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Video: TJN’s John Christensen discusses “The Finance Curse” on France24

EJ Fagan

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Press Releases

EU Leaders Must End Financial Secrecy

Transparency International

BRUSSELS - EU leaders meeting tomorrow have an opportunity to end the financial secrecy that facilitates corruption and tax evasion. As many cases of proven corruption have shown, anonymous shell companies and other opaque legal structures based in secrecy jurisdictions are the favoured vehicles to hide illicit financial gain. Finding out who ultimately profits from these legal structures – the question of beneficial ownership – is central to efforts to close down this avenue for ill-gotten gain.

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Job Posting: EU Advocacy Lead of The Financial Transparency Coalition

Financial Transparency Coalition

Do you care about stamping out corruption, money laundering and tax dodging? The Financial Transparency Coalition (formerly the Task Force on Financial Integrity and Economic Development) is looking for a dynamic individual, with a proven track record of achieving policy change, and ‘intelligence’ of the EU/Brussels environment and structure. This is an exciting opportunity to lead EU advocacy on an influential advocacy campaign to curb illicit financial flows. Further information about the Coalition can be found at www.financialtransparency.org

The next 18 months present important opportunities to influence EU legislation: The EU is now in a process to update its anti-money laundering directive, including by taking steps to increase transparency over the ownership of companies. Moreover the European Commission has launched an action plan to crack down on tax evasion and avoidance. There is also movement on the long stalled revision to the savings tax directive, which provides an opportunity to push for further steps automatic exchange of information.

This position involves leading the Coalition’s advocacy towards the EU. The successful candidate will lead an advocacy campaign towards the European Union’s review of the Anti-Money Laundering Directive (75%), and the Coalition’s advocacy towards the EU on other Coalition related areas (25%)

Key responsibilities:

  • Carry out advocacy towards the EU institutions to influence the Anti-Money Laundering Directive
  • Develop and maintain relationships with key European Commission staff, Cabinet members, Members of the European Parliament and Permanent Representative offices, NGOs, journalists and other private sector stakeholders relevant to the success of the campaign
  • Coordinate a NGO coalition working to influence the Anti-Money Laundering Directive
  • Revise and lead the implementation of the coalition’s advocacy strategy
  • Energise and coordinate  strategic thinking  on automatic information exchange (AIE),
  • Develop an AIE action plan, including identifying realistic targets and key ‘actors’ to help drive the  work forward
  • Prepare advocacy notes and frequent updates for coalition members
  • Write compelling advocacy materials for lobbying and the media
  • Be prepared to travel on short notice, if necessary
  • Other activities that are required to fulfil the role 

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Infographic: Tax Havens Of The Wealthy And Powerful

EJ Fagan

Below the jump: a fantastic infographic on how money is hidden by large U.S. corporations in tax havens. Definitely worth clicking a “read more.”

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A New Perspective On The Problem Of Global Hunger

Ann Hollingshead

flickr / chadskeers

The solutions to problems are often implicit in the way they are framed. If I tell you my car won’t start, you might tell me to consult a mechanic. If, on the other hand, I tell you I can’t find my keys, well, we have a completely different problem. In public policy, frames can often conflate symptoms with causes, other times, such as with the example I gave, they just obscure a possible solution.

But frames turn out to be fundamentally important to the problems’ solutions. As Albert Einstein once said, “If I had an hour to solve a problem and my life depended on the solution, I would spend the first fifty-five minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than five minutes.”

As a report recently released by Christian Aid shows, this is the case with world hunger. One of every eight people in the world—that’s nearly 868 million people—are hungry. This number has come down a bit over the last few years, down from a high of 1.02 billion in 2009 and 925 million in 2010. Of course, we’re still a long way off from meeting the United Nation’s 2001 Millennium Development Goal of eradicating hunger. Specifically, the organization hoped—and still hopes—to halve, between 1990 and 2015, the number of people who suffer from hunger.

Depending on how you frame the question of world hunger you might get a different answer. For example, you might say flood and droughts ruin crops and lead to shortages of food in many parts of the world and that, with climate change, these problems will get worse. Well then, I might reply that we need to address carbon emissions (in the long-term) and improve barriers to trade in food commodities between regions in the short. Suppose, on the other hand, you told me that subsidies for biofuels have encouraged the proliferation of large-scale cash-crop plantations, pushing small-scale farmers off the land, and pushed up the prices of important dietary grains. Well then I might respond we need to rethink our subsidy schemes. We could also address investments in farmers, conflicts, corruption, and women’s cooperatives, and food aid. Each frame would have a different solution.

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Anonymous companies: A Global Witness briefing

Global Witness PDF

Money launderers, corrupt politicians, terrorists, arms traffickers, drug smugglers, and tax evaders all rely on two things to move their dirty money: company structures that allow them to hide their identity, and banks and other professionals willing to do business with them. Both are all-too available.

This Global Witness briefing explains the problem of hidden company ownership, the ease with which the corrupt can set up anonymous companies and trusts, and how this is a major barrier in the fight against poverty. With this issue quickly rising up the political agenda, this briefing also explains what can be done to combat this problem.

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Kofi Annan: Imagine an African continent, where leaders use mineral wealth wisely

EJ Fagan

Former United Nations Secretary General Kofi Annan released a statement late last week, in advance of the Africa Progress Panel’s May 10th report, Equity in Extractives. The statement is short, but sweet:

“Imagine an African continent, where leaders use mineral wealth wisely to fund better health, education, energy, and infrastructure too. Africa, our continent has oil, gas, platinum, diamonds, cobalt, copper, and more. If we use these resources wisely, they will improve the lives of millions of Africans. If we don’t, they can fuel corruption, conflict, and social instability. Transparency and accountability are key. The US and Europe are demanding new transparency from companies who work in Africa. We must also take responsibility. Our governments may have become more open. Big businesses may have improved their ways of working.

But we — Africans –must do so much more. This issue is too big for the politicians and big business to manage without the involvement of civil society. I’m Kofi Annan, former Secretary-General of the United Nations and Chair of the Africa Progress Panel. Work with me to demand more transparency from Africa’s national leaders and foreign investors. What are they doing? How much is it worth? And how will the money be spent? Because this is our continent, our minerals, our children’s and grandchildren’s future.”


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New draft paper: Emerging Countries and the Taxation of Offshore Accounts

Nicholas Shaxson

Cross-posted from the TJN blog

flickr / Images of Money

Last year Itai Grinberg, Associate Professor at Georgetown University Law Center in the U.S., published an important paper entitled Beyond FATCA: An Evolutionary Moment for the International Tax System, providing a comprehensive overview of the emerging international architecture of financial transparency, with different models of information exchange (see below) jostling for supremacy.

It is a most useful paper which remains relevant for analysing the rapid changes that are now underway.

Now Grinberg has a new draft working paper available entitled Emerging Countries and the Taxation of Offshore Accounts, which provides further illumination. There’s far too much in here for us to summarise comprehensively, so we’ll just pick out a few points that catch our attention. The abstract begins:

“A new international regime in which financial institutions function as cross- border tax intermediaries is emerging. The contours of that regime will be established during a narrow window of opportunity over the span of the next few years. The resulting regime will have especially important consequences for emerging countries. A uniform, multilateral automatic information exchange system would improve both these jurisdictions’ ability to tax the offshore accounts of their residents and their capacity to tax certain domestic-source income from capital.”

Clearly, these are all issues that are dear to our hearts.

The paper skips through a recent history of information exchange, with a look at the four models. The first is the OECD’s original, only slightly better than useless, “on request” information exchange model. Next comes the gold standard principle, automatic information exchange, which is currently in the ascendant partly due to the political muscle of the United States and the European Union. The U.S. and the EU each have major systems for automatic information exchange systems up and running and in the process of expansion and improvement.

The core U.S. process is FATCA, which recruits financial institutions to find out the relevant information about beneficial owners. Potentially, financial institutions a going to ferret out hidden assets wherever in the world they are held, and we think this a highly effective broad principle. It is currently mostly a unilateral system, but we are now seeing the first steps towards a broader and more multilateral framework, with the U.S. reciprocating with other changes.

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“The trend is in our direction.” Appeals Court loss is latest setback for oil company secrecy campaign.

Ian Gary

Cross posted from Oxfam America’s Politics of Poverty blog.

Two key moments stand out for me last week. On Monday I saw former Senator Lugar (R-IN) receive Transparency International USA’s “Integrity Award” for his work to combat corruption, whether through his oversight hearings of World Bank projects or his leadership on the Dodd-Frank Act, specifically the Cardin-Lugar oil, gas and mining payment disclosure provision. . During a dinner co-sponsored by Exxon, Senator Lugar recounted his lobby visits from oil company representatives during the consideration of this legislation that now requires oil, gas and mining companies to disclose their payments to host governments. After hearing them out, Lugar and his staff simply weren’t persuaded by industry arguments about competitive harm or compliance costs. Looking forward, Lugar referenced the litigation that the American Petroleum Institute has launched against the provision bearing his name and said that no matter the outcome, “The trend is in our direction.”

The case will now go back down to the district court where there will be more opportunity for a comprehensive review of the administrative record, which we believe will demonstrate the hollowness of oil industry arguments.

Indeed it is. On Friday morning I learned that the US Court of Appeals was not persuaded by the jurisdictional arguments of the oil industry’s lawyers, (Eugene Scalia and company from Gibson Dunn).The Appeals Court dismissed the case agreeing with Oxfam’s lawyers that the case should be heard the district court first as Congress had instructed. Oxfam, as an intervener, was the only party to argue that this case does not belong in the Appeals Court and the court adopted Oxfam’s reasoning throughout the entire opinion.

This is a victory for transparency campaigners in the Publish What You Paycoalition. With the dismissal, the case will now go back down to the district court where there will be more opportunity for a comprehensive review of the administrative record. Such a review, we believe, will demonstrate the hollowness of industry arguments.

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Karzai’s Ghost Money from the CIA

Ann Hollingshead

flickr / US Embassy Kabul Afghanistan

The U.S. government is not unfamiliar with short-sighted policies, indeed short-sightedness in political systems often seems often more familiar than not. Yet of all the short-sighted policies the United States has engaged in, and especially of those overseas, the recent reports on ghost money in Afghanistan take the cake.

I wish I could say I was surprised.

According to a report by the New York Times, the Central Intelligence Agency has literally been dropping off “bags of cash” at Afghanistan President Hamid Karzai’s office for decades. Karzai called the amounts “small,” but evidence indicates the amounts are anything but—perhaps totaling tens of millions of dollars.

The presidential palace in Kabul said the money has been used “for different purposes, such as in operations, assisting wounded Afghan soldiers and paying rent.” But the truth is that if the means were so honest CIA wouldn’t have bothered delivering it so secretly— often in suitcases. In reality, the agency was using it to buy the loyalty of Afghans and encourage their support in the war against the Taliban. Karzai, in turn, has used it to buy power, fuelling corruption and empowering warlords.

As it would turn out, according to one American official, “the biggest source of corruption in Afghanistan, was the United States.”

As the understandably puzzled House Representative Jason Chaffetz (R-UT) and a critic of the war effort in Afghanistan put it: “I thought we were trying to clean up waste, fraud and abuse in Afghanistan.”

So did we.

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New GAO Report: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion

EJ Fagan

The Government Accountability Office (GAO) in the United States is one of the primary research arms of the federal government. It publishes reports, often at the request of Congress, to help answer questions related to important policy. Congressed asked the GAO to evaluate the IRS’s effort to clamp down on offshore tax evasion, and the GAO responded with a surprisingly insightful report.

After a whistleblower revealed that billions of dollars in tax evasion were being facilitated by the Swiss Bank UBS in 2009, the IRS launched a voluntary disclosure program to try and recover some of the money. After several extensions, the result has been $5.5 billion recovered by the U.S. treasury. At first glance, this is a lot of money, but the GAO thinks that offshore account holders could be evading tax through “quiet disclosure”:

Since 2003, IRS has carried out four offshore voluntary disclosure programs, collectively referred to in this report as “offshore programs,” that offer incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest, and penalties. Generally, the programs offered somewhat reduced penalties and no risk of criminal prosecution if eligible taxpayers fully disclosed their previously unreported offshore accounts and paid taxes due plus interest. As of December 2012, these offshore programs have resulted in more than 39,000 disclosures and over $5.5 billion in revenues.

Some taxpayers with unreported foreign accounts may have chosen not to participate in one of IRS’s offshore programs, and attempted to circumvent some taxes, interest, and penalties owed. One technique, which IRS calls a “quiet disclosure,” is to file amended tax returns that report offshore income from prior years. Another technique is for taxpayers to declare existing offshore accounts for the first time with their current year’s tax return, but not amend prior year returns. If successful, these techniques result in lost revenue for the Treasury, and undermine the offshore programs’ fairness and effectiveness.

All the more reason to push forward at the G8 this year on automatic exchange of tax information, so the IRS doesn’t have to wait for people to tell them about their Swiss bank accounts before trying see if they paid their taxes. You can read the full report here. (PDF)

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Large-Scale Multilateral Action on Tax Havens is Possible

EJ Fagan

Joshua Keating posted some excellent information over at Foreign Policy today:

Research from Niels Johannesen of the University of Copenhagen and Gabriel Zucman of the Paris School of Economics looks at the result ofinternational agreements taken to prevent tax evasion in the wake of the global financial crisis. The results are not very encouraging for reformers:

First, treaties have had a statistically significant but quite modest impact on bank deposits in tax havens: a treaty between say France and Switzerland causes an approximately 11% decline in the Swiss deposits held by Frenchresidents. Second, and more importantly, the treaties signed by tax havens have not triggered significant repatriations of funds, but rather a relocation of deposits between tax havens. We observe this pattern in the aggregate data: the global value of deposits in havens remains the same two years after the start of the crackdown, but the havens that have signed many treaties have lost deposits at the expense of those that have signedfew. We also observe this pattern in the bilateral panel regressions: after say France and Switzerland sign a treaty, French deposits increase in havens that have no treaty with France.

Johannesen and Zucman suggests their finding lend support to a “big bang” multilateral agreement on tax havens rather than an incremental approach, though it seems like it would be nearly impossible to wrangle an agreement big enough to make a difference.

I think that Keating is underselling a couple of things here. First, we’ve seen very few meaningful treaties signed to combat tax evasion through tax havens in recent years.  The treaty signed between France and Switzerland did not include automatic exchange of tax information or FATCA-like information exchange, so we shouldn’t expect much progress to follow it. The truth is that the aforementioned crackdown has largely been political, rather than substantive, up to this point.

But political change is a real kind of change, and we’re looking closer to substantive policy change every day. When the G20 Finance Ministers start talking about automatic information exchange being the new global standard, they are at least talking about  a “big bang” multilateral agreement. The ten EU nations, led by the UK, who have decided to start a multilateral convention for FATCA-style automatic information exchange are very clearly labeling their efforts a pilot program. We don’t know how far they are planning to extend it, but it certain looks like a potential blueprint for a worldwide system.

The US has demonstrated with FATCA, particularly in Switzerland, that developed countries hold a great deal of leverage over banks in tax havens. Incentives are clearly aligned to use that leverage, as those same developed countries want to be able to fight tax evasion and the erosion of their tax base. A deal can get done here at the G8/G20 levels. Once a multilateral convention becomes the norm for a critical number of large, important economies, compliance with it will become necessary for any large jurisdiction to do business.

Keating’s reference to the whack-a-mole problem of tax havens, where illicit money is caught up in a never-ending race to the bottom and flight to secrecy, is a smart one. We’re not going to make meaningful impacts until we prevent a great deal more secrecy jurisdictions from allowing money to be hidden inside their borders. But this kind of policy change is not impossible, and indeed may be moving substantially as we speak.

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Latest Press Releases

New Standard Chartered Settlement Underscores Insufficiency of Fines & Monitoring in Deterring Illicit Activity at International Banks

Global Financial Integrity · August 20, 2014

WASHINGTON, DC – As New York regulators announced that British bank Standard Chartered ...

GFI Welcomes New U.S.-Africa Partnership to Combat Illicit Finance

Global Financial Integrity · August 7, 2014

WASHINGTON, DC – Global Financial Integrity (GFI) welcomed the announcement from the White House and African leaders today regarding the establishment of a ...

GFI Urges Obama, African Leaders to Prioritize Curbing Illicit Financial Flows at U.S.-Africa Summit

Christian Freymeyer · August 5, 2014

WASHINGTON, DC – As African leaders descend on Washington this week for the historic U.S.-Africa Leaders Summit, Global Financial Integrity (GFI) called ...