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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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Jun
10

Corruption Hunters Open Letter to G8 Leaders

Transparency International

Transparency International signed a letter with prominent prosecutors and corruption hunters addressing G8 leaders on the urgency to curb money laundering.

Dear G8 leaders,

As a group of individuals who have worked to expose and fight corruption, we have witnessed firsthand the detrimental effects of state looting by unscrupulous politicians and officials. It hinders development in some of the poorest countries in the world by depriving governments of revenues desperately needed to combat poverty.

Grand corruption would not be possible without the help of the global financial system – in particular, banks that accept corrupt assets and secrecy rules that allow money launderers to disguise their activity.

We welcome the strong statements from Prime Minister Cameron that at the upcoming summit in Northern Ireland, G8 leaders will discuss how they can tackle this problem.

We believe that two things are necessary.

Firstly, G8 countries must commit to take action to prevent anonymous companies from being used to hide criminal activity. Corrupt politicians, tax evaders, and organised criminals all use complex webs of shell companies to hide and launder stolen money. We believe that part of the solution is for governments to require existing company registers to collect information on the ultimate owners of all companies. To have the most impact, this information should be in the public domain.

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News
Jun
10

New York Times: Obama Urged to Back Plan to List Owners of Shell Firms

EJ Fagan

The Obama Administration was an early backer of beneficial ownership legislation, which would collect information on the true owners of companies, and make that information available to law enforcement. However, since then, UK Prime Minister David Cameron has begun advocating for more thorough disclosure at the G8 level, including both law enforcement and the public at large.

Today, the New York Times quotes Global Witness’s Stefanie Ostfeld, who is among those anti-corruption advocates urging President Obama to back public registries. She says, “Corrupt politicians, tax evaders, and organized criminals all use complex webs of shell companies to hide and launder stolen money, governments to require existing company registers to collect information on the ultimate owners of all companies.”

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Jun
6

The Global Shell Game

Joseph Kraus, Ph.D.

Originally published at Trust Law.

A shell game is a well-known parlor game in which players try to follow the movement of a ball placed under one of three quickly shuffled shells or cups and then try to correctly guess the shell that covers the ball once they are brought to rest.

When the operator of the game is especially skilled, correctly tracking the ball can prove quite difficult. If a skilled and dishonest operator uses sleight of hand to covertly move the ball to one of the shells not identified by a player, the game becomes impossible to win, a veritable “confidence trick used to perpetrate fraud.”

The use of anonymous shell companies, or “phantom firms”, can be similar to a parlor shell game. Both rely on operators adept at creating misdirection and keeping observers uninformed. Both can be used for legitimate purposes, but in the wrong hands can be used for nefarious purposes.

Phantom firms make it easy for corrupt government officials, drug traffickers, fraudsters, terrorists, and others to secretly and illicitly move money around the globe with virtually no oversight or repercussions.

In much of the world, the actual owners of anonymous shell companies are not legally required to disclose their identities. Instead, they can remain anonymous by listing the name of a stand-in (or “nominee”) director – or even another (often anonymous!) company – as the owner. This enables individuals and companies to shift money around the globe secretly and anonymously, making it nearly impossible for law enforcement and ordinary citizens to follow the money.

Phantom firms have become the world’s most complicated – and common – shell game, one that is played on a global scale with significant gains and losses. Phantom firms played a role in the loss of $859 billion from developing countries in 2010 in the form of illicit financial flows.

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News
Jun
6

Catholic Bishops Urge G8 Leaders to Fight Poverty, Tax Evasion with Transparency

EJ Fagan

The US Conference of Catholic Bishops submitted a letter to the G8 Heads of State on Tuesday, urging them to fight poverty by addressing tax evasion and financial transparency. It reads, “The G8’s emphasis on transparency is critical. Human dignity demands truth, and democracy requires transparency. With more and better information, civil societies, including faith-based organizations, can hold their governments accountable and help insure that resources reduce poverty and improve the health of the whole society.”

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Jun
4

Is Kenya Being Shaped Into Africa’s Flagship Tax Haven?

Gathoni Blessol and Mark Kirk

If anyone ever doubted the sheer scale of corporate greed, they had the unedifying spectacle of Tim Cook, CEO of Apple, to enlighten them last week. In already infamous evidence to a Senate Committee, he demonstrated there is no limit on what corporations will take from society. With the detachment of a sociopath, Cook said outright that he would not consider repatriating the $100bn they have hoarded offshore if it meant paying standard US corporation tax.

There is an argument to be made that this is just businesses doing what businesses do. However full of moral holes that is, it is a very common logic and unfortunately a compelling one to many politicians. This is why, if the tax-avoiding instincts of companies such as Apple – and Glencore and Google and Starbucks, in fact most large multinationals – is to be neutralised, the only thing to do is tackle the system of tax havens that makes every individual act of looting possible.

The imperative is overwhelming. Tax havens exist for one purpose only: to provide a way for the rich to get around the taxes that pay for the infrastructure and services we all – and they all – rely on. They have become, over the past 30 years, a key driver of vast inequality around the world. The system has grown so big that it is now an arterial drain on public budgets everywhere. According to James Henry, a former chief economist of management consultant giant McKinsey, somewhere between $21 and $32 trillion has been siphoned off from the mainstream economy.

The global tax haven system is a network with many parts, and the more parts, the more extensive and powerful the network. Thirty years ago there were a handful of relatively small tax havens, serving a small elite. Today, there are more than 80, and they are a parasite on the mainstream, public economy.

Finding a new tax haven

There is now mounting evidence that elite financial interests are planning to create a new tax haven – to add another node to the global spider web. This time it is on the African continent. If successful, this hub will be a key mechanism to extract wealth from some of the world’s poorest countries.

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Jun
4

Towards Transparency: Making the Global Financial System Work for Development

Financial Transparency Coalition

Please Join The Financial Transparency Coalition and Policy Forum
for:

TOWARDS TRANSPARENCY: Making the Global Financial System Work for Development
October 1-2 | White Sands Hotel | Jangwani Beach, Dar es Salaam, Tanzania

You are invited to the 2013 annual conference of the Financial Transparency Coalition, which will take place at the White Sands Hotel in Dar es Salaam, Tanzania on October 1-2.  Details about the conference and the agenda are available on the conference website.  To register for the event, please click here.

Please submit any questions to the conference team via email to: conference@financialtansparency.org.

Download a PDF copy of the agenda here.

We regret to inform you that the FTC is unable to provide funding for travel, accommodation, or per diems for the conference at this time.  We apologize for any inconvenience this may cause.

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News
May
31

NYT and FT Editorial Boards Call for Country-by-Country Reporting

EJ Fagan

Two great editorials today. The first, from the New York Times, responds to last week’s Senate hearing over Apple’s tax abuses by calling for country-by-country reporting, a Coalition policy goal, and ending corporate tax deferral in the United States. This is great news, and will hopefully help persuade U.S. policy measures to address the worst problems in their corporate tax code.

The second, from the Financial Times, also calls for country-by-country reporting at the EU level. Furthermore, it calls for another Coalition policy goal, automatic exchange of tax information.

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Financial Transparency Coalition · November 16, 2014

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Financial Transparency Coalition · November 6, 2014

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