive industries to establish a cut-off point for country-specific reporting. We are particularly concerned by the proposal to allow the threshold to be set in terms of what is material for the company based on the size of national reserves relative to their international operations. This ignores the fact that reputational and legal risks are unrelated to the scale of operations. We also believe that the proposal to leave the decision on where to set the cut-off to the discretion of the company will reduce comparability of data, a key principle of international standards. Combined, we are convinced that this will leave the data on many countries still aggregated and inaccessible.

  • The requirement must be that companies should report for each and every country in which they operate. Suggested thresholds for reporting that are set in terms of what is quantitatively material to the company, and set at its own discretion, should be removed.

2. Information on specific payments to individual governments is essential

The current proposal recognizes that capital providers/investors have stated that they would find country-specific information on payments to governments useful to their decision-making. Other users of financial reports – like civil society and tax authorities – also anticipate significant benefits in assessing the appropriateness of payments and holding governments to account for their use. Companies should already have this country-specific information to comply with host government taxation reporting. Many will also need it to address anti-bribery and corruption legislation in their home countries. Therefore, additional costs should not be significant, making the proposal for further cost-benefit analysis unnecessary.

  • The IASB should recommend country-specific reporting of payments to governments without the need for further analysis, in the same way that it has done for other reporting requirements.

3. A minimum set of information is needed to ensure the coherence and credibility of what is reported by a company for operations per country

PWYP has identified six reporting types which would provide the minimum integrated set of data that should be disclosed to ensure accounting credibility. The IASB Discussion Paper treats this minimum package of data as a set of options by rejecting country-specific reporting requirements related to production revenues, subsidiaries and properties, and by failing to give a clear recommendation relating to payments to governments. But all elements must be required to allow meaningful judgments and comparisons.

Therefore the minimum package must include:

  • Benefits streams (payments) to governments should be disclosed for each country and broken down by payment types – the proposals do not make a clear recommendation on this
  • Reserves – the proposals make some recommendations here but also leave scope for only regional and sub-national data in some cases. Data should also be disclosed on a standard country-specific basis
  • Production quantities – the proposals make some recommendations here but also leave scope for only regional and sub-national data in some cases. Data should also be disclosed on a standard country-specific basis
  • Production revenues – should be disclosed on a country-by-country basis to ensure the consistency of the new IFRSfor extractive industries and prevent tax avoidance and evasion – this type of reporting is currently rejected by the proposals
  • Production and development costs – the proposals make some recommendations here but also leave scope for only regional and sub-national data in some cases. Data should also be disclosed on a standard country-specific basis
  • The names and locations of each key subsidiary and property in each country should be reported – the proposal paper claims these are already available but does not offer proof

4. There should be no reporting exemptions, as these are unnecessary, would undermine comparability and would increase pressure on ethical companies seeking to be transparent

The current proposal to give companies the option to exempt themselves from reporting payments to particular governments undermines the whole added value of an IFRS. It would remove the protection of a standard reporting requirement, leaving companies to explain to untransparent host governments why they were not using the exemption. Resulting non-reporting would reduce the comparability of company reports. Such exemptions are not needed since regulations like IFRSs would override restrictions of confidentiality clauses if applied in a uniform manner.

  • The IASB should remove the currently proposed exemptions. To protect companies, the standard should require disclosure of payments to all governments without exemptions.

5. There are many legitimate users of company financial reports other than investors and other capital providers and their needs must be considered by the IASB in the design of standards

The constitution governing the IASB states that it must act in the public interest and address the needs of the various users of company financial reports. In spite of this, the Discussion Paper explicitly rejects specific consideration of the needs of any users except capital providers/investors.

  • Other users of accounts – including employees, consumers, the public, civil society organizations and governments and their institutions – are each in their own right valid user groups of accounting data. Therefore, their specific information needs must be included in the criteria used to judge the benefits of proposed reporting requirements.
What you can find in the rest of this Campaign Action Pack

We’ve created some other materials to help you get into action vital for the campaign:

GUIDANCE FOR ENGAGEMENT: As described above, this section will help you identify specific targets and how to contact them, frames our issues in ways that will appeal to their agendas and provides 2 page summary/letters to help your communications with these priority groups. This has four sub-sections, to help you:

1. Getting investors to support what we’re asking for
2. Getting governments and tax authorities to support what we’re asking for
3. Getting the IASB to listen to your voice
4. National contact points – people acting as country focal points in particular countries

BACKGROUND BRIEFING: This is a source of detailed information and sources, relating to issues like:

a. The potential benefits of a new accounting standard – why it will have such reach
b. Global context for country-by-country reporting: mechanisms, precedents, progress
c. The IASB (International Accounting Standards Board): how it’s structured, how it operates, and debates on its accountability
d. Process and timeline for the creation of a new reporting standard
e. Key issues and gaps in Discussion Paper proposals – detailed analysis and references

Where can you get additional support?

A number of people have agreed to be focal points for the campaign in their particular countries. Their names and contact information are listed in section 4 of the Guidance for Engagement. If there is no one listed for your country, you can contact the international contacts. They are:

Joseph Williams, PWYP international office
Information & Advocacy Officer
+44 (0) 20 7031 1616
+44 (0) 77 7575 1170

Vanessa Herringshaw, Revenue Watch, London office
Director, Training and Capacity Building
Tel: +44 (0)7900 492631

Søren Kirk Jensen, Independent Policy Analysis
Tel: +45 5015 5783

Richard Murphy (Tax Research LLP) has been providing a lot of technical support. But please note he is a freelance consultant, so there are limits on what support he can provide without remuneration!
Richard Murphy
Work: +44 (0) 13 66 383 500
Mobile: +44 (0) 77 7552 1797

Your support is critical in our effort to mobilize stakeholders to endorse country-by-country reporting. Please keep us updated on developments – We’re looking forward to hearing from you!

Please click here to download the pdf version.

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Thursday’s Daily News Digest

Scott Fahey

US swagger and a Swiss surrender on banking secrecy
Financial Times, June 9, 2010

How Panama is Emerging as The Top Offshore Destination
PMC Group, June 9, 2010

Six more countries join fight against cross border market misconduct: IOSCO
Investment Executive (Canada), June 9, 2010

Overseas banks could shun US customers after ‘game-changing’ tax laws
Financial News, June 10, 2010

Liechtenstein Makes Pitch to Tax Evaders as Swiss Guard Secrecy
Bloomberg, June 10, 2010

Barbados: Just don’t call us a tax haven
Financial Post, June 9, 2010

Italy Launches Major Corporate Tax Probe
Tax-News.com, June 10, 2010

US soldiers charged with corruption in Afghanistan
AFP, June 9, 2010

Corruption watchdog to investigate Macdonald’s expenses
AAP (Australia), June 10, 2010

Biden: Impunity, graft and poor governance holds you back
The Standard (Kenya), June 10, 2010

Businessmen to Aquino: eliminate corruption in 1st 100 days
ABS-CBN News, June 10, 2010

Ribadu to be adviser on anti-corruption
Daily Trust, June 10, 2010

How Scott Rothstein gambled — and lost
Miami Herald, June 10, 2010

U.S. targets Mexican citizens, firms for money laundering
Xinhua, June 10, 2010

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Brazil issues updated list of secrecy jurisdictions

John Christensen

Photo: Andre Maceira

Brazil’s ministry of finance has published a list of jurisdictions or dependencies that we would call secrecy jurisdictions. The accompanying press release notes that Brazil will be able to use special instruments to deal with tax planning structures.

The list, replacing a list of 53 jurisdictions published in 2002, contains two sections.

The first (below) contains 65 jurisdictions which do not tax income, or which tax at below 20%, or whose internal legislation does not allow access to information about the ownership or composition of legal persons (which includes corporations.) This includes the usual suspects such as the Channel Islands (“Ilhas do Canal”), Switzerland and Liechtenstein.

The second is a list of eight “privileged fiscal regimes” (regimes fiscais privilegiados) which do not necessarily have low tax rates but whose legislation contains fiscal privileges for certain types of legal persons.

We are heartened to see that several (but not all) jurisdictions that concern us are listed here, which are often excluded from official lists of secrecy jurisdictions. Of special interest is the inclusion of the United States on this list: the USA topped Tax Justice Network’s 2009 Financial Secrecy Index.

This second list involves:

Luxembourg (with respect to its holding companies;)

Uruguay (with respect to its Financial Investment Companies (Sociedades Financeiras de Inversão, Safis);

Denmark, with respect to its holding companies;

Netherlands, with respect to its holding companies;

Iceland, with its International Trading Companies (ITCs);

Hungary, with its offshore KFTs;

United States, with its state non-resident Limited Liability Companies (LLCs)

Spain, with its International Spanish Holding structures (Entidad de Tenencia de Valores Extranjeros;

Malta, with its International Trading Companies (ITCs) and International Holding Company (IHCs).

The first list is here (in the original Portuguese format):

I – Andorra;

II – Anguilla;

III – Antígua e Barbuda;

IV – Antilhas Holandesas;

V – Aruba;

VI – Ilhas Ascensão;

VII – Comunidade das Bahamas;

VIII – Bahrein;

IX – Barbados;

X – Belize;

XI – Ilhas Bermudas;

XII – Brunei;

XIII – Campione D’Italia;

XIV – Ilhas do Canal (Alderney, Guernsey, Jersey e Sark);

XV – Ilhas Cayman;

XVI – Chipre;

XVII – Cingapura;

XVIII – Ilhas Cook;

XIX – República da Costa Rica;

XX – Djibouti;

XXI – Dominica;

XXII – Emirados Árabes Unidos;

XXIII – Gibraltar;

XXIV – Granada;

XXV – Hong Kong;

XXVI – Kiribati;

XXVII – Lebuan;

XXVIII – Líbano;

XXIX – Libéria;

XXX – Liechtenstein;

XXXI – Macau;

XXXII – Ilha da Madeira;

XXXIII – Maldivas;

XXXIV – Ilha de Man;

XXXV – Ilhas Marshall;

XXXVI – Ilhas Maurício;

XXXVII – Mônaco;

XXXVIII – Ilhas Montserrat;

XXXIX – Nauru;

XL – Ilha Niue;

XLI – Ilha Norfolk;

XLII – Panamá;

XLIII – Ilha Pitcairn;

XLIV – Polinésia Francesa;

XLV – Ilha Queshm;

XLVI – Samoa Americana;

XLVII – Samoa Ocidental;

XLVIII – San Marino;

XLIX – Ilhas de Santa Helena;

L – Santa Lúcia;

LI – Federação de São Cristóvão e Nevis;

LII – Ilha de São Pedro e Miguelão;

LIII – São Vicente e Granadinas;

LIV – Seychelles;

LV – Ilhas Solomon;

LVI – St. Kitts e Nevis;

LVII – Suazilândia;

LVIII – Suíça;

LIX – Sultanato de Omã;

LX – Tonga;

LXI – Tristão da Cunha;

LXII – Ilhas Turks e Caicos;

LXIII – Vanuatu;

LXIV – Ilhas Virgens Americanas;

LXV – Ilhas Virgens Britânicas.

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GFI’s Raymond Baker and Heather Lowe Published in The American Interest

Kelley Brescia

Global Financial Integrity released the following statement today.

Global Financial Integrity Feature Stories in Print: Director Raymond Baker and Director of Government Affairs Heather Lowe Appear in Latest Issue of the American Interest

WASHINGTON, DC — Pieces authored by Global Financial Integrity (GFI) director Raymond Baker and GFI director of government affairs Heather Lowe appear in the latest issue of the American Interest.  The July/August edition of the bimonthly publication hits newsstands this week and may be viewed online at http://www.the-american-interest.com/.

In his piece, “Transparency First,” Mr. Baker discusses the on-going process of reform to the global financial system, including regulatory reform for banks and other financial institutions.

The range of current ideas for correcting flaws in the national and global financial system is extensive,” writes Baker.  In lieu of “incremental changes that will leave holes big enough for the global economy to fall through again,” Baker explains how “transparency based reform accomplishes far more, far faster than regulation and oversight,” and could be the best insurance against another global financial meltdown.

Mr. Baker outlines a plan for legislating transparency noting that “an attack on secrecy is not at the same time an attack on privacy…Transparency does not diminish financial security, it adds to it.”

Ms. Lowe’s article, “Law as Leverage,” looks at domestic reform efforts around the problem of corporate opacity and secrecy jurisdictions.  “Despite the renewed focus on the link between financial transparency and economic stability, opacity is still spreading,” Ms. Lowe writes.

Ms. Lowe examines the Stop Tax Haven Abuse Act, the Energy Security Through Transparency Act, and the recently-passed Foreign Account Tax Compliance Act.

“The legislation described here that is now pending in Congress represents an important start to solving several problems…Yet the attentive American public, which has been deluged with information about how to rein in Wall Street’s excesses, knows practically nothing of these measures, and the lack of knowledge could be a problem.”

Mr. Baker and Ms. Lowe are frequent contributors to various international, financial, and legal publications including recent pieces published in the The New York Review of Books and the American Bar Association International Anticorruption Committee newsletter.

Mr. Baker is the author of Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System.  He has for many years been an internationally respected authority on corruption, money laundering, growth, and foreign policy issues, particularly as they concern developing and transitional economies and impact upon western economic and foreign interests.

Ms. Lowe draws upon extensive international legislative experience in banking and finance law to produce pieces on everything from U.S. domestic financial reform to international tax information exchange treaties.

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Raymond Baker to speak at presentation of 2010 African Economic Outlook

Kelley Brescia

Global Financial Integrity Director Raymond Baker will be speaking on Capitol Hill in a panel discussion on June 16 where the OECD will formally present this years’ African Economic Outlook.

Full event details below:

Wednesday, June 16, 2010
8:30 AM Registration, 9:00-10:30 AM Presentation
Rayburn House Office Building, Room 2255

While admission is free of charge, space is limited. Please register by Tuesday, June 15 2010.

Honorable Donald M. Payne, US House of Representatives

Mthuli Ncube, Chief Economist, African Development Bank
Jean-Philippe Stijns, Economist, OECD Development Center

Witney Schneidman, Senior Adviser, Leon H. Sullivan Foundation
Raymond Baker, Director, Global Financial Integrity

Event Description:
The OECD Development Center and the African Development Bank will present the recently released African Economic Outlook.

Produced annually by the Development Center and the African Development Bank together, for the first time this year, with the U.N. Economic Commission for Africa, the African Economic Outlook (AEO) is the essential economic reference on Africa.  Now in its ninth year, the AEO presents a comprehensive analysis of economic, political and social developments on the continent. It is unique in applying a common analytical framework to the 50 countries it covers – accounting for 97% of the continent’s output and population. The AEO is the only report on Africa produced by African institutions, in partnership with international organizations.

2010 AEO In Brief
This year’s edition finds Africa’s economies weakened by the global recession and at the same time under pressure to make additional efforts to achieve the Millennium Development Goals. The world economic crisis brought a period of high growth in Africa to a sudden end. Average economic growth was slashed from an average of about 6% in 2006-2008 to 2.5% in 2009 with per capita GDP growth coming to a near standstill.

While Africa is on a path to recovery, buoyed by the strengthening of global trade and the rebound of commodity prices, there is a risk that growth remains too low to significantly reduce unemployment and poverty. It is against the backdrop that the 2010 AEO explores how public resources can be better mobilised for development through more effective, more efficient and fairer taxation. This issue is particularly important given the uncertainties about future export revenues and unstable and unpredictable inflows of Foreign Direct Investment and Official Development Aid. It includes an analysis of practices that erode the existing tax base such as the excessive granting of tax preferences, insufficient taxation of extractive industries and an inability to fight abuses of transfer pricing by multinational enterprises.

Congressman Donald M. Payne has represented New Jersey’s 10th Congressional District since 1988. He is a member of the House Foreign Affairs Committee, where he serves as Chairman of the Subcommittee on Africa and Global Health and as a member of the Subcommittee on the Western Hemisphere and the Subcommittee on International Organizations, Human Rights, and Oversight. He has served twice as the Congressional Delegate to the United Nations, a position to which he was nominated by Speaker Nancy Pelosi and appointed by President Bush. A graduate of Seton Hall University, he pursued graduate studies at Springfield College in Massachusetts. He holds honorary doctorates from Chicago State University, Drew University, Essex County College and William Paterson University.

Raymond Baker is the Director of Global Financial Integrity and the author of Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System. He has for many years been an internationally respected authority on corruption, money laundering, growth, and foreign policy issues, particularly as they concern developing and transitional economies and impact upon western economic and foreign interests. Mr. Baker is a Senior Fellow at the Center for International Policy. In 1996 he received a grant from the MacArthur Foundation for a project entitled, “Flight Capital, Poverty and Free-Market Economics.” He traveled to 23 countries to interview 335 central bankers, commercial bankers, government officials, economists, lawyers, tax collectors, security officers, and sociologists on the relationships between bribery, commercial tax evasion, money laundering, and economic growth. From 1985 to 1996 Mr. Baker provided confidential economic advisory services at the presidential level for developing country governments. He holds degrees from Harvard Business School and Georgia Institute of Technology.

Mthuli Ncube is Vice President and Chief Economist of the African Development Bank. A national of South Africa, he formerly served as the dean of the Faculty of Commerce, Law and Management at the University of the Witwatersrand. He is also chair of the African Economic Research Consortium board and Founder and Chairman of Selwyn Capital Group and Barbican Holdings. He also worked for Investec Asset Management as a Portfolio Manager and Head of Asset Allocation Strategy. Earlier in his career, Mr. Ncube was a Lecturer in Finance at the London School of Economics. He is has published widely in the areas of finance and economics in the Journal of Econometrics, Journal of Banking and Finance, Mathematical Finance, Applied Financial Economics, International Journal of Auditing, Journal of Accounting and Public Policy, Journal of Cost Management and Journal of African Economies, among others. He holds a PhD from Cambridge University and has published widely in financial economics.

Witney Schneidman is Senior Adviser at the Leon H. Sullivan Foundation and Principal of Schneidman & Associates International. During the Clinton Administration, he served as Deputy Assistant Secretary of State for African Affairs and, during the Obama campaign, was co-chair of the Africa Experts Group. Dr. Schneidman is a member of the Trade Advisory Committee on Africa in the Office of the U.S. Trade Representative, the Sub-Saharan African Advisory Committee at the U.S. Export-Import Bank, the Council on Foreign Relations and the Corporate Council on Africa.  He is the author of the report, “A Ten Year Strategy for Increasing Capital Flows to Africa,” issued by the Commission on Capital Flows to Africa, and  Engaging Africa: Washington and the Fall of Portugal’s Colonial Empire. He has written extensively on African economic and political issues, and has served as a commentator for CNN, the BBC and NPR, among other media outlets. Mr. Schneidman received a Ph.D. in international relations from the University of Southern California.

Jean-Philippe Stijns is an Economist on the Africa and Middle East Desk at the OECD Development Centre. His areas of research are natural resource economics, development macroeconomics, and international economics. He is lead policy analyst for the thematic chapter of the 2010 edition of the African Economic Outlook on “Public Resource Mobilization and Aid”. Prior to joining the Development Centre, Mr. Stijns worked a Strategist for ING Private Capital Management, the asset management arm of ING Private Banking. He has also worked as an Assistant Professor at Northeastern University where he taught Macroeconomics and International Economics to both undergraduate and graduate students; and at the CREPP at the University of Liège, a center for the study of Population and Public Economics as a research fellow. Mr. Stijns received a joint B.A.-M.A. in Economics from the University of Liège (with the Greatest Distinction), Belgium and a Ph.D. in Economics from the University of California, Berkeley.

For more information, contact Holly Richards, OECD Washington Center, 202-822-3873

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Wednesday’s Daily News Digest

Scott Fahey

Transparency First
The American Interest, July-August 2010

Law as Leverage
The American Interest, July-August 2010

Swiss Banks and Looted Funds
ThisDay, June 7, 2010

Clinton talks tax to Latin America, saying rich must pay their share
The Guardian, June 9, 2010

Swiss Upper House Backs UBS Treaty With U.S. in Second Vote
Bloomberg, June 9, 2010

Brazil places Switzerland on list of 65 ‘tax havens’
The China Post, June 9, 2010

India to set up eight more overseas tax units to curb evasion
IANS, June 9, 2010

Queensland entrepreneurs jailed for tax fraud as part of ATO crackdown
Smart Company (Australia), June 9, 2010

Germany buys data on tax evasion via Switzerland
AP, June 9 2010

Editorial: Money laundering here to stay
The Jakarta Post, June 9, 2010

Businessmen found not guilty
The National (UAE), June 9, 2010

How to Develop an Ethical Culture
Security Management, June 2010

$198m Halliburton scandal: Presidency orders prosecution of suspects
Nigerian Tribune, June 9, 2010

Uganda’s VP, Foreign Minister Named in Corruption Probe
Voice of America, June 8, 2010

Biden tells Kenyans to shun divisive politics
Reuters, June 9, 2010

Bribery Scandal: EFCC Grills Siemens Officials for 8hrs
ThisDay, June 9, 2010

Italy Introduces Transfer Pricing Guidelines
Tax-News.com, June 9, 2010

Multiple stakeholder coalitions in crisis
Financial Times, June 7, 2010

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Over at TJN they’re having a field day

Richard Murphy

Anyone looking for great reading on illicit financial flows today should go to the Tax Justice Network blog.

All of these blogs deserve a good read:

It’s rare to find such rich pickings anywhere in a day.

I highly recommend them all.

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Politics, Money, Thailand and Transparency

Christine Clough

Photograph by Nate Robert

On Friday, May 28th, the Washington Post published an article discussing efforts by the Thai government/army to identify and punish financial supporters of the ‘red shirt’ movement—the Thai political opposition whose protests recently paralyzed Bangkok for several weeks.  The Post article particularly highlights the exploits of one businessman, a steel and Nestlé instant coffee producer named Prayudh Mahagitsiri, who was recently placed on a financial blacklist of 151 wealthy Thais by the government’s Center for the Resolution of the Emergency Situation.   But Mr. Mahagitsiri is not the only wealthy individual the government has been targeting lately.  In February, Thailand’s Supreme Court seized $1.4 billion of former Prime Minister Thaksin Shinawatra’s assets (the court permitted him to keep $900 million).

Of course, neither the Post nor the government have addressed the lack of financial transparency in Thailand.  According to a 2008 report from Global Financial Integrity, which leads the Task Force, Thailand lost up to US$6.3 billion in illicit outflows between 2002-2006 due to the opacity provided by tax havens and secrecy jurisdictions around the world.  These jurisdictions obscure the beneficial owners of corporations, trusts, and charities, and refuse to share account information with other tax authorities, thereby enabling up to US$1 trillion to flow out of the developing world each year.

Without information on the beneficial owner of accounts in these secrecy jurisdictions, it’s impossible to determine the full assets of an individual or company.  Incomplete exchange of information on non-resident account holders for tax purposes further exacerbates the problem.

Of course, financial transparency should also be combined with good governance at home.  If Thailand’s leaders ran the country in a more transparent manner overall, then maybe there would no longer be any ‘red shirts’ to back.

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Swiss Parliament Must Agree to Turn Over Names of UBS Clients

Scott Fahey

Photo: Paranoid

The lower house of Swiss parliament on Tuesday rejected a plan to turn over to the United States the names of thousands of UBS customers. The vote threatens the historic agreement reached last summer which aims to strike a heavy blow to banking secrecy in one of the most notorious offshore banking centers.

The agreement to turn over the roughly 4,450 names to U.S. officials was originally reached in a bilateral deal last summer, however a Swiss court has since ruled that the accord must be approved by the Swiss legislature before it can go into effect. The UBS agreement has become something of a political quagmire in the lower house, with the Social Democrats making their support conditional upon other issues such as limits on banker’s bonus payments and banking regulations. Others in parliament want to submit the deal to a public referendum, a lengthy process which would further frustrate progress.

Having passed the upper house of the legislature, the deal is not dead yet.  It will now move on to a reconciliation committee where members of both houses will have to reach a compromise. If their final position is to reject their end of the agreement with the U.S, then UBS could face a serious backlash.

The Financial Times today writes, “…privately, [U.S.] officials have made clear that Washington would not tolerate any changes to the original deal, requiring Switzerland to transmit the 4,450 UBS client names in August. “

Sen. Carl Levin (D-Mich.) issued a vehement call for action today when he said:

“The United States should reject any further attempts by the Swiss to delay the UBS case.  It is time to move forward with the summons in court and force UBS to provide the names and account information for all 52,000 suspected U.S. tax cheats. This travesty underscores the need for legislation that I’ve introduced which, among other measures, would empower the U.S. Treasury Secretary to take action against any foreign bank or jurisdiction that impedes U.S. tax enforcement by, for example, prohibiting U.S. banks from accepting wire transfers or honoring credit cards from the foreign bank facilitating U.S. tax evasion.”

As Swiss lawmakers go to committee in a final attempt to resolve the impasse, the threat of U.S. legal action against UBS will likely influence their debate.

Heather Lowe, Legal Counsel and Director of Government Affairs at Global Financial Integrity, said,  “UBS could be facing a very sizeable judgment against it down the road if the Swiss Parliament isn’t willing to sanction the settlement agreements.”

Lowe said that the U.S. should be able to reinstate the civil and criminal cases which the agreement was meant to settle, and U.S. courts could freeze UBS’s U.S.-based assets to satisfy a judgment against it.

The current session of parliament will conclude on June 18. If the divided parliament resolves to uphold the agreement, then they will make history in scoring a landmark victory against banking secrecy. If not, then the U.S. won’t hesitate to respond. Until then, the eyes of the world are directed at Bern.

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Tuesday’s Daily News Digest

Scott Fahey

Swiss lower house rejects UBS deal with US
Financial Times, June 8, 2010

Tax information exchange champions transparency
Business Standard, June 7, 2010

Has banking secrecy come to an end in Singapore?
The Business Times (Singapore), June 8, 2010

2nd UPDATE: Argentina Tightens Foreign-Exchange Rules
Dow Jones, June 7, 2010

Nigeria launches $15 mln Daimler bribery probe<
Reuters, June 7, 2010

UN leader tasked with Guatemala crime woes resigns
AP, June 8, 2010

Shareholders Say Oil Firm Paid Bribes
Courthouse News Service, June 7, 2010

Corruption pervasive in Tanzania – report
ThisDay, June 8, 2010

Nigeria: Nuhu Ribadu – the Triumph of Good
Leadership (Nigeria), June 8, 2010

Governance: EU’s justice mission pursues corruption at the highest level
Financial Times, June 8, 2010

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Fitch Provides Private-Sector Incentive for FCPA Compliance

Clark Gascoigne

Last week, we saw some very heartening news from Fitch Ratings. The powerful credit-rating agency announced on Tuesday that it would consider violations of the Foreign Corrupt Practices Act (FCPA) a credit liability for corporations.

According to Reuters:

“Companies that violate FCPA or other anti-bribery conventions have committed a criminal act that makes them potentially subject to indictment,” Fitch said. “Criminal indictment can be hazardous to the financial health and existence of corporations.”

Indictment alone can trigger onerous reporting requirements, civil lawsuits, business losses and reputational risks, Fitch said. Violations of the act can also become a sticking point in acquisitions or dispositions of businesses, Fitch added.

It only makes sense, then, that a violation of the act would lead to a potential credit downgrading.

This is also good news for good-governance advocates, as corporations now have another reason—indeed, a private-sector reason—to practice good corporate governance.

Kudos to Fitch for upping the CSR pressure on corporations.  Now, let’s hope that Moody’s and Standard & Poor’s follow suit.

Continue Reading »


Monday’s Daily News Digest

Scott Fahey

German minister sees need to respect bank secrecy
Reuters, June 5, 2010

Over 32 tax-related pacts inked globally every month
PTI, June 6, 2010

Pamrapo Savings Bank gets one year of probation and loses $5 million as federal judge hands down sentence for misdeeds
The Jersey Journal, June 4, 2010

Italy Finance Police Uncover 30 Million-Euro Tax-Evasion Ring
Bloomberg, June 4, 2010

Dutch tax evaders declare 180 mln euros this year
Reuters, June 4, 2010

420 companies sealed over tax evasion
Next (Nigeria), June 5, 2010

Fugitive Czech businessman detained in Vienna
Prague Daily Monitor, June 3, 2010

Customs facing ‘massive reform’
The Tribune (Bahamas), June 3, 2010

A three-pronged approach to confront Afghanistan’s corruption
The Christian Science Monitor, June 4, 2010

Companies can’t choose ‘bribery threshold’
The Times (South Africa), June 6, 2010

Cracking Down on Corruption
The Moscow Times, June 7, 2010

UK raises the bar in corruption battle
Emirates Business 24/7 (UAE), June 6, 2010

Police probe leaves out Bakrie firms
The Jakarta Post, June 7, 2010

‘Tenderitis’ at root of ANC’s corruption problem in South Africa
Times Online (UK), June 5, 2010

Nigeria loses billions of naira to corruption annually –Akunyili
Punch (Nigeria), June 6, 2010

Cambodia: Donors pledge $1 billion but criticise corruption
Spero News, June 4, 2010

Sarkozy took Pak kickback?
Hindustan Times, June 4, 2010

Macedonia: Corruption destroys business relations and decreases economic growth
Transparency International, June 2, 2010

Corruption could undermine REDD
MongaBay.com, June 3, 2010

Corruption, Poverty, and our Honor
Philippine Daily Inquirer, June 4, 2010

Namibia: Corruption in Mining Sector Alleged – Report
The Namibian, June 4, 2010

High-level corruption in diamond licensing
The Standard (Zimbabwe), June 5, 2010

France told to enact money laundering law
Financial Times, June 3, 2010

Lebanese-American couple charged with supporting Hezbollah
AFP, June 3, 2010

Hawala operator accused in Koda case detained at airport
PTI, June 3, 2010

Continue Reading »

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