Learn About Illicit Financial Flows
Key Terms

Latest

Sep
26

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 »

Sep
25

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 »

Sep
25

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 »

Sep
24

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 »

Sep
20

Waging War on Corruption

EJ Fagan

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

Featuring

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 »

Sep
20

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 »

Sep
19

Russia’s Tustle with USAID

Ann Hollingshead

flickr / USAID_IMAGES

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 »

Sep
18

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 »

Sep
17

Swiss Banks Will See Huge Withdrawals, But That May Not Make Much of a Difference

EJ Fagan

flickr / wallyg

Switzerland’s legendary banking secrecy is feeling the pressure. A series of tax treaties will make Swiss deposits more vulnerable to scrutiny from law enforcement. The treaties, specifically the German-Swiss one currently being negotiated, are far from perfect, but from the perspective of someone with a deposit in UBS or Credit Suisse, their cover is blown. You may think that this is something that will directly lead to historic prosecutions for epic-scale tax evasion, but that is unlikely. Instead, as Reuters reports, a significant portion of the $2 trillion deposited in Swiss banks are simply going to be withdrawn:

ZURICH - UBS expects Swiss banks to see European clients withdraw “hundreds of billions of francs” as a result of steps to stop foreigners using secret accounts to evade taxes.

Juerg Zeltner, head of UBS wealth management, reiterated an estimate he gave in May that Switzerland’s biggest bank could see outflows of 12-30 billion Swiss francs ($12.8-31.9 billion) from total European assets under management of over 300 billion.

The article does not specify where the money is likely to end up, but you can be sure that little is unlikely to be found back in its home country, ready to be taxed. In all likelihood, less-vulnerable secrecy jurisdictions like Singapore, the Cayman Islands and Mauritius will gain from Switzerland’s loss. Money that tax evaders, organized crime, and other people with less-than-legitimate reasons to seek banking secrecy will simply pack up and wire their money elsewhere.

Continue Reading »

Sep
12

The Rising Price of Corn, Food Aid, and Corruption

Ann Hollingshead

flickr / Charles Haynes

Every time I ride my bike by a corn field in Oregon—full and tall—I feel a little bit thankful. I am thankful for our mild summer heat, this year and others. Thankful forOregon’s efforts to create a more sustainable food system. And particularly thankful that I live in country where record high temperatures don’t affect my ability to feed myself.

It’s not true everywhere. Record heat across the U.S. Midwest has battered corn crops, making it likely this year’s harvest will be one of the lowest in years—and sent prices soaring. As a result, consumers in the United States will have to pay more for everything from soft drinks to biofuels to beef. But the cost to U.S. citizens will be slight—a bump in food prices of no more than 3 to 4 percent. It is the world’s developing countries that will truly suffer.

As agricultural economist Michael Roberts explains, “About 2 billion people still live on $2 a day or less. Often, they must spend half or more of their income on food, the bulk coming from staple grains like corn, wheat and rice. For these people, a huge rise in grain prices is more than noticeable — it can literally break their budget.”

Continue Reading »

Sep
12

Transparency International’s Frank Vogl: Technology Can Help Fight Corruption

EJ Fagan

flickr / newfilm.dk

Frank Vogl, one of the founders of Transparency International, wrote an op-ed in the Financial Times today. He is optimistic that the rise of information technology will lead to more assertive judicial systems and more accountable government. Vogl writes,

The arrest on Sunday of the Indian cartoonist Aseem Trivedi for “insulting” his country in his work, highlights the dangers of lampooning corruption, not just in India but across much of the world. Corruption is not a single event. It is perpetrated every day against citizens by crooked politicians and civil servants consumed with greed and hubris. However, as the case of Mr Trivedi shows, in the age of instant communication, it is also becoming much harder to hide.

In scores of nations, corruption is a major cause of poverty and human rights abuses and leads to justice systems that serve only the powerful and the rich. It is an affront to the proper functioning of a market economy. And it threatens our global security – the trade in illicit weapons, for example, is facilitated by bribes.

This is far from an issue exclusive to poor and developing countries. No government can claim that it does not harbour officials who abuse their office for personal gain. The more than $2bn that will probably be spent in this year’s US elections has a nasty smell to it – who can believe that so many special interest groups are pouring tens of millions of dollars into the campaign if they do not believe that they will extract major benefits if their candidates succeed?

Read the whole op-ed here.

At the 2012 Task Force Conference in Gammarth, Tunisia, one breakout panel, “Transitioning to Transparency: Harnessing Technology to Improve Access to Information and Combat Corruption”, will tackle this issue head-on. The registration deadline is fast approaching, so click here for more information.

Continue Reading »

Sep
7

Please Join Us in Tunisia – The Annual Conference of the Task Force on Financial Integrity and Economic Development

EJ Fagan

The 2012 annual conference of the Task Force on Financial Integrity and Economic Development will take place at the Ramada Plaza Tunis in Gammarth, Tunisia, from October 17-18.

Registration is now open at the new Task Force Conference website. The deadline to register is September 17, so act now! Any questions should be directed at conference@financialtransparency.org.

Illicit financial outflows from developing countries – which total around $1 trillion per year – undermine the tax base in poorer countries, eroding the accountability that is essential for good governance and global stability.  Fiscal accountability is a key component of a well-functioning social contract, both of which have been absent in many countries in the Middle and North Africa (MENA) region, including Libya, Tunisia, Egypt, Yemen and Syria. MENA countries have experienced the highest average annual illicit outflows of any region: $146 billion. Establishing transparent financial systems helps secure democracy and avoids a return to authoritarian rule.

Continue Reading »

Pg 33 of 180 First...1020...32333435...4050...Last
Latest Press Releases

Press Release: No Role for Public Scrutiny in OECD Plan to Curb Corporate Tax Dodging

Financial Transparency Coalition · September 16, 2014

WASHINGTON, D.C. — The Organization for Economic Cooperation and Development’s (OECD) new recommendations to fight multinational corporate tax avoidance look robust from ...

US$401.6 Billion Flowed Illegally out of Brazil from 1960 to 2012, Finds New GFI Report

Global Financial Integrity · September 8, 2014

RIO DE JANEIRO, Brazil / WASHINGTON, DC – More than US$400 billion flowed illegally out of Brazil between 1960 and 2012— draining domestic ...

New Standard Chartered Settlement Underscores Insufficiency of Fines & Monitoring in Deterring Illicit Activity at International Banks

Global Financial Integrity · August 20, 2014

WASHINGTON, DC – As New York regulators announced that British bank Standard Chartered ...