Learn About Illicit Financial Flows
Key Terms



Fuzzy Math and Magic Math on Taxes at the Presidential Debate

Ann Hollingshead

We heard a lot about taxes in the first presidential debate last night. In fact, it largely dominated the first forty-five minutes in what amounted to a ridiculously-long-back-and-forth-that-silent-Jim-Lehrer-couldn’t-seem-to-interrupt. But that’s not a bad thing. It’s an important issue. It’s a defining issue. And it’s one that says a lot about the candidates, their values…and their grip on reality.

Before we talk about the debate, though, let’s start with some politics and some economics. Last week, when former California Governor Arnold Schwarzenegger went on the Daily Show, Jon Stewart pointed out that his state is an interesting example of the effect democracy has on deficits. Essentially, everyone wants this government service or that government service, but doesn’t want to pay for any of them. As Stewart puts it: “it’s the perfect symbol for the problem we have in this country between getting the services we want while convincing people they do have to pay for them.”

In California, the people get to vote directly on both services and taxes, but on a federal level we vote on those issues indirectly, by voting for a candidate.

For that reason, it is incredibly unpopular in America for politicians to advocate raising taxes (unless they are someone else’s taxes) or cutting services (unless they are somebody else’s services). The problem is, given that it’s also become popular to advocate cutting the federal government’s budget deficit, the three cannot exist simultaneously. That is, in the most simple mathematical terms, in order to cut the deficit, you either need to raise taxes or cut services, or both. Let’s call that Fiscal Policy 101.

Continue Reading »


Sophisticated Crime Groups Need Sophisticated Financing – Illegal Logging Edition

EJ Fagan

A new UN report finds that illegal logging is on the rise in part due to increased levels of organized criminal activity around logging. Brad Plumer of Wonkblog writes,

The phrase “organized crime” typically conjures up images of drug trafficking or stolen-car rings. But it turns out that the illegal logging trade is just as lucrative — and far more destructive. Between 50 to 90 percent of forestry in tropical areas is now controlled by criminal groups, according to a new report (pdf) from the United Nations and Interpol.

Across the globe, deforestation is a major contributor to climate change, responsible for one-fifth of humanity’s emissions. Farming and logging both play big roles. What makes this area so difficult to regulate, however, is that a great deal of logging simply takes place illegally — much of it in tropical areas such as the Amazon Basin, Central Africa, and Southeast Asia. The U.N. estimates that illicit logging is now worth between $30 billion to $100 billion, or up to 30 percent of the global wood trade.

Plumer touches on this, but I think its important to think about how these types of organized crime activities are enabled. Sophisticated transnational organized crime cannot exist without ready access to sophistical transnational money laundering. If you increase the difficulty, risk, and availability of the money laundering, you increase the cost of doing business for organized criminals seeking to profit off of illegal logging, and therefore decrease the amount of timber being cut down in the world. Like many other problems caused by the opaque, often anonymous flow of money around the world, this one represents some low-hanging fruit for activists trying to reduce deforestation.

Of course, we’re not confronting organized crime with any serious degree of difficulty to launder their money. The recent Senate investigation of HSBC found that the bank was widely involved in all sorts of activity either directly or indirectly connected to drug cartels and terrorist groups. The Senate report was clear that their investigation of HSBC was a case study, and many other banks were likely to be violating anti-money laundering (AML) laws in the exact same way.

Continue Reading »


Mystery shopping exercise shows how easy it is to set up anonymous companies in the U.S. and UK

Rosie Sharpe

flickr / Voxphoto

You’re a criminal and you’ve got loads of cash.  You really want that mansion in London. But how are you going to get it?  You need a company service provider to set up an anonymous shell company to disguise who’s behind the money and a bank willing to do business with your shell.

But how simple is this process given international law, and in virtually every country[*], national law too, insists companies should not be anonymous?

A new study out last week shows it is disturbingly easy for criminals to hide their identity behind companies.  Academics Michael Findlay, Daniel Nielson and Jason Sharman proved this in their revealing study which tested the effectiveness of this key area of law in the fight against dirty money.

Posing as consultants, they asked more than 3,700 company service providers in 182 countries to each set up a shell company for them.  Then they recorded how many of them abided by the law by recording who owned and controlled that company. 

Continue Reading »


Redistribution Is a 14-Letter Word, But It Shouldn’t Be

Ann Hollingshead

Redistribution is a dirty word. It’s become something of a catch phrase for the Tea Party and Libertarians. In 2008 the McCain campaign sought to unfavorably label Obama a “redistributor” in speeches and attack ads. But perhaps this is not a recent development. Libertarians point out that many of our early presidents were also suspicious of redistributionist policies. President Grover Cleveland, for example, vetoed a bill in 1887 that would have given $10,000 in aid to Texas farmers struggling with a drought. He rationalized that he did not believe it is the duty of the government to relieve “individual suffering which is in no manner properly related to the public service or benefit.”

Most recently, it’s come up in the presidential campaign. To take some heat off of their candidate’s own “47 percent” comments, the Romney campaign last week circulated a video of Barack Obama from 1998 in which he seems to favor “redistribution” of wealth. In the clip—which is abruptly truncated so harshly out of context—then State Senator Obama says: “I actually believe in redistribution, at least at a certain level, to make sure that everybody’s got a shot.”

In a campaign speech, Romney attacked the statement, saying: “He really believes in what I’ll call a government-centered society. I know there are some who believe that if you simply take from some and give to others, then we’ll all be better off. It’s known as redistribution.”

Romney’s characterization of the quote is a bit misleading. Obama does go on to explain that he is interested in pooling resources while decentralizing delivery systems in order to foster competition and innovation at the local level. But the campaign’s—albeit misleading—use of this buzz word is the perfect example of just how toxic the word has become.

Continue Reading »


Extractive Industries Transparency and the Resource Curse

Arya Andersen

flickr / World Economic Forum

The resource curse has long been a problem for Africa. The continent’s economies have remained stagnant and hollow for nearly 60 years while a succession of autocrats and their clients have become fabulously wealthy. With huge natural gas discoveries off of the Mozambican coast, vast newfound oil reserves in the Great Lakes region and more than $1 trillion worth of minerals in the Democratic Republic of Congo, there is vast potential for another wasted generation.

Equatorial Guinea, with an overabundance of lumber and petroleum, has one of the highest per capita GDP in Africa, yet more than 60 percent of the population struggles to survive on less than $1 a day. It is a similar story in Angola, a country that has become one of the United States’ largest source of oil imports but still struggles to feed its people. American and European extractive industries have done business for decades across Africa without having to report their payments to governments, a loophole that has allowed for the siphoning of funds to flourish. New developments in the U.S. regulatory mechanism should begin to change that.

On August 22nd, financial regulators ruled to implement Section 1504 of the Dodd-Frank Act, better known as the Cardin-Lugar Amendment. The amendment requires extractive companies to publish in an annual document for the Securities and Exchange Commission the payments they make to foreign governments in the countries where they operate. Almost instantly, the opacity in reporting that has allowed corrupt autocrats to drain their states’ resources has vanished. Beginning in 2013, extractive industries will publish all of their 2012 payments to governments worldwide.

Continue Reading »


The 2012 Annual Task Force Conference Has Been Cancelled

Raymond Baker

Due to current tensions in Tunis and elsewhere in the Middle East and North Africa, the 2012 Annual Conference of the Task Force on Financial Integrity and Economic Development has been cancelled.

This decision was not made lightly. The US State Department has issued a travel warning for Tunisia, it has evacuated family members and nonessential staff, and the US Embassy in Tunis remains closed following the September 14 protests. We also consulted with a number of local and area experts.

We are deeply indebted to our Tunisian partners, who have spent many months working with us to create what we believe would have been an excellent conference on a very important issue. To the extent that the current political situation permits, we plan to continue working together to help Tunisia, and other countries of the region, continue their “transition to transparency”.

We are also indebted to the numerous experts who were planning to attend the conference–either in person or via live-stream. We regret any inconveniences created by the cancellation of this conference.

We look forward to working with you in the future. Please feel free to email us with any questions, or continue to follow our blog for future updates.

Continue Reading »


The European Parliament votes for minimum tax rates on royalties and makes it harder for business to dodge taxes

Francesca Giubilo

flickr / Images_of_Money

On September 11th the European Parliament voted in favour of introducing a minimum tax rate on interests and royalty income. This is a crucial step in the fight against tax dodging by multinational companies. Royalties and interest payments made between subsidiaries of the same company are two of the main instruments used by multinational companies to evade taxes, at the moment this is far too easy. The process works like this:

  1. A multinational company creates a shell company in a tax haven, where taxation is low or non-existent.
  2. The company transfers the ownership of a license or copyright or trademark to the shell company.
  3. The shell or empty company charges royalties to other companies owned by the group for using the license, trademark or copyright.
  4. Since it is very difficult to assess the value of a trademark, license or other intangible assets, the shell company can charge as much as it wants, thereby reducing profits (an lowering taxation) in the countries where the group operates and shifting them to a tax haven where they are untaxed.

Interest can be sued in a similar way when the company in the tax haven is created as a financing arm. It can extend loans to companies in the group and use interest rates, which are usually deductible in most countries, to shift income to the tax haven where they will be subject to low or no taxation. This is known as thin capitalisation

Both are common practices used by multinational companies. Some examples include a US pharmaceutical company, the brewer SAB Miller and Exxon.

Continue Reading »


100 Reporters Kleptocrat Watch Photo Contest

EJ Fagan

100 Reporters, the cutting edge non-profit group of journalists focused on exposing corruption, is sponsoring a photography contest. Two years after Teodorin Obiang and the rest of the corrupt Equatorial Guinea regime were exposed for lavish spending in the United States, 100 Reporters is asking contestants for images of corruption in New York City, as world leaders gather at the United Nations.

Although many businesses in New York are happy for the jolt to the local economy that the visiting dignitaries bring, they may not realize that the diplomatic lush life comes at a cost. Hotel managers have described officials arriving for the week with briefcases laden with cash.

Over the last year, law enforcement agencies around the world have begun to investigate excessive spending by foreign government officials and, in extreme cases, moved to seize ill-gotten gains. French prosecutors and the U.S. Justice Department are going after the assets of Teodorin Obiang, the playboy son of Equatorial Guinea’s president. Obiang fils somehow amassed a fleet of super-expensive cars that include two Bugatti Veyrons, a Maserati, a Porsche and two Ferraris Bugattis, a $30 million mansion in Malibu and a $180 million mansion on Paris’s super-chic Avenue Foch. His official government salary? Less than $100,000.

“Even if you’ve never known poverty, you know honest public servants usually can’t spend like millionaires,” said Schemo. “So if you see them splurging at five-star hotels or heading to their limos with shopping bags in tow, take their pictures and win a prize. We’ll do the rest.”

Continue Reading »


Waging War on Corruption

EJ Fagan

A Panel Discussion on the Links between Illicit Financial Flows and Global Security


Frank Vogl

And a Panel of Experts

At the first official launch event for the anti-corruption activist and Transparency International co-founder’s brand-new book:

Waging War on Corruption:  Inside the Movement Fighting the Abuse of Power

Date:               Thursday, October 4th, 2012, 10:30am – 12:00pm

Location:    Carnegie Endowment for International Peace
                          Choate Room
                           1779 Massachusetts Ave. NW
                           Washington, DC 20036

RSVP:             Send RSVPs to Patrick Benson at pbenson@gfintegrity.org

From the birth of pioneering anti-corruption organization Transparency International in 1993, to the Arab Spring in 2011, this is the story of people who risk their lives (and the many who support them) to combat government-business conspiracies to secure justice, accountability, transparency and integrity. It is the story of an African child denied an education because her parents cannot bribe a school teacher, and of hundreds of thousands of Egyptians who overcame their fears, encouraged by Twitter and Facebook, to demand an end to government abuse.

This is an insider’s account of the battles, the fighters, the villains and their victims. Now, as never before, from vast public rallies in India to “Occupy Wall Street” demonstrations, the fight against corruption is moving ahead. Major policy questions must still be resolved in the White House and far beyond – at stake is nothing less than our global security, the reduction of poverty, the stability of our economic and financial systems, and the cause of freedom and democracy.

Additional Resources

Continue Reading »


No, We Shouldn’t Let Up On Anti-Money Laundering Enforcement

EJ Fagan

flikr / Will Survive

Over the past six months, various arms of the law in the United States have significantly increased their anti-money laundering enforcement actions. The centerpiece of these actions have been fines to ING, Standard Chartered, and an anticipated forthcoming action against HSBC. Other banks, and even Wal-Mart, could be targeted in the near future as well.

The banks were cited or accused of a number of blatant violations of the law, but one common strain ran through all three. All three banks were allegedly ‘stripping’ wire transactions that were related to Iran. Banks that do business in U.S. dollar accounts are required to conduct certain kinds of due diligence on those accounts, if they are linked to certain types of high-risk customers. Embedded in each wire transaction is information about the owner of the account. All three banks allegedly stripped wire transactions from Iranian clients of their information, so as not to set off any alarm bells about who their customers were.

Now, you or I may think that this kind of intentional circumvention of anti-money laundering laws and U.S. government sanctions against a rogue state would warrant action of at least a fine—if not jail time for those involved—but not everyone agrees. James Alan Jones, from Pace University, wrote this week in The Hill,

Continue Reading »


Russia’s Tustle with USAID

Ann Hollingshead


Since the 1999 Duma election, which was widely considered free and fair, Russia has descended from a “Partly Free” society, according to Freedom House’s Freedom in the World Rankings, to “Not Free” this year. In the last six years, Russia has passed a law giving bureaucrats discretion to shut down NGOs; an assassin murdered Anna Politkovskaya, an investigative journalist who was critical of the Kremlin, in cold blood; and the government heavily manipulated the parliamentary elections to give a majority to pro-government parties.

Corruption has been an endemic part of Russia’s public and private sectors for decades. Global Financial Integrity estimates that the country loses about $50 billion in illicit financial flows per year, a number which money transferred abroad stemming from tax evasion, corruption, and trade mispricing. According to WikiLeaks, extortion is so widespread that it has “become the business of the Interior Ministry and the federal intelligence service.”  The government has transformed into an organization more closely resembling “the mafia” and the line separating government from business is so blurred it is nearly non-existent.

It was shortly after taking office in March of 2000, that Russian President Valdimir Putin—who took over office when Yeltsin resigned—began to investigate the tax affairs of Russia’s oligarchs—a class of rich businessmen whose deeply-entrenched wealth was rooted in the privatization of Russia in 1990s. Putin claimed his effort was a part of a new anticorruption campaign. In reality, Putin’s moves were an attempt to consolidate his own political power by limiting the influence of the oligarchs over state policy.

Continue Reading »


Dictators’ Riches Are Stolen at Home, But Banked in the West

Stefanie Ostfeld

Cross-posted with permission from Freedom House.

flickr / Mitchel25J

Corrupt dictators who take bribes and loot their treasuries are rightly condemned by governments and other observers in developed countries. But the extent to which this plundering is aided by lax and weakly enforced money laundering laws in the West has too often escaped notice. It is remarkably easy for these criminals to hide their identities behind anonymous shell companies and bank secrecy in order to bring their dirty money into the United States and Europe.

Right now the U.S. Department of Justice is trying to seize proceeds from what may be one of the most egregious cases of state looting. A recent complaint details claims that Teodorin Obiang, son of the autocratic president of Equatorial Guinea, used anonymous shell companies in the United States and his home country to disguise his identity and deposit illicit money into U.S. bank accounts. It was then apparently spent on expensive property, a fleet of fast cars, and a crystal-studded glove worn by Michael Jackson.

The complaint alleges that Obiang spent more than $300 million between 2004 and 2011 to acquire assets and property around the world. In one stretch of less than three months, he allegedly bought a $30 million mansion in Malibu and a $38 million private jet. Global Witness separately uncovered a plan last year for Obiang to build the world’s second most expensive yacht. At $380 million, this would have cost approximately three times his country’s combined health and education budgets.

Obiang’s eccentric and expensive tastes aside, the real problem with his lavish spending is that it significantly exceeded his official monthly salary of $6,799 and the amount of income he claims to have earned from his business interests in Equatorial Guinea.

Continue Reading »

Pg 31 of 178 First...1020...30313233...4050...Last
Latest Press Releases

OECD Common Reporting Standard Not Crafted with Developing Countries in Mind

Financial Transparency Coalition · July 22, 2014

On Monday, the Organization for Economic Cooperation and Development (OECD) released detailed guidelines on the common reporting standard for automatic exchange of ...

GFI Assails Disheartening U.S.-BNP Paribas Settlement

Global Financial Integrity · July 1, 2014

WASHINGTON, DC – Global Financial Integrity (GFI) expressed skepticism today that the settlement reached between ...

G8 Has Yet to Live Up To Its Promises on Tax and Transparency

Financial Transparency Coalition · June 18, 2014

G8 countries have yet to live up to the important commitments they made on tax and transparency at their Northern Ireland summit ...