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Sep
5

G20 Leaders Must Deliver on “Growth Through Trust and Transparency”

Financial Transparency Coalition

WASHINGTON, DC – As G20 leaders gather in Moscow to discuss continued global economic instability and the pressing need for increased growth, the Financial Transparency Coalition (FTC) urges them to consider recent milestones as a foundation for action.

“Moscow’s G20 focus on ‘growth through trust and transparency’ as one of three summit priorities is commendable. Without greater transparency in financial markets, the chances of a real global financial recovery – one that benefits poor and rich alike – remain slim,” said Porter McConnell, Manager of the Financial Transparency Coalition. “Corruption, tax evasion and aggressive tax avoidance do very real damage to people and communities around the globe. If G20 leaders ignore the corrosive effects of a dysfunctional financial system, they will be imperiling the global growth and stability they seek to establish,” she added.

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Sep
4

The Need for an International Framework for Regulating Digital Currency

Ann Hollingshead

Undoubtedly, the world has made progress on financial transparency to reduce illicit financial flows in recent years, and the evidence suggests we will continue to do so, at perhaps an even faster rate, in the near future. Yet as these efforts are going strong, threats to efforts to stem illicit financial flows will emerge from technological advancements in currency, most notably Bitcoin. So far, most nations have pursued a piecemeal and largely unilateral approach to regulate digital currency, but this must change. To truly deal with the threat digital currency imposes on continued illicit financial flows, we need an international framework for their oversight and regulation.

At the bilateral and multilateral levels, the world has made clear progress on financial transparency, including in automatic tax information exchange, beneficial ownership, and country by country reporting. The current policies are not sufficient to stem the tide of illicit wealth transfer, but they remain promising. Yet as the world steps up both its proactive and retroactive scrutiny of overseas transfers of wealth, criminals and corrupt politicians will have to become more creative in their approaches to wealth management in order to continue to store illicit funds abroad. With technological advancements in digital currency, there are new ways for them to do so.

There are several forms of digital currencies currently in circulation, but generally when discussing these issues I focus on Bitcoin, the digital currency with the arguably most mature markets. It is also the only truly decentralized digital currency, endowing it with some unique characteristics that make it difficult to regulate and its transactions difficult to track.

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Press Releases
Sep
3

SEC must take opportunity to re-issue a strong rule for the vital US transparency law under Dodd-Frank 1504

Global Witness

WASHINGTON DC - Global Witness joins Members of Congress and investors representing more than US$5.6 trillion in assets in calling on the US Securities and Exchange Commission (SEC) to re-issue a strong ruleunder Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act—a vital piece of bipartisan US transparency legislation.

Specifically, Section 1504 requires U.S.-listed oil, gas and mining companies to publish details of their revenue payments to governments, such as taxes, royalties and licence fees, on a country- and project-level basis so that citizens in resource-rich countries can ‘follow the money’ and ensure it is used for their benefit.

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Press Releases
Aug
30

China: The Politics of Fighting Corruption

Transparency International

BERLIN - The well-publicised trial of Bo Xilai, a former politburo member and populist politician, for corruption and abuse of power does not prove China is serious about fighting corruption. Nor does it show that no one, not even a powerful politician, is above the rule of law. This elaborately choreographed prosecution is simply an exercise in demonstrating where power lies in an authoritarian state.

In March Transparency International welcomed China’s strong commitment to fighting corruption and called on the authorities to take concrete steps to uphold best international practices for preventing and prosecuting corruption both at home and abroad. Show trials are not part of this process.

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Aug
28

A Liberty-Preserving Alternative to Mass Surveillance

Ann Hollingshead

Since Edward Snowden leaked the details of the National Security Administration’s top secret mass surveillance programs, Americans have been talking a lot about the tradeoffs between liberty and security. There are, of course, varying perspectives on the issue. Some, like Senator Ron Wyden (D-OR) argue the government’s actions in this area threatens to “give us an always expanding, omnipresent surveillance state that—hour by hour—chips needlessly away at the liberties and freedoms our Founders established for us.” Others, such as NSA head General Keith Alexander argue the program has permitted the intelligence community to “better connect the dots and learn from mistakes,” which has allowed Americans to live in “relative safety and security” over the last decade.

Whether arguing that the NSA programs are warranted or not, both sides do acknowledge that this program represents a loss of liberty for Americans. As a natural result, both sides sometimes propose liberty-preserving (or at least liberty-conserving) alternatives to such programs. For example, some argue investigators should not actively hold the data—instead leaving them in the hands of phone companies—and only take data that are part of an investigation.

When examining alternatives to mass surveillance, the national discourse does not, however, focus much on banks and bank accounts. It should. Phones are one way to track terrorists, especially with those with ties to the United States, and to reveal their networks. But money is another.

The U.S. Patriot Act did a great deal more than establish the legal basis for wiretapping and mass surveillance.[1]  It also significantly altered anti-money laundering enforcement by officials in the United States.  Among other advances, the Patriot Act sought to prevent foreign shell banks from having access to the U.S. financial system; encouraged cooperation and information sharing among law enforcement, regulators, and financial institutions; and required financial institutions to establish anti-money laundering programs.

But terrorists have adapted, too, by learning to avoid traditional banking channels for moving funds. Terrorists use cheap, informal money-transfer methods like hawala swaps and couriers. And organizations like al Qeada, which once had a much stronger centralized core group in Pakistan, has reduced profit-sharing among affiliates in order to avoid detection. Stuart Levey, the former head of the Treasury’s Office of Terrorism and Financial Intelligence, explains “Illicit actors are now savvy to the fact that the formal financial system is quite well-monitored, so they look for other ways, and it’s hard to keep up with that. It’s a bit of a cat-and-mouse game.”

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Aug
28

Case Studies in Corruption: Liberia

Mark Choi

Transparency International’s 2013 Global Corruption Barometer ranks Liberia #1 in the world. And the Liberian population, with an outstanding 96%, believes that their legislature was corrupt. Global Financial Integrity estimates that the country lost an average of US$1 billion per year to illicit financial flows from 2001-2010.

This comes despite Liberia’s President Sirleaf’s promise to “debilitate the cancer of corruption” in 2006.

Realistically, corruption will never cease to exist despite public announcements and efforts by the President and her administration. However, corruption can be mitigated, and the effort must be both top-down as well as bottom-up in both the private and public sectors.

It has been heavily documented that Liberia’s public officials have requested jobs for family members and misused government funds. However, Liberia’s weak civic engagement from Civil Society Organizations (CSOs) and inability to organize fails to stem the corruption at its earliest form–at the grassroots level. While an estimated 66% of Liberians are engaged in socially-based activities and political activism of the population is relatively high at 37.4%, grassroots organization that are meant to keep the government accountable fall prey to corruption on multiple levels.

Another issue is the lack of internal governance in many Liberian CSOs. In some organizations, Executive Directors are selecting Board members rather than opening it up to elections.

Further, a majority of CSOs and non-profits in Liberia are operating without transparency. According to a survey conducted in 2009 by the Ministry of Planning and Economic Affairs’s NGO Coordination Unit, only 28% of local organizations provided reports of their activities to the Ministry. Many of the same organizations that are essential to keep the government accountable have failed to provide a clear set of codes of conduct and provide transparent management.

While the international community continues to focus on the corruption of Liberia at its highest levels, a lack of transparency by many grassroots organizations will continue work against anti-corruption efforts in a newly formed democratic country. Government and non-state actors should work to forge a stronger CSO community.

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News
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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Latest Press Releases

Leaked HSBC Records Shed Light on Culture of Corruption in the International Banking System

Global Financial Integrity · February 9, 2015

WASHINGTON, DC – Leaked HSBC documents revealed today by the International Consortium of Investigative Journalists (ICIJ) highlight a culture of corruption in the ...

Era of Bank Secrecy Still Far From Over For Developing Countries

Christian Aid · February 6, 2015

G20 Finance Ministers meeting in Istanbul this weekend still have much to do if the claim ‘the era of bank secrecy is ...

From the Atlantic to the Pacific, Civil Society Organizations across Africa Welcome AU Focus on Illicit Financial Flows

Tax Justice Network Africa · January 29, 2015

ADDIS ABABA— As African leaders are meeting in  Addis Ababa to discuss growing threats from extremist groups, instability, and poverty, Heads of ...