This Op-Ed originally appeared on the EU Observer’s website.
BRUSSELS – Money launderers, corrupt politicians, tax dodgers and traffickers of all sorts rely on the same things to move their ill-gotten gains. They need legal structures that allow them to hide their identity.
This often happens through anonymous companies whose beneficial ownership is hidden. European leaders have a unique chance to curb these shell companies in the ongoing review of the European Union’s anti-money laundering rules.
To ensure cash or assets are efficiently processed, corrupt officials and politicians require professional bankers, lawyers and accountants willing to help them.
In the third season of Showtime’s drama Homeland, the CIA is working to track the finances of a terrorist group through a maze of shell corporations and offshore accounts from Iran to Venezuela.
This isn’t just a Hollywood plotline. It is, unfortunately, all too real.
Terrorists, drug traffickers, corrupt politicians, and criminals easily move money around the globe every single day. They use shell corporations, which have no assets or operations and exist simply to conduct business transactions.
Shell corporations serve no legitimate business purpose other than to hide their true owners and officers. They enable brutal dictators in Equatorial Guinea and Uzbekistan; terrorist groups, such as Hezbollah; and drug lords to hide their profits from crime and corruption.
By Diana L. Ohlbaum
Terrorists, drug traffickers, corrupt politicians and criminals easily move money around the globe every single day. They use shell corporations, which have no assets or operations and exist simply to conduct business transactions. Shell corporations serve no legitimate business purpose other than to hide their true owners and officers. They enable brutal dictators in Equatorial Guinea and Uzbekistan; terrorist groups, such as Hezbollah; and drug lords to hide their profits from crime and corruption.
The Open Society Foundations have had a long-standing commitment to ensuring that money flowing to, from, and within societies is governed in the best interests of all citizens—rather than simply the powerful.
Stefanie Ostfeld and Dietlind Lerner co-authored the below Op-Ed appearing on CNN’s website.
(CNN) — Last winter, the Chicago Crime Commission and the U.S. Drug Enforcement Administration named Mexican billionaire Guzman Loera the city’s “Public Enemy No. 1.” Also known as “Shorty,” Guzman heads the world’s largest narcotics operation, the infamous Sinaloa cartel, and allegedly pushes 1,500 to 2,000 kilograms of cocaine through Chicago each month.
The commission’s executive vice president, Arthur Bilek, said “because of the direct link between the violence of the street gangs and the narcotics business, it can be said that Guzman’s fingerprints are on the guns used in many of the shootings plaguing Chicago today.”
In less than two weeks New Yorkers will head to the polls to replace Mayor Michael Bloomberg, who has hit his term limit. In the race, Bill de Blasio, the Democratic candidate, is the clear frontrunner over Republican Joe Lhota by 64 percent to 23 percent.
To voters, the campaign has centered on the economy and jobs, public education, and affordable housing—issues which all relate to major concerns over New York’s rising income inequality. In New York City income inequality is a huge concern. In fact, according to the Census Bureau, the income gap in the City is higher than in any other metropolitan region in the United States. On this issue, many New Yorkers have expressed a preference for de Blasio, and noted that during 12 years of Republican-turned-Independent Mayor Bloomberg, the city “paid too much attention to the rich and not enough to the poor.”
Mayor Bloomberg, who is a billionaire himself, has not responded to this issue with much sympathy. ”Wouldn’t it be great if we could get all the Russian billionaires to move here?” he said recently in his weekly radio interview, “You picture this income inequality measure, but if we could get every billionaire around the world to move here, it would be a godsend.”
The UK government must use the Open Government Partnership summit in London next week to end the secrecy surrounding who really owns millions of UK companies, campaigners said today. Discussions are underway right now at the highest levels of government and campaigners are expecting a decision to be made by the end of this week.
At the G8 summit earlier this year, David Cameron promised “to push for more transparency on who owns companies”. Failure to do so would be a massive missed opportunity to stop tax evasion, money laundering and other forms of crime and corruption, and would seriously undermine UK government claims to lead the world on government openness and accountability, according to a coalition of non-governmental organisations including the Tax Justice Network and the Financial Transparency Coalition.
In the October 2013 Taxcast: Swiss villagers send some of profit shifting mining giant GlencoreXstrata’s money to humanitarian projects, tax havens do some window dressing and how many sets of accounts does a multinational corporation REALLY need to file their tax returns? The David and Goliath story of tax collection – even for the United States.
Tom Cardamone, Managing Director of Global Financial Integrity, recently published a piece in Reuters on the connections between human rights and tax evasion. He references a recent report Tax Abuses, Poverty, and Human Rights, published by the International Bar Association’s Human Rights Institute (IBAHRI) Task Force on Illicit Financial Flows, Poverty, and Human Rights. The report finds that the evasion of taxes “has considerable negative impacts on the enjoyment of human rights.”
The IBAHRI report goes beyond this connection, however. Developed nations, they write, have an “obligation to assess and address the domestic and international impacts of corporate, fiscal and tax policies on human rights.” These ideas are worth fleshing out.
Much of the IBAHRI report reflects the philosophies of Thomas Pogge, a member of IBAHRI and a chair of Tax Force on Illicit Financial Flows, Poverty, and Human Rights. Pogge’s philosophies are grounded in the philosophical principal on the two types of moral imperatives: negative duty and positive duty. Negative duty is the moral obligation not to cause harm (that is, non-interference), whereas positive duty is the moral responsibility to prevent harm (that is, assistance). For example, you have a negative duty not to push another person in front of a speeding train. You might also have a positive duty to pull an injured man out from in front of a speeding train.
Transparency International released the report, Transparency in Corporate Reporting: Assessing Emerging Market Multinationals, on October 17th. You can download the report here.
The world is changing. The United Nations Development Programme projects that by 2020, “the combined economic output of three leading developing countries alone – Brazil, China and India – will surpass the aggregate production of Canada, France, Germany, Italy, the United Kingdom and the United States.”
The growing importance of emerging markets means their impact is felt broadly around the world. Thus it is important companies from emerging markets do all they can to stop corruption from being a part of their business. As markets become global, the ethical and transparency standards of companies must become higher and more universally applied.
The Transparency International study Transparency in Corporate Reporting: Assessing Emerging Market Multinationals assesses the corporate reporting practices of 100 large multinational companies from emerging markets. These rapidly expanding companies, identified as rising stars of the world economy, come from 16 different countries.
While at an event sponsored by the Council on Foreign Relations, FTC Manager Porter McConnell asked French Finance Minister Pierre Moscovici if France would support public registries of companies in the European Union. His response: not only does France support them, but they also support several other key pieces of FTC’s agenda. Video here at 41:39:
The Democratic Republic of the Congo is widely considered one of the world’s nations with the highest levels of natural resource wealth. In particular, the nation is richly endowed with many types of mining industries—including copper, cobalt, gold, diamonds, and tin—and timber. In fact, DRC accounts for 51% of the world’s extraction of cobalt and is the world’s fourth largest producer of diamonds.
Despite this wealth, and in part because of it, the country also has experienced conflict, economic instability, and systematic corruption since its independence in 1960. These dynamics have contributed to its status as the world’s poorest nation in terms of per capita GDP. In particular, DRC suffers from an uncertain legal framework and a paucity of transparency in government. As I explained in a recent series of blog posts, nations that have vast natural resource wealth, but do not take the necessary steps to keep the extractive industries accountable, transparent, and honest, are likely to suffer from corruption and, ultimately, the resource curse. DRC’s policies and dynamics fall squarely in these criteria.
Given these existing dynamics, it is difficult to see that expanding oil production—as the government now hopes to do—will stimulate economic growth. In 2012, oil revenues contributed $325 million to DRC’s GDP, but according to Nathaniel Dyer, a campaigner for Global Witness, these revenues are expected to “rise sharply,” particularly given the DRC’s recent deal with Angola to exploit offshore fields.
African civil society organisations and a coalition of leading international development organisations have called for global policymakers to adopt measures to counter the hundreds of billions of dollars siphoned out of the continent through money laundering and industrial scale corporate tax avoidance.
The Financial Transparency Coalition’s (FTC) two-day high-level conference with Policy Forum held in Dar es Salaam last week was attended by 150 senior politicians, prominent international lawyers, academics, anti-corruption specialists and campaigners.
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 ...
November 25, 2013·
Some of the world’s most infamous secrecy jurisdictions, such as the British Virgin Islands and Jersey are considering becoming more transparent, whereas ...