Cross posted from the Treasure Islands blog:
“State and federal authorities decided against indicting HSBC in a money-laundering case over concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system.
Instead, HSBC announced on Tuesday that it had agreed to a record $1.92 billion settlement with authorities. The bank, which is based in Britain, faces accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.”
The Times story spells it out:
“The case raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict.”
Stop for a moment to ponder the implications of that. The criminalisation of finance, via too-big-to-fail. More from Global Witness:
Regulators should hold senior bankers legally responsible for their banks’ money laundering performance. . . . in the most serious cases, senior bankers should face jail.
Is it inevitable that multinational companies pay pitifully small sums in tax relative to huge profits? Not necessarily because amid growing political and public outrage at how multinationals organise their tax affairs, a new report today suggests there could be an alternative.
Towards Unitary Taxation of Transnational Corporations by Sol Picciotto, emeritus professor at Lancaster University, presents a blueprint for a complete overhaul of international corporate tax rules.
Today multinationals are able to avoid tax because global protocols, known as the Arm’s Length Principle (ALP), treat their extensive networks of subsidiaries as separate businesses. Under ALP, businesses can structure their operations using low tax jurisdictions to help reduce their tax exposure.
It is why, ‘consumer-facing’ companies like Amazon, according to Picciotto, classes its UK consumer operation as a logistics centre fulfilling orders that is supplied by a related, but legally separate Luxembourg ‘sales’ company.
This thought-provoking documentary from Exposure looks at the British Bribery Act and overseas bribery by British companies. In particular, it focuses on extractive industry companies in Nigeria. The documentary quotes Task Force member Global Witness’s Simon Taylor, and highlights the push for a Dodd-Frank 1504-style transparency law for European companies. The video below:
Cross posted from Transparency International’s Space for Transparency blog.
Europe’s rankings in the Corruption Perceptions Index 2012 are as diverse as the region itself.
Clearly the perceived level of corruption in Greece (94th, the lowest EU state) is entirely different from that of Denmark and Finland, tied with New Zealand in first place. However, the old adage that corruption only occurs in the countries of the South, rings rather hollow.
With a score of 36, Greece ranks 94, together with Colombia, Benin, Djibouti, India, Mongolia and Senegal. Citizens of Italy (72nd), too, presumably will have pause for thought: sharing this rank with Bosnia and Herzegovina and Sao Tome and Principe, just before Bulgaria. In fact, Greece, Italy, Spain and Portugal, at the centre of the Euro crisis, were the four worst ranked countries in Western European countries in this year’s index.
The roots of crisis lie in varying factors from country to country, there is undeniably a link between corruption and the financial crisis, as the protestors on the streets of Athens, Rome, Lisbon and Madrid have been quick to point out.
Consider the recent story of the brave Greek journalist Kostas Vaxevanis arrested and tried for publishing a list of more than two thousand wealthy Greeks with Swiss bank accounts. The list had been lying unread on government desks for several years.
Last week I wrote about a post, inspired by TIME Magazine’s Person of the Year, about who I would pick for a “Transparency Person of the Year.” Keeping with TIME’s definition, this would be someone who influenced the news, for better or worse, on issues related to financial transparency. I got so many great suggestions for additions to the list that I’m following up this week. Without further ado, here’s some (additional) picks:
SHELDON ADELSON The billionaire casino mogul has dominated headlines this year. He made TIME Magazine’s nominations for “what critics cast as trying to buy the election,” through liberal use of Super PACs. But I’d include him here for a different reason. An investigation this year revealed that Adelson (or at least his executives) may have violated the Foreign Corrupt Practices Act in their casino business in Macau. According to a former executive Adelson’s Las Vegas Sands casino may have had illegal dealings with a public official, as well as a tie to an organized crime figure. The whistleblowing—and the controversy—got the FCPA back into the spotlight at a watershed moment for the legislation. (H/T Clark Gascoigne and EJ Fagan, of Global Financial Integrity and the Task Force, respectively)
GARY GENSLER The Chairman of the Commodities Future Trading Commission has fought long and hard to bring transparency to the derivatives industry, a $650 trillion market made up of financial instruments whose misuse significantly contributed to the 2008 financial crisis. By the end of this year, in large part as a result of Gensler’s work, the industry will report transactions of these instruments in real-time and certain derivatives will report their transactions to Swap Data repositories. (H/T Cate Long, Riski.us)
Cross-posted from Transparency International’s Space for Transparency blog. This post is an updated version of a similar Transparency International blog post from one year ago.
Drawing on Transparency International’s Plain Language Guide, this post defines and de-mystifies some of the words and phrases most often associated with this kind of corruption. So if you’re confused by anything that you’ve seen on our website or in our faqs, read on.
First of all, let’s look at corruption itself. We use this word all the time, but what do we actually mean by it? Transparency International defines corruption broadly as the abuse of entrusted power for private gain. This can happen anywhere, and can be classified as grand or petty, depending on the amounts of money lost and the sector where it occurs.
Definition: acts committed at a high level of government that distort policies or the central functioning of the state, enabling leaders to benefit at the expense of the public good.
Example: In 1996, two former South Korean presidents, Roh Tae-woo and Chun Doo-hwan, were found guilty in a corruption case linking them to the chaebols (large family-owned businesses with strong political ties), which had paid off top political leaders in exchange for unfair business advantages.
Task Force member Transparency International today released the 2012 Corruption Perceptions Index. Their study found the least corrupt country to be Denmark, and the most corrupt to be Somalia. From their press release:
“BERLIN – A growing outcry over corrupt governments forced several leaders from office last year, but as the dust has cleared it has become apparent that the levels of bribery, abuse of power and secret dealings are still very high in many countries. Transparency International’s Corruption Perceptions Index 2012 shows corruption continues to ravage societies around the world.
Two thirds of the 176 countries ranked in the 2012 index score below 50, on a scale from 0 (perceived to be highly corrupt) to 100 (perceived to be very clean), showing that public institutions need to be more transparent, and powerful officials more accountable.”
There is loads and loads of great analysis to be had on the individual countries of the index, and you can be sure that we’ll have plenty of that here on the Task Force Blog, as well as Transparency International’s Space for Transparency blog. For now, here is a fantastic video introducing the Corruption Perceptions Index:
The International Corporate Accountability Roundtable (ICAR) has a new report out that looks at customer due diligence rules. Banks are currently required to perform certain kinds of customer due diligence to check for several different categories of things, including corruption risk. The report analyzes the status quo regarding customer due diligence rules, and begins to address whether or not a rules addressing similar processes for human rights concerns would be feasible.
You can view it below.
Cross-posted from Transparency International’s Space for Transparency blog.
The recent independent report on Kabul Bank scandal points out to the urgency to transform the country’s laws and institutions, from the financial sector to the justice system. The team that published the report are to be congratulated for shedding light on a “ponzi scheme” scandal that involves the theft of US$900 million.
Last month, Transparency International’s chair Huguette Labelle reminded us that:
Countries at the bottom of our corruption indices remain largely failed states with repression of human rights, social chaos and continued poverty.”
Afghanistan is one such country. Sufficient evidence suggests that corruption in Afghanistan is getting rampant. According to President Karzai himself, the phenomenon is now at a level “never before seen”.
The United Nations Development Programme (UNDP),has a budget of roughly $5 billion, and operates about 6,000 foreign aid projects throughout the world. This year, UNDP decided that it wanted to be more transparent in reporting what it does to the world. It got a $225,000 grant (Hat tip: Corruption Currents) to create a cool new web app:
And that’s not all. The customizable embed (available at open.undp.org) allows you to embed any combination of statistics, graphs, charts, and this map to share online. Want to know what share of UNDP’s budget gets spent on Afghanistan? That gets donated by the government of Denmark? That goes to supporting poverty reduction? Its all simple, easy, and shareable. If you believe that UNDP is misappropriating its budget, the tools are available for you to act.
This demonstrates a larger point: transparency gives you a great bang for your buck. Any multinational company could recreate this system without any difficulty and post their sales, profits, number of employees and taxes paid–country-by-country reporting, which the Task Force advocates for–online, for everyone to see. This would allow tax authorities, citizens, and investors to see exactly where companies are saying their revenues and costs are, and discourage gaming the system.
Cross-posted from Transparency International’s Space for Transparency blog
Integrity, trust and culture can seem like the most intangible and abstract of concepts in a hard-edged business environment – until they disappear. As the finance industry has discovered in recent years, failing to tend to a culture of integrity can cost you dearly. There are the record fines of course – such as those meted out to Goldman Sachs, Barclays and UBS – and they have grabbed most of the headlines. But there is also the incalculable reputational damage, which in the longer term can have a very tangible impact in terms of lost customers, investment and contracts.
Sigmund Warburg understood this very well. A refugee from Nazi Germany, he arrived in London in the 1930s and made a career in what was then known as “merchant banking” (i.e. investment banking), becoming a dominant figure in the City in the post-war years. Warburg was a consistent advocate of “relationship banking”, a view of banking that emphasised the ethical framework that networks of capital needed to do their business properly. As he himself put it:
“The reputation of a banking firm for integrity, generosity and thorough service is its most important asset, more important than any financial item. Moreover, the reputation of a firm is like a very delicate living organism which can be easily damaged and which has to be taken care of incessantly, mainly being a matter of human behaviour and standards.”
How far financial firms have fallen short of these standards can be seen in the spate of recent money-laundering and index-rigging scandals. The trial of former UBS trader Kwaku Adeboli is also instructive. Despite attempts to portray the relatively junior employee as an isolated “rogue trader”, both the firm and its supervisors recognised a more pervasive problem. UBS has fired or suspended more than a dozen staff since the scandal first emerged. It has clawed back pay awards and reduced the bonus pool for the investment bank by three-fifths. On Monday, it received a STG 30 Million fine from the UK Financial Services Authority (one of the highest ever) for “significant control breakdowns” and the case itself has exposed numerous failures of management as well as a “more aggressive” attitude to pursuing revenue.
This week TIME Magazine opened polling to their readers to weigh in on their nominations for Person of the Year. Generally, I think their picks are pretty good, although sometimes their nominations are a little off the mark (Roger Goodell, really?). Anyway, the nominations got me to thinking what a Transparency Person of the Year would look like. Keeping with TIME’s definition, this would be someone who influenced the news, for better or worse, on issues related to financial transparency. Here are my picks.
CARL LEVIN. I’m going to go with the most obvious one first. If I did this list every year, the Senator from Michigan’s name would probably appear every time. Over his tenure in the U.S. Senate, Senator Levin has proved himself a formidable adversary for those powerful interests who seek to take advantage of weakness in our economic and financial system at the expense of ordinary Americans. Senator Levin has sponsored three key pieces of legislation that would promote transparency: the Stop Tax Haven Abuse Act; the Incorporation Transparency and Law Enforcement Act; and the Equal Access to Tax Planning Act. He’s continued to fight for this legislation this year.
NGOZI OKONJO-IWEALA. The globally renowned economist, Nigeria’s finance minister, and one of three candidates in this year’s race for President of the World Bank has long been an advocate of improving the financial systems to reduce illicit financial flows. At the Center for Global Development / Washington Post forum in April she again encouraged the International Monetary Fund and the World Bank to take up the issue of illicit financial flows. As Finance Minister in Nigeria, she’s helped the country get proactive about these issues, fostering greater fiscal transparency to combat corruption.
February 20, 2014·
Joint NGO media reaction Financial Transparency Coalition – Eurodad - Global Witness - Oxfam A cross political party agreement in the European Parliament ...
December 5, 2013·
The FACT (Financial Accountability and Corporate Transparency) Coalition today praised Representative Lloyd Doggett (D-TX) and Representative Rosa DeLauro (D-CT) for the introduction ...
December 3, 2013·
Transparency International’s Corruption Perceptions Index 2013 offers a warning that the abuse of power, secret dealings and bribery continue to ravage societies ...