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Foreign bribes in the Middle East & North Africa – Not just a regional problem

Farid Farid

 Cross-posted with permission from Transparency International’s Space for Transparency blog. On 06 September, Transparency International released its annual report on enforcement of the OECD Anti-Bribery Convention.

A six month joint investigation published this week in British papers revealed that the country’s authorities have not been proactive in seizing key assets by the former Egyptian president Hosni Mubarak and his sons Alaa and Gamal.

The wealth amassed by the thirty year regime was aided and abetted with foreign companies paying bribes to former regime officials in exchange for tax breaks and being provided with a freer economic climate to manage their enterprises.

The political events of last year throughout the Arab world were primarily underpinned by economic concerns of endemic poverty. The tumultuous protests, which are still ongoing, sublimely exposed the skewed system of economic distribution that favoured political elites rather than their populations.

Transparency International’s soon to be publishedreport Exporting Corruption? precisely highlights the role multinational companies played in this problem.

The Arab uprisings were enthusiastically supported by European governments such as France and the United Kingdom but our report raises this question: will they make sure that their companies do not offer bribes that corrupt the institutions that are now being reformed.

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Is Paying Taxes Patriotic?

Ann Hollingshead

flickr / RambergMediaImages

In a fiery speech to the Democratic National Convention on Monday, Mayor of Newark Cory Booker bellowed: “Being asked to pay your fair share isn’t class warfare. It’s patriotism.”

It’s a sentiment that’s been often repeated on the campaign trail in the last few weeks. Vice President Joe Biden made the same suggestion in a campaign speech in New Hampshire. “Wealthy people are just as patriotic as middle-class people, as poor people, and they know they should be doing more,” said Vice President Biden. “We’re not supposed to have a system with one set of rules for the wealthy and one set of rules for everyone else.”

To think about whether or not it is indeed true that paying taxes is patriotic, I think it’s helpful to define patriotism first.

Of course, that’s no easy task. While the vast majority of Americans consider themselves patriotic—they also all have wildly differing views on what that means.

To simplify matters into what is probably an excessively vague definition, let’s say patriotism is a “love for one’s country.”

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Der Spiegel: Hundreds of Billions Flowing Illicitly Out of Greece

EJ Fagan

flickr / Aster-oid

This week, the influential German magazine Der Spiegel published a report based on research from Global Financial Integrity, which found that $261 billion in illicit money flowed out of the country from 2003-2011. The summary (in German) is available here.

Task Force Director Raymond Baker, who also directs Global Financial Integrity, commented in the article, noting that Greece’s deep recession likely contributed to the outflows, “In a recession, it will be harder for individuals and companies to get loans. This attracts illegal funds, which will close the gap.” Mr. Baker also remarked that illicit investors were likely buying up Greek real estate.

The article comes just after former Greek Prime Minister George Papandreau commented on how tax havens are helping to destroy the Greek economy in a speech last week,

Papandreou told the opening of Socialist International’s four-yearly conference that $21 trillion was hidden in tax havens around the world.

“Whether it is in developed or developing nations, it is our citizens that are being robbed,” he said, saying this “plain robbery” denied governments the capacity to invest in areas like welfare and education.

“I know this, Greece is suffering from this. Had this alone been tackled, Greece would have most likely never have needed a bailout.

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Featured Allied Organization: The Interfaith Center on Corporate Responsibility

Sarah Bracht

The Task Force has over 130 Allied Organizations. Today, we are proud to highlight the Interfaith Center on Corporate Responsibility as our newest featured organization.

Interfaith Center on Corporate Responsibility (ICCR)
New York City, USA





Through the lens of faith, ICCR works to build a more just and sustainable world by integrating social values into investor actions. Currently celebrating its 41st year, ICCR is the pioneer coalition of active shareholders who view the management of their investments as a catalyst for change. Its 300 member organizations with over $100 billion in assets under management have an enduring record of corporate engagement that has demonstrated influence on policies promoting justice and sustainability in the world. Harnessing their power as active shareowners, ICCR members promote corporate transformation from the inside by engaging and advising management towards sustainable practices that ensure long term business growth while measurably improving their environmental and social impacts. ICCR seeks a global community built on justice and sustainability through transformation of the corporate world.

You can follow ICCR on Twitter at @ICCROnline, or visit their website here.

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Illicit Financial Flows: Explained [With Graphics] Part III

Ann Hollingshead

In this Prezi, the final installment of a three-part series, I put illicit financial flows into context around the world.

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Why investors should care about transparency

Karen Egger

Cross-posted permission from Transparency International’s Space for Transparency blog.

On July 10, Transparency International issued a report showing that the world’s biggest companies are disclosing more about their measures for preventing corruption, but not so much of their financial data in the countries where they operate.

Investors should take note of these findings. Risks associated with corruption can have devastating damaging effects on a company’s reputation and its bottom line through fines, lost business or both.

Investors can and should play an important role in shaping company behaviour.  When institutions like SEDEXFTSE4Good and the Dow Jones Sustainability Index start factoring corruption risks into their evaluations and investors like Calpers and CalSTRS start exerting pressure on the management of companies they invest in, those companies have an obligation to and interest in listening.

For example, CalSTRS took legal action as a shareholder of Wal-Mart against current and former Wal-Mart board members. The lawsuit alleges bribery and a subsequent cover-up in the corporation’s Mexico expansion.

CalSTRS is the US’s second largest public pension fund with assets totalling just over $146.8 billion as of May 31, 2012; they hold more than 5.3 million shares of Wal-Mart, valued at more than $313.5 million as of May 1, 2012. The suit asks that damages from the result of any violations be awarded to Wal-Mart, and that the company reform and improve its corporate governance and internal procedures.

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A Little Sunlight Can Help Lower the Price of Gasoline

Paul Bugala

Cross-posted with permission from Calvert Investments. This post was originally written on March 7, 2012.

flickr / colonos

United States oil production is at an eight-year high and in December 2011 the country was a net exporter of gasoline for the first time since 1961? Then why are gasoline prices so high? The answer has more to do with sustainability than you may think.

Stability and the Price at the Pump

About three quarters of how much you pay at the pump is determined by the price of oil. (The other significant factors are taxes, refining, transport, and marketing.) About half of the oil used to make gasoline and many of the other products Americans depend on comes from outside the U.S. Increasingly, more of that imported oil comes from relatively stable sources such as Canada and Mexico and less from countries in the Middle East and Africa.

However, even a relatively stable supply of oil and a significant decline in gasoline consumption isn’t protecting U.S. drivers from price spikes at the pump. Oil is such an important and finite commodity that its price is often influenced by expected changes in its availability around the world.

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How A Shift In UK Tax Law Could Cost Developing Countries £4bn

EJ Fagan

The United Kingdom is shifting some tax laws to make it easier for multinational corporations to avoid taxes via tax havens, through vehicles known as Controlled Foreign Corporations (CFCs). These vehicles are commonly used in the United States, and elsewhere, to shift profits to low tax jurisdictions. They are a legal way of pretending you made more where you did not. You would think that any smart country would be moving toward stricter laws to prevent the use of tax havens for profit shifting and corporate tax avoidance, but that’s not the most important part of the law’s impact.

Frequent Task Force blog contributors ActionAid have estimated that the biggest victim of the change could be developing countries:

ActionAid told the Commons committee that the changes could deprive developing countries of £4bn in revenues.

In a written submission to the committee, the charity called on the government to heed a call by the IMF, the OECD and the World Bank to assess the impact of such tax changes.

The charity wrote: “ActionAid is concerned that the proposals will eliminate a significant deterrent that discourages UK-based companies from shifting profits from developing countries to tax havens.

“We estimate that the reforms may cost developing countries as much as £4bn and have urged the treasury and DFID to conduct their own spillover analysis, as recommended by the international organisations. No such analysis has been undertaken.”

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Illicit Financial Flows: Explained [With Graphics] Part II

Ann Hollingshead

In this Prezi, the second installment of a three-part series, I explain illicit financial flows and pull factors.

In case you missed Part I, here it is.

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SEC Approves New Transparency Rules

EJ Fagan

flickr / Securities and Exchange Commission

Today was a very big day for advocates of financial transparency. The Securities and Exchange Commission (SEC) voted to approve the final rules for Dodd-Frank Section 1504, which was passed over two years ago. The rules will immediately go into effect. 1504 requires oil, gas, and mining companies to publish all payments they make to governments. From Reuters, via Trust Law:

The resource extraction rule will apply to any payment to further exploration, extraction, processing, and export of oil, natural gas or minerals or the acquisition of a license for related activity, the SEC said.

It would apply to any payment, including a series of related payments, over $100,000, the SEC said.

The payments that need to be disclosed include taxes and royalties, but also dividends and infrastructure improvements, and other types of fees.

The rule requires companies to provide information on a project-by-project basis, but gives companies the ability to define exactly what constitutes a “project.”

The intent of the law is to produce useful information for people on the ground in natural resource-exporting developing countries. Right now, deals made between government officials and multinational oil, gas, and mining companies often disappear into a black box, and huge amounts of money is siphoned off to offshore bank accounts. The citizens of those countries will be much better able to hold their governments accountable if they know exactly how much money is being spent on what projects in their country.

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Corruption in Nigeria’s Oil Sector: Fuel Subsidies Gone Missing

Crystal Nwaroh

Nigeria is an intriguing oxymoron. Though the country is blessed with abundant oil and other natural resources, its own mismanagement and corruption has prevented it from fully reaping the benefits of these resources. The country is one of the world’s largest producers of oil, yet this has not had a significant impact on the welfare and standard of living of its citizens, the majority of whom live below the national poverty line. Nigeria has struggled with managing its vast supply of oil, which has resulted in the loss of billions of dollars from its economy. More recently, massive corrupt activities have been discovered within the government fuel subsidy scheme and the story continues to unfold as more investigation and attention is being drawn to the issue.

In January, the Nigerian Government announced the removal of the subsidy on fuel, which sparked a nationwide strike with businesses, schools, and airports closed for several days. The removal of the fuel subsidy resulted in the increase of petrol pump prices from $0.40/liter to $0.86/liter. Protesters were not only upset about the increase in petrol prices but they were also unhappy with the abrupt way the change was implemented.  In a country where the government is not trusted (based on past transgressions), the sudden removal of a fuel subsidy that has been in place for years raised a lot of eyebrows. According to the Nigerian Government, the removal of the subsidy was aimed at improving the economic development capacity of the country. However, the fuel subsidy cost Nigeria about US$8 billion in 2012 and the country has not been able to adequately account for how the money was spent.

For example, Farouk Lawan, the head of the parliamentary probe into the fuel subsidy scheme, was accused of collecting US$620,000 out of the alleged $3 million bribe to remove the name of Zenon Oil from the list of companies that received subsidy money without importing fuel. Audio recorded tapes of the conversation between Lawan and the head of Zenon Oil describe the details of the bribe:

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Illicit Financial Flows: Explained [With Graphics]: Part 1

Ann Hollingshead

Sometimes you need more than words. Let’s try graphics instead.

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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 ...