Global Financial Integrity released the following statement today.
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.
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
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
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
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.
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.
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.
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
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.
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
Search for Common Ground (SFCG) will be hosting a panel discussion on corruption and violence this Friday, June 11th. The event, which will take place at the Council on Foreign Relations, feature’s GFI friend Nuhu Ribado, among others.
Full details below:
Friday, June 11th
9:00 to 10:30am
Council on Foreign Relations
1777 F Street, NW
Corruption is a leading driver of conflict and the closest affiliated condition with instability and violence. Corruption incites conflict, fuels fighting, complicates peacebuilding, and obstructs nation-building. Yet anti-corruption and peacebuilding have historically been unaligned fields and the relationship between them has been distant at best, adversarial at worst. This forum, the first in a series to examine economics and conflict, will investigate the nexus between conflict and corruption. How and where can peacebuilders work with anti-corruption efforts? What are the benefits – and the barriers – to collaboration?
The G20 finance minister’s communiqué says:
We expressed the importance we place in achieving a single set of high quality, global accounting standards and urged the International Accounting Standards Board and the Financial Accounting Standards Board to redouble their efforts to that end. We encouraged the International Accounting Standards Board to further improve involvement of stakeholders.
This is, of course, totally appropriate. Stakeholders are probably the biggest users of accounts. And they come in a wide variety of forms – as I have documented in this briefing sheet.
More importantly, this is happening at the time that the IASB has published a response to the biggest ever demand to the IASB that it consider stakeholder needs. This is, of course, the demand that it supply country-by-country reporting for the extractive industries. My full response to that IASB proposal is published here.
The most telling feature of that IASB response is, however, the refusal of the IASB to consider the needs of stakeholders when setting accounting standards. As they say in their report (6.11):
In Chapter 1 the project team proposed that, for the purposes of this discussion paper, financial reporting should be regarded as including information that:
(a) helps users of financial reports to make decisions;
(b) can reasonably be viewed as being within the scope of a complete set of financial statements; and
(c) meets a cost-benefit test.
The IASB, however, notes (6.10):
the Framework indicates that financial reporting is primarily directed to meet the needs of existing and potential equity investors, lenders and other creditors (ie capital providers). Information that is useful to capital providers for making decisions may also be useful to other users of financial reporting. These other users include suppliers, customers and employees (when not acting as capital providers), as well as governments and their agencies and members of the public.
In other words, the IASB explicitly rejects the notion that stakeholders have any interest in financial statements and refuse to recognise their needs because they deny they exist.
In that case what chance is there that the IASB will do as the G20 asks?
Without an explicit response – or without explicit movement on the issue of country-by-country reporting – which is now the biggest campaign for accounting information ever mounted by civil society – there is no chance of thinking that they will meet the G20’s reasonable demand.
That leaves the G20 with one option: the IASB will have to be taken under international control.
Director of Global Financial Integrity Raymond Baker addressed international tax cooperation as a panelist at the informal United Nations panel discussion held yesterday in New York. Mr. Baker participated in the event’s second panel on innovative development financing initiatives under development.
Philippe Douste-Blazy, Special Adviser to the Secretary-General on Innovative Financing for Development, chaired the day-long event and provided opening and closing remarks. The meeting allowed for informal and interactive discussion of all the issues related to accomplishing the Millennium Development Goals (MDGs) by 2015. The first panel focused specifically on mechanisms of innovative development financing in operation.
The G77 and China statement said that the group “believes that innovative mechanisms of financing can make a positive contribution in assisting developing countries to mobilize additional resources for financing for development on a stable, predictable and voluntary basis.” The European Union also made a statement identifying its current initiatives and goals.
Representatives of all member states, observers, relevant entities of the UN system and other accredited intergovernmental organizations, as well as representatives of accredited civil society organizations and business sector entities were invited to participate, according to the event’s concept note. Mr. Baker was joined by a range of international finance and development experts including Cyrille Pierre, Deputy Director for Global Economic Affairs and Development Strategy from the French Ministry for Foreign and European Affairs, France; Susan McAdams, Director of Multilateral and Innovative Financing Department at the World Bank; Håkon Gulbrandsen, Senior Adviser for International Development at the Norwegian Ministry of Foreign Affairs; and Susan Durston, Associate Director of Education at UNICEF.
Yesterday’s discussion will result in a Chairman’s summary as an input to the preparatory process of the High-level Plenary Meeting of the General Assembly on the MDG to be held on September 20-22 in New York.
To view Mr. Baker’s presentation, click here.
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