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Jun
26

Liberty Reserve, Money Laundering, and Implications for Bitcoin

Ann Hollingshead

In April, I argued Bitcoin, one of the world’s most mainstream currencies currently operating, may become a viable, sizeable, and more dangerous alternative to offshore accounts for money laundering and tax evasion. I argued the U.S. government isn’t paying close enough attention to the growing threat posed by these currencies. Yet, just a month later, the Department of Justice arrested the founders of Liberty Reserve, another digital currency, and charged them with money laundering. It might seem I was wrong. I say not so fast. For counter-intuitive reasons, Bitcoin still poses a more serious, and long-term, threat than currencies like Liberty Reserve.

First a recap of what happened. In May, DOJ charged Liberty Reserve, Arthur Budovsky (its founder), and his associates with conspiracy to commit money laundering. According to DOJ, nearly all of Liberty Reserve’s five million transactions were illegal and used to launder more than $6 billion in proceeds from drug trafficking, child pornography, ponzi schemes, and many other crimes. The founders of Liberty Reserve incorporated the company in Costa Rica, which later seized about $19.5 million from the company’s bank account as requested by U.S. government officials.

Liberty Reserve posed obvious money laundering threats. So what does that mean for other online currencies, particularly mainstream ones such as Bitcoin?

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Jun
19

Why Developing Countries Should Care About the G8 Summit

Ann Hollingshead

The leaders of the world’s eight wealthiest economies have finished their meetings, headed home, and issued a final communiqué for the G8 summit in Lough Erne. And though emerging economies are not represented at the meetings,[1] there are plenty of reasons they should deeply care about what was said. In general, the G8 communiqué goes a long way to calling out important tax issues, but in particular understands the importance of tax in the context of mobilizing domestic resources, curtailing illicit financial flows, and promoting development. And while the G8 did not go as far as they should have on some issues, they did make a fair number of important promises on tax and transparency to developing countries. Developing countries should take heed of these promises—and hold the G8 accountable to them.

Before I dive down into the specifics, I’ll start with a quote from the G8 communiqué that reiterates the importance of these ideas:

It’s in everyone’s interests for developing countries to be able to: strengthen their tax base to help create stable and sustainable states; improve their ability to fund their budgets through their own domestic revenues; and increase ownership of their own development processes.

This quote is significant. First, it acknowledges that the world is not a zero sum game. In the last few years, the world accepted that a less polarized global economic system, one in which all of the players drive economic demand and where wealth is more diffuse, would benefit everyone. That developing countries should grow their economies is not only in the interest of those in the developing world, but in the industrialized world, as well. Second, this quote draws a strong connection between development, sustainable economic growth, and taxes. In particular, it acknowledges the importance of mobilizing domestic resources in the context of economic development. It’s a simple idea that has gained a lot of traction in the last few years. I’m glad the G8 has paired these ideas together—and taken them as given.

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News
Jun
19

Taxcast Edition 17: May ’13

Taxcast by Tax Justice Network

In the May 2013 Taxcast: Google and Apple are forced to defend their tax affairs in public, how anti-EU sentiment serves offshore interests and the Taxcast looks at tax havens and the arms trade: how secrecy kills. The Lord of War makes an appearance.

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Press Releases
Jun
18

Statement from the Financial Transparency Coalition: G8 leaders fail to reach financial transparency agreement

Financial Transparency Coalition

At this year’s summit, G8 leaders had an opportunity to pursue tax and transparency policies that would provide economic stability, root out systemic corruption and enhance the democratic process in rich and poor nations alike. Today G8 leaders largely failed to seize this opportunity.

David Cameron’s desire to see the creation of public registries disclosing the beneficial owner of companies is admirable. But world leaders agreed today only to ad-hoc, national-level promises to introduce registries, with no guarantee that even this limited information will be made public. There was no G8-wide commitment to introduce registries containing the beneficial owners of companies and trusts, and this is deeply disappointing.

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Jun
17

Tax wars: EU playing catch-up with US

Markus Meinzer

Last week, while showcasing draft EU laws on tax transparency, commissioner Algirdas Semeta told media in Brussels he is building “the most comprehensive information exchange system in the world.” He added: “The EU system will become even broader than the US system.”

It is an astonishing claim.

The wide-reaching impact of the new US regime – the Foreign Account Tax Compliance Act (FATCA), which came into force on 1 January – has been demonstrated by a storm of angry reactions in worldwide financial centres. Some of Semeta’s proposals, notably his amendments to the EU Savings Tax Directive (EUSTD), do broaden the scope of information to be shared inside Europe and do go beyond FATCA. But other elements of the US law are missing from the EU package.

Meanwhile, even if the European Commission now has the legal instruments to create a FATCA-plus system, there is no guarantee they will ever be used.

Semeta’s laws must first be unanimously agreed by EU countries. So long as Austria and Luxembourg, two EU financial centres, are allowed to delay and frustrate the EUSTD amendments, the entire project will remain what it has been for the past five years: a lovely idea on paper, nothing more.

Despite reports to the contrary, the last meeting of EU finance ministers in May did not mark a change of heart in this respect. Austria and Luxembourg did not abandon their old tactic of saying “we will happily join if and when Switzerland joins as well.”

Instead, EU countries agreed to make progress by the end of the year, a deadline which falls after elections in Austria and Germany. Judging from the two countries’ track record on tax transparency, it does not bode well.

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Jun
17

New EU anti-corruption standards increase demands for greater transparency to combat tax dodging

Øygunn Brynildsen

After years of talking, EU leaders seem willing to take action at last on requiring transparency that will shed light on tax dodgers. There are at least two opportunities for concrete legislation that the EU cannot afford to miss this year, although Member States still seem to be dragging their feet.

After a year of negotiations with Member States and the European Commission, and strong involvement by Eurodad and our partners, the European Parliament this week voted in favour of new accounting rules for extractive and logging sectors. The Accounting Directive will require companies in these two sectors to disclose their payments to governments in every country where they operate.

While this is a vital step towards combating corruption, the question now is whether action will be taken to produce the transparency needed to fight tax evasion and avoidance. Knowing a company’s tax payments is not enough to assess whether those payments are fair, as it does not reveal where the real economic activity takes place. Forthcoming research from Eurodad and CIP into a European mining company in Mozambique provides a concrete example of how this lack of detailed reporting prevents citizens and tax authorities from detecting harmful tax practices. Assessing whether a company pays its fair share of taxes requires country-by-country reporting –including country-level disclosure of profits, sales, tax payments, assets and the number of employees.

Movements towards legislation

  • It is very welcome that the EU has announced that the Capital Requirement Directive (CRD IV) will go further and require banks to disclose profits made, taxes paid, subsidies received, turnover and number of employees on a country-by-country basis.
  • In France, President Hollande has signalled that he wants the reporting requirements for banks to be expanded to all large companies, and the French parliament has expressed its support.
  • In Norway, a working group with participants from both the finance and foreign ministries has issued a report to the Ministry of Finance, recommending legislation that requires extractive and logging companies to disclose country-level reporting, not only of payments to governments (as has now been established in the Accounting Directive), but also on investments, sales revenues, production volume, purchase of goods and services and number of employees. The proposal is now subject to a public hearing.
  • Michael Barnier, EU Commissioner for Internal Market and Services, also has higher ambitionsthan those presented in the Accounting Directive. While welcoming the European Parliament vote, he said:

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Press Releases
Jun
14

Statement from the Financial Transparency Coalition on Today’s Offshore Data Dump by the ICIJ

Financial Transparency Coalition
G8 leaders: The ICIJ’s unprecedented exposure of a corrupt financial system built on secrecy  should be taken into account as you work to establish mechanisms for greater financial  transparency.

WASHINGTON DC - The release of massive amounts of new information about hidden off-shore wealth by the International Consortium of Investigative Journalists (ICIJ), confirms beyond reasonable doubt that the world’s financial system legitimises industrial-scale tax avoidance, aids criminals and drug cartels and facilitates corruption up to the highest levels of our society.

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News
Jun
13

G8 Leaders Tackle Tax Havens and Global Inequality

John Bugnacki

Since the 1960s, President John F. Kennedy, the OECD, and European leaders of the G8 have all committed to tackling tax havens, with a mixed record of successful reform. However, leading up to this week’s meeting of the G8, David Cameron is calling for the organization’s leaders to commit to addressing the global shadow financial system that has allowed illicit financial flows to stream into tax havens.

In this week’s issue of the Economist, Paul Collier of Oxford University, an adviser to Cameron, argues that transparency reforms are a positive step forward for global development, “Instead of preaching to poor countries or promising to double aid, which we never did anyway, the idea now is for the G8 to put its own house in order, in ways that are good for us and also good for Africa.”

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Jun
13

G8 Preview: Momentum Toward Public Registries for Beneficial Owners

Ann Hollingshead

The summit between leaders of the world’s wealthiest economies will get underway next week in Northern Ireland.[1] British Prime Minister David Cameron, leading the summit, has put three things at the top of his agenda: trade, tax, and transparency. There are a lot of issues directly relevant to the Financial Transparency Coalition in there, and I don’t have time to address them all, but one of the most promising, and interesting, is Cameron’s commitment to improving information on beneficial ownership of companies via public registries.

Anonymity is prevalent under the world’s status quo. It is exceptionally easy (and relatively cheap) to set up a company, trust, or foundation anonymously. By that I mean that the process obscures the “beneficial owner” of the entity, that is, the flesh and blood person who has control over or benefits from the corporation. Companies, trusts, and foundations accomplish this by incorporating subsidiaries in a secrecy jurisdiction or by using nominees in place of the true directors.

The injustices that result from secrecy are numerous. Given that other people and organizations have outlined some of these injustices in beautiful detail, I won’t name them all (see, for example, this excellent report by Global Witness). Anonymous companies facilitate corruption and bribery by allowing government officials to transfer money undetected; they ease crime by allowing criminals to launder the proceeds of criminal activity and avoid detection by law enforcement; they facilitate tax evasion, costing American taxpayers alone an estimated $150 billion annually; and they facilitate global illicit financial flows that bleed developing countries of billions of dollars every year.

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Jun
12

It’s Time Corporations Flew Old Glory Instead of the Jolly Roger

Scott Klinger

The swashbuckling pirates of olde amassed private fortunes by raiding ships and stealing them. Once they captured a ship, they would replace its flag — which represented one of the world’s sovereign nations — with the Jolly Roger. By flying the skull and crossbones, pirates proclaimed that they were out for their own benefit and theirs alone.

Many American corporations are following this pirate tradition. Their crews aren’t sword-wielding ruffians, but high-priced lobbyists and accountants. They fight for, win, and then exploit loopholes in the tax code that allow multinational corporations to take profits earned in the United States and legally shift them to tax havens like the Cayman Islands, Ireland, and Luxembourg.

This accounting hocus-pocus allows U.S. corporations to deny the Treasury about $100 billion a year. The money, which could go a long way toward plugging the holes in our federal budget, is tantamount to private booty stashed in a modern-day tax haven cove.

Instead of the Jolly Roger, one of these contemporary pirate gangs flies the so-called Fix the Debt flag. This lobby group has more than 100 corporate ships in its flotilla. Together they’re fighting to cut Social Security and Medicare and to scrap U.S. taxes on their offshore booty, which collectively totals $544 billion.

That’s according to “Corporate Pirates of the Caribbean,” a new Institute for Policy Studies report I co-authored. If Captain Dave Cote of the Honeywell ship, Jolly Jeff Immelt, who commands GE’s vessel, and their pals prevail, together they’ll split a $173 billion tax windfall.

For the first half of American history, taxes on business activity, like trading, paid most of the government’s bills. As recently as World War II, U.S. corporations stood by our country as corporate taxes accounted for nearly 40 percent of federal revenue. No corporate leaders back then called for tax cuts or complained that high taxes made them uncompetitive. They proudly flew Old Glory outside their businesses and paid to keep the nation strong.

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News
Jun
11

Tom Cardamone in the Huffington Post Canada: The Trouble with Tax Havens

EJ Fagan

Canadians have about twice as much money squirreled away in tax havens as they did a decade ago, writes Tom Cardamone in the Canadian edition of The Huffington Post. With the G8 summit looming, will Canada’s government support David Cameron’s transparency reforms, including public registries of the true owners of companies?

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Jun
11

G8: It’s Time for Action on Money Laundering

Robert Barrington

Cross posted from Transparency International’s Space for Transparency blog.

The UK Government has announced that transparency and anti-corruption will be key elements at the G8 summit this year. Much needed action on money laundering provides an opportunity to live up to that promise.

Corrupt money flows through the UK – in particular through our financial services industry. Nobody knows how much, but it is almost certainly many billions of pounds each year.

Some, perhaps a great deal, of those funds are then hidden in the UK’s Crown Dependencies and Overseas Territories.

Why don’t we know how much money is laundered, or who owns it? There are three reasons. First, those who hope to benefit from the proceeds of corruption try very hard to hide their money. Secondly, some financial institutions and their host governments welcome rich customers, and don’t try very hard to find out where the money comes from. Thirdly, the system is shrouded in secrecy.

Developing countries lost $5.86 trillion in illicit financial flows in the decade spanning 2001-2010. That’s almost $6 trillion which could have been ploughed into healthcare, education, and water sanitation. We know from the cases that have come to light that some of it ended up funding the mansions and fast cars of the people who stole it. The UK and its fellow G8 members are not unsullied by this tragic statistic.

To slow down the flow of corrupt funds, host governments and financial institutions at least need to be able to know who owns the money sloshing through the system. They need to be able to run sufficient checks on its legitimacy. That relies in part on being able to find accurate information on who the customers really are. However, the current system can make it almost impossible for a bank to find accurate information on who ultimately runs, owns, and profits from the company – the ‘beneficial owner’. If banks and governments do not know, then it is highly unlikely that ordinary citizens will.

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Latest Press Releases

GFI Notes Significant Progress on Automatic Information Exchange but Warns that Poorest Countries Are Being Shunned

Global Financial Integrity · October 30, 2014

WASHINGTON, DC – While noting significant progress today in the global effort to curb tax evasion, Global Financial Integrity (GFI) expressed concerns that ...

Report reveals threat to U.S. interests from anonymous shell company owners

Global Witness · September 25, 2014

Owners of anonymous companies registered in U.S. states are ripping off innocent people and businesses across America, says a new report by ...

G20 Introduces “Transparency” Behind Closed Doors

Financial Transparency Coalition · September 21, 2014

WASHINGTON, D.C.—The G20’s recent focus on financial transparency is a welcome development, but instituting bare minimum requirements, or plans that allow for ...