Cross-posted with permission from Calvert Investments. This post was originally written on March 7, 2012.
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.
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.”
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.
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.
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:
Sometimes you need more than words. Let’s try graphics instead.
This spring, reports surfaced that Wal-Mart’s Mexico arm may have engaged in widespread bribery in order to rapidly increase its presence in Mexico. Even immediately after the initial New York Times story, the company itself hinted that a thorough investigation may turn up even more.
Well, we might be seeing the first bits of that deeper scandal emerge right now. Congressmen Elijah Cummings and Henry Waxman have been investigating Wal-Mart over the past few months. Reuters reports,
“We have obtained internal company documents, including internal audit reports, from other sources suggesting that Wal-Mart may have had compliance issues relating not only to bribery, but also to ‘questionable financial behavior’ including tax evasion and money laundering in Mexico,” the lawmakers wrote in their letter to Wal-Mart Chief Executive Michael Duke.
A company spokesman had no immediate comment.
There’s very little our lawmakers won’t do to show their patriotism. And this week Senator Marco Rubio took the prize when he introduced a bill that would exempt American winners of Olympic medals from federal taxes on their cash prizes.
In case you haven’t heard yet: when an Olympian wins a gold, silver, or bronze medal, he or she receives a cash prize of $25,000, $15,000, or $10,000, respectively. At the moment, Olympians pay taxes on those prizes just as they would on any other income. Under the Olympic Tax Elimination Act, they would not.
The fact that President Obama has pledged his support of this bill might lead you to believe that this bill is a shining symbol of bipartisanship in this time of great political discord.
It is more tax delusions parading as a symbol of support.
Whether they intend to or not, proponents of Rubio’s proposal have used the Olympic medal tax cut to perpetuate some of the really disgusting misconceptions about our U.S. tax system.
Cross-posted with permission from Transparency International’s Space for Transparency blog. The US government has recently sent a letter to the German government pushing them to support the publication of payments on a project by project and not just a country by country basis.
An old industrial dynasty from the German Ruhr region might play a role in blasting the envisaged transparency regulations for the extractive industry proposed by the EU commission. It is one of those typical German Mittelstand (SME) family-owned businesses, which was founded in 1842 by Wilhelm Grillo, and grew into an industrial giant, the Grillo-Werke AG. The core competence on zinc, the company focuses on zinc metallurgy and sulphur chemistry, has an estimated annual turnover of around 600 million Euro, around 1600 employees and is headed by Ulrich Grillo.
Having led the natural resources section of a major German industry lobby for five years, Ulrich Grillo plays an important part in the way Germany responds to European Commission plans to increase the transparency of the extractive industries. As already described in this blog, there is adepressing correlation between natural resource wealth and corruption.
Transparency is a major weapon against graft in the oil, gas and mining sectors. Governments are started to mandate reporting of company payments and revenues in specific countries and projects. Two years ago, the USA decided on mandatory publication of payments to governments on a project-by-project level, as part of the Dodd-Frank Act. The European Commission followed suit and presented similar proposals (called the Transparency and Accounting directives), adding the forestry sector which had been omitted in the Dodd-Frank Act, and also included large unlisted companies.
Cross-posted with permission from Transparency International’s Space for Transparency blog. On the eve of London 2012, Robert Barrington, director of external affairs at Transparency International UK, ponders the corruption risks inherent in London’s staging of the Olympics games.
The Olympic Games are a wonderful celebration of excellence in sport. But is there a danger thatcorruption may have tainted the Games? As London prepares to launch the Games tomorrow, it is sobering to reflect on whether the event is living up to the ‘respect for universal fundamental ethical principles’ cited in the Olympic Charter.
First, the good news. The Olympics represent a huge exercise in procurement and construction – two classic areas for corruption to flourish. However, LOCOG – the London organising committee – has been widely praised for running a fair and transparent process.
But scratch the surface, and there remains an uncomfortable feeling that the Games may be falling short of the Olympian ideals.
Here are six ways in which the Olympics may be vulnerable to corruption. There is no easy solution to some of them, although that alone should not prevent an acknowledgement of the potential problems.
This is the big one. Spectators expect that sport will be played following an agreed set of rules, with each participant or side intending to win. But there have been past allegations of match-fixing in several of the 26 Olympic sports, with bribes paid to participants to under-perform or manipulate an event, usually so that a bet can be placed on the outcome. It is inconceivable that so many athletes from so many countries will all be pure. The authorities have responded to the threat with recent inter-sport guidelines. But eternal vigilance is needed, given the sheer scale of the Games.
Cross-posted from the ActionAid UK Campaign Blog…
Aside from the empty seats, the big scandal of the Olympics so far has been the disqualification of eight badminton players for deliberately losing their matches. What’s that got to do with tax justice? Well since you ask…
ActionAid’s tax justice campaign has long been concerned not only with tax evasion in the developing world – illegally concealing wealth, or otherwise breaking tax laws – but also with tax avoidance: using technically legal but artificial loopholes to reduce or completely cancel out due taxes that could otherwise be used to pay for schools, hospitals, roads…the public goods needed to fight poverty, and for people and business to flourish.
This kind of manipulation by wealthy individuals or big companies may be legal, but that doesn’t make it fair or right. It seems that many people, including David Cameron , are starting to agree. But not everyone. The argument we hear from some multinationals and their advisers is that if something’s technically legal, it’s up to law-makers to ban it if they don’t like it. Until then, it’s everyone’s right to carry on doing it. Without this principle, they argue, laws become confused and uncertain.
This is a serious argument, worth having. I was struck this week, though, by the more unanimous public reaction to a very different group of people bending the rules. When eight badminton players were booed off the court and disqualified on Wednesday, accused of deliberately losing matches by deliberately serving into the net and smashing the shuttlecock out of the court to secure a better draw in the tournament, very few people seemed to back them.
Illegal poaching and trade of wildlife is a massive problem for developing countries, particularly those in Asia. Often these products find their way across borders—stuffed into suitcases, packed into trucks, and occasionally carried. Protected and endangered species are killed and sold for their organs, flesh, bones, skin, and scales, which are turned into tonics, ornaments, meat, and traditional medicines.
Of course this is an environmental problem. Many of these animals are endangered or protected. Of all the illegal wildlife product seizures in Australia last year, two-thirds were traditional medicines containing ingredients from endangered species. But this is also a development problem and a security one, too.
Global Financial Integrity (GFI) has estimated that the illegal trade in wildlife, excluding fishing, among residents of developing countries generates about US$8-10 billion annually.
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