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Aug
28

Taxcast Episode #20: August 2013

Taxcast by Tax Justice Network

In the August 2013 Taxcast: we look at why development money is being invested in developing countries via tax havens and the under-reported elements of the tensions between Spain and Britain over the territory of Gibraltar. Also: tax and the environment – making the polluter pay instead of paying the polluter: the Taxcast investigates the Carbon Tax in British Columbia, Canada.

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Aug
27

The Absence of Will – A New Poll From Christian Aid

Joseph Stead

The 10-point Lough Erne communique contained 13 uses of the word ‘should’ and not a single use of the word ‘will’.  Perhaps David Cameron, the UK Prime Minister, was hoping that no-one would notice the difference and that the British public anger about tax dodging would be satisfied without any actual action.  A new poll  commissioned by Christian Aid shows that that gamble has failed and that the British public remain as angry, if not more so, than before the G8.

When a previous poll was undertaken in February, 80% of the public were angry about tax dodging, and 34% were boycotting products because of companies’ tax practices.  The same percentage are still boycotting products – and 84% are now angry.

While one of the G8 ‘shoulds’ was for tax authorities to get more information from multinationals, the public are clear that they expect more.  Our ComRes poll found that87% want MNCs to be more transparent with their accounts.  Both companies and government are seen as complicit in the problem, with 83% saying that MNCs get treated more leniently by the tax man, while 58% think that tax avoidance by MNCs is immoral.

Furthermore, despite the pre-G8 commitments made by the UK’s Overseas Territories and Crown Dependencies, there is also clearly a desire for further reform in UK-linked jurisdictions.  Of the 2,028 Britons questioned, 74% agree with the statement that ‘the UK is responsible for these territories and should force them to make information about company ownership publicly available by using all available means.’

While I’d love to be able to say what the UK government response to this will be, I can only point out what our poll suggests it should be.

Cameron made transparency of company ownership a key part of the G8, and it’s not hard to understand why.  The Africa Progress Panel highlighted how the use of anonymous companies registered in the British Virgin Islands involved in just five mining deals in the Democratic Republic of Congo cost the citizens of the DRC $1.35bn, or more than twice their annual health and education budget combined.

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News
Aug
21

Offshore Phantom Firms A “Hulking Presence” in Divorce Cases

EJ Fagan

PantratrovImagine that you are trying to sort out to recover your assets during divorce proceedings, and your significant other forces you to navigate this web of offshore shell companies and trusts, often with intermediaries listed as the beneficial owner. Read more at FT Alphaville.

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Aug
21

Review of the World Bank Sanctions System: A Good Start But Additional Transparency Needed

Shruti Shah

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

The World Bank Group is currently undertaking an evaluation and review of its Sanctions System. That Sanctions System is an integral part of the Bank’s Anti-Corruption policy in that it provides a framework for punishing corrupt contractors, thereby creating a deterrent to corruption. A well-functioning Sanctions System is also important in helping to ensure that the development goals of Bank-financed lending projects are not undercut by fraud or corruption and that World Bank loans produce the greatest possible development impact vis-à-vis the money disbursed.

The Bank has begun a series of consultations with external stakeholders focusing on the performance and implementation of the Sanctions System, as well as the findings and recommendations made by the internal team leading the review process. The review team has produced a diagnostic report evaluating the legal adequacy of the system and its performance and making specific recommendations for reforms. This report has not been made public.

Given the importance of the Sanctions System to effective development and poverty alleviation, it is critical that these consultations are transparent and inclusive and are structured in such a way so that they are most conducive to generating meaningful input from all interested parties. The World Bank has conducted successful and transparent consultations in the past, most recently in the review of its procurement procedures. The Bank has already taken a first step towards a transparent consultation process by launching a dedicated sanctions consultations website that features a summary of its diagnostic report (.pdf) as well as information regarding its plan of action and expected timeline for the review.

While Transparency International and Transparency International-USA will be submitting written recommendations on substantive issues, we have two recommendations with respect to the consultation process:

  1. The Bank should promptly make available the internal diagnostic report, including all associated data.  At the very least, a redacted version of the report with the data should be made available. The summary document prepared by the Bank is useful but does not provide the necessary detail. The findings, discussion, and data contained in the diagnostic report are essential for stakeholders to assess and evaluate whether the review team’s recommendations correspond to current shortcomings and also to provide meaningful feedback.
  2. All submissions and recommendations by external stakeholders should be published in a timely manner with identifying information omitted if needed to preserve confidentiality. We understand that the Bank will be publishing the transcripts of consultation meetings, for which we applaud the Bank. The prompt publishing of submissions and comments will help ensure a transparent and inclusive consultations process, and will also allow for a richer exchange of ideas.

Transparency International – USA believes that the sanctions consultations are an excellent opportunity for the World Bank Group and interested stakeholders to work together to improve a system that is looked to by many other institutions. We therefore recommend that the Bank take the above steps to create an open and transparent consultations process that will be beneficial to all parties, and will serve as a model for developed and developing countries.

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Aug
15

Interactions Between Small- and Large-Scale Corruption in China

Ann Hollingshead

Over the last year, from the symbolic to the substantive, leaders in China have shown an interest in seriously tackling the issue of corruption. These changes have included charging Bo Xilai, the powerful former Communist Party chief in Chongqing, with corruption, bribery and abuse of power and, the relatively symbolic gesture, of banning the construction of new government buildings, which are often ostentatious relative to the communities they inhabit. Yet these changes have raised questions over the daily reality that citizens of China (and every other nation) confront as they interact with policemen, building inspectors, and customs officials—but also as they watch news. Indeed, citizens of the world confront two different, yet highly related forms of corruption; these exist both on the large-scale and on the small-scale. And these types of corruption interact with each other, but also and with citizens’ perceptions of their nations.

On a large-scale corruption undermines development and democracy, exacerbates poverty, erodes civil society, stifles social services, and worsens public health. When it involves cross-border flow of money, it is damaging to economies not just because of the underlying corrupt acts, but also because it deprives the country of both public and private resources—including financial capital—that might otherwise be diverted to productive activities.

Corruption on a small scale, sometimes called “petty corruption,” occurs in thousands of contexts daily. Every day people, usually in developing countries, make thousands of routine payments to building inspectors, customs officials, and other bureaucrats for the services that those employees are obligated to perform, but don’t without a little extra. This type of corruption has a much different effect than its large-scale counterpart. When a person pays a bribe, the venal official need not necessarily transfer it abroad. In fact, they are more than likely to just spend the cash.

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Aug
8

Increasing [Amicable] Cooperation on Offshore Tax Evasion

Ann Hollingshead

There is an old proverb that goes something like this: “one finger cannot lift a pebble.” And while reducing cross-border tax evasion is not like lifting pebble—it’s more like hauling a boulder—it is true that it cannot be achieved unilaterally. No single country can stop, stem, or slow offshore tax evasion by its own citizens without the help of at least one other nation. This is true by definition.

Historically much of the bilateral cooperation on tax evasion has been less than amicable. That is changing. Increasingly, we are seeing that the cooperation in matters of tax between nations—particularly wealthy ones—is neither begrudging nor forced. These nations are not just cooperating to stem tax evasion abroad; they are doing so willingly and proactively.

The countries which have begun to cooperate on these matters mainly includes wealthy Western nations, including the United States and most of the European Union. The most notable recent occurrence of this cooperation, at least symbolically, occurred at the G8 summit in June of this year. It was at this summit that the leaders of the world’s wealthiest countries agreed to work towards sharing “information automatically to fight the scourge of tax evasion.” An admirable goal, if even a symbolic gesture.

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Aug
1

Income Inequality, Wealth, and Illicit Financial Flows in Asia

Ann Hollingshead

In recent years wealth among the wealthiest has increased. This trend is well-documented in the United States, where commentators have noted that since 1979, the rich have become richer and the poor have become (relative to the rich) poorer. Dubbed the “Great Divergence” by NY Times op-ed columnist Paul Krugman, this phenomenon may be both a driver and the result of tax policy and tax evasion in the United States. But America isn’t the only country vulnerable to these kinds of trends. In fact, evidence from recent years has suggested that these trends are at play in several emerging markets, particularly those in Asia, where incomes are rising with steady economic growth.

Wealth among the wealthiest residents of Asia has increased in recent years. In particular, as the effects of the Great Recession ebbed, the economic recovery came much faster to high net worth individuals in Asia. In recent years, more people in Asia have become millionaires. For example, according to RBC Wealth Management and Capgemini, in 2011, the number of people in Asia-Pacific with assets between $1 and $5 million rose from 1.9 to 3.08 percent, while their total wealth increased 1.5 percent. In fact, in recent years, the countries with the largest increases in populations of ultra high net worth individuals have been emerging markets, including India and China.

There are now 18,000 centa-millionaires, that is, those who have more than $100 million in assets, in Southeast Asia, China and Japan. This is more than both the number of centa-millionaires in North America (17,000) and Western Europe (14,000).

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News
Jul
26

Taxcast Episode 19: July 2013

Taxcast by Tax Justice Network

In the July 2013 Taxcast: We analyse the OECD’s Action Plan it says is going to tackle corporate tax avoidance. And who needs the OECD, the G8 or the G20 anyway? The Taxcast looks at working models governments could implement NOW without any more summits: Japan introduced it’s Tax Haven Counter Measure Law in the 1970s and Mexico has a tax haven black list and the Dictamen Fiscal rule to help it hold multinational corporations to account.

Want to download to listen to any time offline? 

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Jul
25

Looking Forward: Poverty in 2015

Ann Hollingshead

Every year the OECD Development Assistance Committee publishes a report on resource flows to fragile states. This year’s report, Fragile States: 2013 Resource flows and trends in a shifting world, provides some fascinating insights into the future of global poverty, particularly among fragile states.[1] Coupled with our understanding of illicit financial flows from developing countries, we have an interesting picture of global poverty in coming years.

In 2005 the two countries with the largest number of people living in extreme poverty (i.e. with incomes of less than 1.25 USD / day) were India and China. This fact is statistically unsurprising given that (1) those countries are both developing and (2) those countries have the largest populations in the world. But looking forward to 2015, we expect this picture to change rather radically.

Source: OECD

Source: OECD

As we see from the infographic above, from the OECD Development Assistance Committee, India will still have the second largest population of people living below the poverty line, but the reduction in the number of people in poverty is dramatic. Nigeria, perhaps surprisingly, will hold the second largest population of the world’s poorest. Nigeria is also one of the world’s largest exporters of illicit capital. According to a report on Illicit financial flows from developing countries between 2001 and 2010 by Global Financial Integrity, Nigeria lost an average of $12.9 billion in illicit financial flows, which ranks the country ninth in the world. According to the same report, between 1980 and 2009, Nigeria’s average illicit financial flows represented over 50 percent of its external debt.

According to the OECD report (and as shown in the infographic above), in terms of people living in extreme poverty, in 2015, Nigeria will be followed by the Democratic Republic of the Congo (for which we do not have data on illicit financial flows), Indonesia (averaged $10.8 billion in illicit financial flows between 2001 and 2010), Bangladesh ($1.4 billion in IFFs), Tanzania ($333 million), and Pakistan ($251 million). Of these, Pakistan and the Democratic Republic of the Congo are notable not only for their high proportions of the global poor, but also for their risk of regional and global conflict.

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News
Jul
22

G20 Finance Ministers and Central Bank Governors Communiqué Released

EJ Fagan PDF

The G20 Finance Ministers and Central Bank Governors met in Moscow this weekend, following the release of the OECD’s report on Base Erosion and Profit Shifting (BEPS). That report, along with pieces of FTC’s agenda money laundering, automatic information exchange and beneficial ownership made it into the communiqué released by the G20 representatives following their summit.

You can download the full document here. Look for sections 18-20 for FTC’s agenda.

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Press Releases
Jul
19

OECD BEPS report confirms the international tax system is failing rich and poor nations

Financial Transparency Coalition

Today the OECD identified 15 policy action points and created a two-year timeline that it hopes will restore trust and fairness in what it concedes has become a flawed and discredited international tax system.  The report, Action Plan on Base Erosion and Profit Shifting, recognises what the Financial Transparency Coalition (FTC) has known for years: That the integrity of the current global tax system has been undermined by multinational companies and their tax planners exploiting the boundaries of acceptable tax planning.

The OECD today clearly stated that multinational companies’ artificial shifting of revenues and profits to low or no tax jurisdictions harms governments, businesses and citizens throughout the world.  The FTC heartily welcomes the OECD’s specific acknowledgment that “in developing countries the lack of tax revenue leads to critical under-funding of public investment that could help promote economic growth”.

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Jul
17

The Importance of Whistleblowers to Financial Transparency

Ann Hollingshead

This week Edward Snowden, the whistleblower who leaked information about the National Security Agency’s data collection program, may be allowed to leave his temporary station at the Moscow International Airport, where he has been staying since he fled Hong Kong in June. Snowden’s leak has brought the concept of whistleblowing into sharp focus in our headlines lately, including the controversies over the relative benefits and costs of these individuals and programs that support them. As in the case of Snowden, the concept of whistleblowing can be controversial, and it is always painful for the entity or government who is having the whistle blown on it.

In many cases, whistleblowing has proven an effective tool for improving democracy and transparency—it increases information and public engagement, encourages debate, and strengthens oversight. These concepts all have particular importance to some of the issues the Financial Transparency Coalition faces. Transparency, information, engagement, and oversight are critical to each of our recommendations. As such, whistleblowers have often proved critical to fostering these values.

Here are a few of the important whistleblowers in the history of our causes, namely in tax evasion and corruption. As always, this list is representative and not exhaustive.

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Latest Press Releases

$2 lost for every $1 gained: New report shows global financial system fails developing countries

Eurodad · December 18, 2014

Developing countries are losing twice as much money as they earn because of issues like tax evasion, profits taken out by foreign ...

Eurodad and Tax Justice Network Named to List of “Global Tax 50”

Financial Transparency Coalition · December 17, 2014

WASHINGTON D.C.—The Financial Transparency Coalition congratulates two members of its Coordinating Committee who were named to the International Tax Review’s “Global ...

EU compromise tightens regulation on shell companies, but without public access, many still in the dark

Financial Transparency Coalition · December 17, 2014

BRUSSELS — In a deal reached last night, parliamentarians and campaigners have succeeded in making company ownership a fundamental topic. While EU ...