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How Shell Corporations are Corrupting U.S. Democracy

Ann Hollingshead

On January 22nd, 2010, the day after the Supreme Court ruled on the Citizens United v. Federal Election Commission case, Americans knew elections in our nation would never be the same. Although no one was really sure exactly how. In the landmark 5-4 decision, the court ruled that, under the First Amendment, the government could not restrict independent political expenditures from corporations, non-profits, and unions.

In his dissent, Justice John Paul Stevens argued that allowing unlimited corporate money to flood the political marketplace would corrupt our democracy.

We might not all agree with the contentious Citizens United decision, but it is the law of the land. And while we don’t all agree on whether or not corporations should be able to exercise a “right to free speech” with unlimited spending on election advertisements, most Americans do agree on two things: 1) foreign nationals shouldn’t be allowed to spend money on American elections, and 2) the American people have the right to know who’s doing the spending.

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Australia: Multinational Tax Payments Should Be Transparent

EJ Fagan

flickr / Ariaski

Australia has long been an international leader on financial transparency issues, whether we’re talking about taxes, beneficial ownership academic research, or money laundering laws. They aren’t perfect, but it looks like the Australian Parliament will support an important new provision to make their tax system a whole lot more transparent:

Global giants including Apple and Google will be forced to reveal how much tax they pay the federal government, under a plan to name and shame firms seen to be dodging their responsibilities by using tax havens.

The proposed crackdown, announced today, would also clear the way for the government to publish more detail on how much mining tax resources firms are paying. Until now, the government has refused to say exactly how much money the mining tax has raised, citing the need for taxpayer confidentiality.

A fundamental principle of tax law is that the affairs of all taxpayers, from individuals to corporate giants, are kept secret.

But with governments around the world seeking to protect their budgets against use of tax havens, especially by technology firms, large companies operating in Australia may no longer enjoy such privacy.

Federal Labor hopes to pass legislation before the September election that would require large firms to publish more detailed information on how much tax they pay.

The controversy arose when Google, which operates in Australia, paid a reported $74,176 in 2011, and Apple fell into similar trouble. The move itself won’t capture any tax revenue directly for Australia, but will make it difficult for companies to hide behind walls of secrecy when using abusive transfer pricing schemes to shift profit out of countries where it is earned. Even in Australia, Google is somehow claiming that it actually paid a lot more than $74,176 in taxes, although its difficult to imagine how this can be a fact in dispute. The system needs a heavy dose of transparency. 

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Immigration Reform, Bulk Cash, and Border Security

Ann Hollingshead

flickr / aresauburn

The last blue moon occurred on August 31st of 2011 and we won’t enjoy another until 2015. In the meantime, the Senate has fulfilled its duty to introduce truly bipartisan legislation on a hot button political topic exactly once. I’m talking about the Senate’s immigration reform plan—which this week a group of senators from both parties unveiled and President Obama promptly endorsed.

One key element of the Senate’s plan is a provision which stipulates that illegal immigrants would not be able to become American citizens until the U.S. government takes action to adequately secure the border. Of course, this brings up the question of what does a “secure border” even mean? At what point can we say that the border is completely secure? And given our looming budget problems, how much will the boots, trucks, x-rays, fencing, dogs, and cameras we need to get to that complete security cost us?

Over the last ten years, the focus in the conversation about border control has shifted several times. Just after 9/11, the U.S. bolstered border security out of the fear that terrorists could sneak weapons in from Mexico. Later, when cartels threatened to unravel Mexico, these concerns were overshadowed by drug trafficking. Then, when unemployment in America soared, the central theme in the issue turned to illegal immigrants.

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How the Groenewald Gang Made Millions off Illicit Wildlife Trafficking

Regina Morales

flickr / Dane Larsen

Dawie Groenewald of South Africa and 11 conspirators were arrested in September of 2010 on 1,872 counts of racketeering, including illegal trade of rhino horns. Among those arrested are two veterinarians, Karel Toet and Manie Du Plessis, as well as several professional hunters. This case is one of the biggest wildlife cases seen in South Africa and has been postponed several times since 2010. It is currently scheduled for early May 2013.

Groenewald owns a big game farm in Polokwane, South Africa as well as Out Of Africa Adventurous Safaris. A burial site of over a dozen horn-less rhinos was found on his property in 2010. Investigators show that these rhinos are thought to have been purchased from the South African National Parks in 2007-2010. In order to increase his profit margin, Groenewald decided to slaughter the rhinos after removing their horns; thus eliminating any upkeep costs associated with live rhinos.

Rhino horns are worth up to $60,000 per kilo in parts of East Asia, namely China and Vietnam. They are thought to possess medicinal value, including curing cancer and small ailments such as fevers and headaches.  Rhino poaching in South Africa has been rising steadily over the past several years. According to South Africa’s Department of Environmental Affairs, approximately 588 rhinos were poached in 2012. One could point to China and Vietnam’s increased affluence as having increased this demand.

Investigators have so far seized $6.8 million in assets from Groenewald, Toet, and Du Plessis. They also uncovered Valinor Trading CC, a “closed company” Groenewald used to launder money. However, this was not Groenewald’s first run in with the law. Groenewald is a former police officer and was discharged because of his ties to a car smuggling ring allegedly outfitted by ZANU PF, the ruling party of Zimbabwe’s notorious Robert Mugabe. Groenewald was arrested in Alabama in April 2010 for importing an unlawfully hunted leopard trophy. He was banned from the U.S. and ordered to pay a $30,000 fine as well as a $7,500 fee to the buyer in Alabama.

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Event: Global Corruption: Money, Power and Ethics in the Modern World

EJ Fagan

Global Financial Integrity will be holding a panel discussion about the new book, Global Corruption: Money, Power and Ethics in the Modern World, by Transparency International’s Laurence Cockcroft. All are invited to attend. If you are outside the Washington, DC area, the event will be filmed and posted online shortly afterwards.


Tuesday, February 12th, 2013, 11:00am – 12:30am


Carnegie Endowment for International Peace
Choate Room
1779 Massachusetts Ave. NW
Washington, DC, USA, 20036


Laurence Cockcroft, Author
Michael Hershman, President & CEO of The Fairfax Group, former federal fraud and financial crime investigator
Claudia Dumas, President & CEO of Transparency International USA
Raymond Baker, Director of Global Financial Integrity

RSVP:           Send RSVPs to Patrick Benson at pbenson@gfintegrity.org

Note: This event was previously scheduled for October 29th, 2012, but was postponed due to Hurricane Sandy.

Corruption is a key factor in sustaining appallingly high levels of poverty in many developing countries, particularly in relation to the provision of basic services such as education and health. It is also a major reason why increases in the growth rate in Africa and South Asia have failed to benefit large segments of the population. Corruption drives the over-exploitation of natural resources, capturing their value for a small elite – whether timber from Indonesia or coltan from the Congo. In the developed world, corrupt party funding undermines political systems and lays policy open to heavy financial lobbying.

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Global Witness: The Price for Helping Cyprus

Robert Palmer and Rosie Sharp

This op-ed was originally published in the European Voice on January 24th.

flickr / Dan…

Cyprus’s teetering economy needs a significant injection of bail-out cash from its European Union partners. However, a group of countries, led by Germany, is baulking at the prospect of propping up what many regard as a money-laundering haven. A bail-out package, it is argued, could see eurozone taxpayers footing the bill for protecting the offshore banking deposits of criminals. European leaders are arguing that Cyprus should have to beef up its anti-money laundering controls in order to qualify for any bail-out package.

The Cypriot government insists that it runs a clean financial centre. In fact, EU ambassadors to Nicosia have been told that Cyprus has a better anti-money laundering record than many other EU member states.

This argument is disingenuous and ignores crucial holes in Cyprus’s attempts to fight the movement of dirty money. Indeed, last year, a leaked report from Germany’s Federal Intelligence Service declared Cyprus to be a “gateway for money laundering activities in the EU”.

Although Cyprus has made commendable efforts to improve its financial crime laws since joining the EU in 2004, there are serious questions about how well these rules are enforced in practice, and the apparent ease with which criminals can abuse Cypriot companies to hide their identity and their ill-gotten gains.

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Audio: Taxcast January 2013 Edition

EJ Fagan

In January 2013′s Taxcast: A significant ruling against Dell in Spain, India shelves rules that would have tackled corporate tax abuse until 2016, the EU threatens to blacklist Switzerland and Naomi takes a look at ‘Google Capitalism.’ (An extended edition to kick off 2013 – just under 20 mins). For more episodes, click here.

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Four Questions for Jack Lew, Obama’s Pick for Treasury Secretary

Ann Hollingshead

flickr / azipaybarah

With his inauguration only a few minutes behind him, President Obama officially submitted his initial round of Cabinet nominations to the Senate on Monday. Among them is Jacob “Jack” Lew, the current White House Chief of Staff and Obama’s pick to replace Timothy Geithner as the next Secretary of the Treasury. Before getting the post, though, Mr. Lew will face a tough round of questioning from the Senate Finance Committee, which is in charge of vetting his nomination.

The next Secretary of the Treasury will have enormous influence nationally, and globally, on issues important to the Task Force, including the combating of terrorist financing, offshore tax haven abuse, and money laundering. Below, I outline four questions I would ask Mr. Lew at his confirmation hearing, if I could. Below each, I describe why it’s important and what I’d like to hear in Mr. Lew’s response.

1. Can you describe your approach to preventing Iran from avoiding international financial sanctions as part of its larger objective to obtain a nuclear weapon?

The U.S. Department of the Treasury plays an integral role in enforcing U.S. (and the world’s) financial sanctions against Iran by sharing information with key financial actors globally and investigating offshore front companies.

For example, in 2010 Treasury found 37 front companies based in Germany, Malta, and Cyprus which were acting for or on behalf of the Islamic Republic of Iran Shipping Lines (IRISL) and its affiliates. Iran uses IRISL, its national maritime carrier, and its complex network of shipping and holding companies to advance its nuclear weapon program and to carry military cargoes. Other Treasury actions have included an investigation into Great Britain’s Lloyd’s Bank, which agreed to a fine of $350 million for its illegal handling of financial transactions for Iran and the determination that a large office building on Fifth Avenue was held by a firm that served as a front for an Iranian bank barred from business with the United States.

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Announcing the “Enough Food For Everyone – IF” Campaign

Joseph Stead

This week more than 100 organisation have joined together to launch the biggest campaign since Make Poverty History. ENOUGH FOOD FOR EVERYONE – IF aims to tackle hunger which grips our world.

1 in 8 people on the planet go to bed hungry every night and more than 2 million children die from malnutrition annually.

At a time when progress is being made in many key areas of the development of poor countries these are shocking statistics. It highlights that our global food system is broken and it’s why Christian Aid, Action Aid, Oxfam and dozens of other organisations are joining together to say there is ENOUGH FOOD FOR EVERYONE – IF we tackle the causes of hunger.

The campaign focuses on addressing four key issues which could ensure that everyone has the food they need to live from.

  • If aid is invested in the right places small-scale farmers will have the support they need to grow food.
  • If we tackle tax dodging in poor countries governments could have the money they need to ensure their citizens are fed.
  • If farmers are not forced from their land they can grow the crops needed to feed people
  • If governments and big companies are honest and open about their actions that currently prevent people getting enough food.

This campaign will not end hunger in 2013, but it could start the process that does end hunger, if we address these issues. With the UK hosting the G8 in June we have the opportunity to press world leaders to make these changes happen and ensure there is enough food for everyone. It’s a hugely ambitious and exciting campaign. For it to be a success we must come together and speak as one to those in power to push for a just world.

To find out more and to get involved visit christianaid.org.uk/if or enoughfoodif.org.

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Video: Stealing Africa by Why Poverty?

EJ Fagan

Stealing Africa, a documentary in the series Why Poverty that focuses on the case of the international mining giant Glencore in Zambia, is a must-watch for anyone concerned with domestic resource mobilization, global poverty, the resource curse, or illicit financial flows. These topics mesh together to one simple idea: money that should be staying in Africa’s poorest nations is in fact fleeing at an astounding rate, and something needs to be done about it.

Task Force Director Raymond Baker and Tax Justice Network’s John Christensen and Nick Shaxson appear at length in the documentary. It runs for 58:27 below:

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Shruti Shah: A case for more integrity in the financial sector

EJ Fagan

flickr / Pablo Manriquez

Shruti Shah of Transparency International-USA wrote a great op-ed on Devex last week. Ms. Shah connects the dots between the crimes committed at HSBC, the influx of money to the United States from kleptocrats like Teodorin Obiang, and the hundreds of thousands of anonymous shell corporations created every year in the United States. The result? Individuals are able to use the United States and its institutions to, “export, launder and conceal ill-gotten gains” derived from corruption.

Her point is important: there is a causal connection between the facilitation of corruption and corruption itself, in the sense that facilitation is necessary for much of the grand corruption that occurs to exist. Without the ability to easily move money out of the home country, it becomes a lot more difficult to perpetually conceal what you are doing. When you decrease incentives – the potential for dynastic wealth that can be spent with impunity – you decrease the activity.

Shah writes,

2011 BBC poll surveying more than 11,000 people across 23 countries showed that corruption was the most talked about global issue. In the same survey, 69 percent of respondents rated corruption as a “very serious” global issue.

This is not surprising, as corruption underpins many of the main global challenges. Corruption undermines economic growth, erodes trust in institutions, diverts scare resources that could be used for development, subverts open markets and is perceived to have played a significant role in the recent financial crisis. The continuing discontent of ordinary people – whether in the Middle East, India or even the United States – shows that tackling corruption will continue to be front and center in 2013.

An important issue often missing from discussions on corruption is that preventing the ability of individuals to export, launder and conceal ill-gotten gains can significantly reduce corruption.

It is difficult to reliably estimate how much money is laundered globally. The managing director of the International Monetary Fund in 1998 estimated that the aggregate size of money laundering in the world could be somewhere between 2 percent and 5 percent of the world’s gross domestic product. Even the lower end of the scale of this rather old estimate is staggering. It would be equally if not more difficult to understand the true effect of this leakage on developing countries. The true cost exceeds the value of the stolen assets – siphoning funds away from important development goals, undermining the rule of law.

You can read the entire op-ed on Devex here.

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Resource Revenue Management 101

Katherine Lay

Cross posted from The ONE Campaign.

flickr / deep_schismic

Say that your country is blessed with natural resources. Oil, gas, minerals – it has it all. The future looks good. But deep down you worry that the bonanza could turn into a bust – maybe you live in Africa and have seen how windfalls have been wasted before. How do you know that’s not going to happen now? Are there any tell-tale signs of sound management of “commodity wealth”?

Marcelo Giugale, the World Bank’s Director of Economic Policy and Poverty Reduction Programs for Africa, recently asked these questions and, in response, offers us a combination of measures that every government should have in place to help citizens get a good deal from their resources.

We’ve looked at four of these measures and how they’re playing out in Africa.

First Measure: Governments publish their extractives contracts

Extractive resources are public assets and decisions about their use should be subject to public oversight. But many African governments are keeping their oil, gas and mining contracts firmly under wraps. This is a problem because confidential contracts prevent citizens from holding political and corporate leaders to account for the deals they’ve struck. Closed contracts may contain unreasonable tax breaks, terms that contravene national legislation or clauses that allow companies to ignore changes in national law. By contrast open contracts help maximize gains for citizens, and are a deterrent to self-serving actions on the part of government leaders. They also increase investment stability for companies by securing balanced deals from the outset.

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Latest Press Releases

TED Prize Winner Charmian Gooch Announces Global Campaign to Abolish Anonymous Companies

Global Witness · March 19, 2014

Vancouver, Canada, March 18, 2014 –This year’s TED Prize winner – Charmian Gooch of Global Witness – has announced that she will use the prestigious million-dollar award “to make it impossible for criminals and corrupt dictators to hide behind anonymous companies.” The announcement was made live and online from the TED stage in Vancouver, with support from leading members of the business, political, law enforcement and campaigning community.

European Parliament Gives Overwhelming ‘yes’ Vote to End Secret Corporate Ownership

Financial Transparency Coalition · March 11, 2014

Joint NGO Media Reaction Financial Transparency Coalition – Eurodad – Global Witness – Transparency International EU Office – Oxfam Brussels, March 11, 2014 – Today, the European Parliament endorsed the creation of public registers of who really owns companies, trusts and other legal structures. This will make it much harder for criminals, tax evaders, corrupt politicians and other money launderers to hide their identity, and their illicitly-acquired assets, behind anonymous companies and trusts.

NGOs welcome MEPs’ vote for ground-breaking changes to fight money laundering

Financial Transparency Coalition · February 20, 2014

Joint NGO media reaction Financial Transparency Coalition – Eurodad - Global Witness - Oxfam A cross political party agreement in the European Parliament ...