Oxfam America filed a lawsuit this week against the Securities and Exchange Commission (SEC) for unlawfully delaying oil, gas and mining transparency provision of Dodd-Frank Act. Over a year has passed since the legally mandated deadline for the new regulations. From Oxfam America’s press release:
Washington, D.C. – International relief and development organization Oxfam America has today filed a lawsuit against the Securities and Exchange Commission (SEC) for unlawfully delaying the issuance of a Final Rule implementing a provision of the Dodd-Frank Act that requires disclosure of payments from oil, gas and mining companies to the United States and foreign governments. Known as Section 1504 or the “Cardin-Lugar” provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, this provision would provide information to investors and citizens in resource-rich countries, help stem corruption, and encourage the accountable use of billions of dollars in annual revenues from the oil, gas and mining sector.
Congress set a deadline of April 17, 2011, for the SEC’s promulgation of the final rule that is needed to bring Section 1504 into effect. The SEC has now missed this statutory deadline by one year and one month. Oxfam America notified the SEC on April 16, 2012 that it would file suit if the regulatory agency did not issue a final rule within 30 days. As Oxfam America’s lawsuit states, “the extractive payment disclosures that Congress mandated nearly two years ago will not take place unless and until the SEC issues a Final Rule. Unfortunately, the SEC’s pattern of delay gives no assurance that it will ever promulgate a Final rule without the involvement of this Court.” The SEC issued a proposed rule on December 15, 2010.
GFI Calls on G8 to Tackle Illicit Financial Flows at Camp David Summit
Global Financial Integrity (Press Release), May 17, 2012
CSOs, Business Groups Call on Congress to Support Incorporation Transparency, Ban US Shell Companies
Global Financial Integrity (Press Release), May 16, 2012
Nonprofits, Businesses Call For End To Corporate Secrecy
The Wall Street Journal (blog), May 16, 2012
Liberal groups lobby for shell company bill
The Hill (blog), May 16, 2012
Oxfam sues SEC to force completion of Dodd-Frank oil transparency rule
The Hill (blog), May 16, 2012
In many ways their request was simple. Bread. Freedom. Social Justice. Those are things most of us can agree are human rights. And in January of 2011 when protestors took to the streets in Egypt, and chanted “Aish, Horreya, Adala Egtema’eya” (“bread, freedom, and social justice”) they were calling not just for political reform, but for economic and social reform, as well. And while their slogan reflects the complex interdependence of those forces, none of them can be attained with chanting alone.
The advantage of political protests and uprisings is that they provide quick headlines. They can focus attention on a singular, isolated problem [a dictator, a war, a certain law], but they do not need to address—or agree upon—the solutions to the world’s complex problems. Now, after the uprisings and after the rulers have been deposed, Arab Spring countries have to put together the pieces. They have to confront those complexities. But over a year later, those pieces continue to be very disjointed and those complexities remain unsolved. Food riots have continued, inflation and unemployment have reached new peaks, and freedoms continue to be repressed.
Of course, dozens, even hundreds, of scholars have already addressed the whats and the whys of these challenges. But most have ignored the pressing problem of illicit financial flows, particularly in how their flows are both caused by and contribute to these challenges. Here’s my attempt to begin to fill that gap.
India better at curbing black money than peers
Mint.com (India), May 16, 2012
Firms urge delay in IRS offshore tax dodger rules
Reuters, May 15, 2012
Tax havens: a low cost place in the sun
The Bureau of Investigative Journalism, May 15, 2012
Bishops want tougher regulations to end tax dodging
Christian Today, May 16, 2012
Swiss Bank Whistle-Blowers Said to Have Handed Over Data to U.K.
Bloomberg, May 15, 2012
An anonymous shell company is a corporation where it is impossible to know who the beneficial owners are. Beneficial owners are those people who ultimately benefit from, and are responsible for, the operations of the company. The result is a new corporate entity that can open bank accounts, sign contracts, receive payments, and perform all sorts of business without anyone knowing who they are actually doing business with.
Corporations serve a very important role in the economy. They allow multiple parties to work together without individually being liable for the potential failure of the joint venture. However, anonymous shell corporations are not formed to limit liability. They are formed one purpose and only one purpose: to hide the identity of the real people responsible for an action. This is a historical accident, not something that society would ever have a reason to intend.
There is no good reason to allow corporations hide the identities of the real people doing business. We see tremendous negative consequences as a result of anonymous shell corporations. Some recent cases include:
EU Pledges Campaign Against 1 Trillion Euros in Tax Evasion
Bloomberg, May 15, 2012
ExxonMobil vs. Dodd-Frank
Businessweek, May 10, 2012
Forecasting the Future of FCPA Enforcement
Law.com (blog), May 9, 2012
Analysis: Nigeria president unlikely to risk oil graft crackdown
Reuters, May 13, 2012
Nigeria: Oil Subsidy Report – President Jonathan’s Litmus Test on Fight Corruption
Vanguard (Nigeria), May 12, 2012
What do you do when your eldest son, already well-known for his reckless spending and extravagant lifestyle, becomes the focus of a corruption investigation in France?
Well, if you’re the world’s longest-ruling leader, President Teodoro Obiang Nguema of Equatorial Guinea, you brazenly attempt to thwart justice and the rule of law by appointing him to a position at UNESCO, a position that comes with a convenient perk: diplomatic immunity.
One doesn’t survive in power for 33 years without having a few tricks up the sleeve.
Over the past year, French authorities have become rather fond of President Obiang’s eldest son, Teodoro Nguema Obiang Mangue (commonly referred to as “Teodorín”). During that time, they have twice stopped by the six-story, $100 million mansion where he stays in Paris. In September 2011 they seized 11 of his luxury cars, valued at more than $5 million. On February 14, 2012 they revisited the mansion and stayed for ten days, eventually hauling away three truckloads of valuable artwork, furniture, and antiquities reportedly valued at more than 40 million Euros. In April 2012, a French prosecutor approved an international arrest warrant for Teodorín on charges of money-laundering. The case is part of a broader corruption investigation into the alleged ill-gotten gains of three African Heads-of-State, including President Obiang.
When we talk about economic growth and corruption, it is often in one direction: corruption hurts economic growth. One of the major reasons for this is that corruption increases risk and uncertainty for businesses and investors and provides a distinct disincentive for their investments. Lower investment levels lead to less economic growth.
Less frequently, we say economic growth is an antidote to corruption. But this is also almost certainly true. The reasoning is somewhat complex and indirect, though. Economic growth does not directly ameliorate corruption. Rather, economic growth leads to better access to education, awareness of rights, empowerment of citizens, and then sometimes leads to improvements in human development indicators and therefore less corruption.
There may also be one other direct link. In a recent paper studying the relationship between economic growth and corruption in India, Bhattacharyya and Jha (2011) argue “economic growth creates additional resources which allow a country or a state to fight corruption effectively.”
“If you don’t know how to fix it, please stop breaking it,” was the press headline when Severn Suzuki addressed heads of states in Rio de Janeiro in 1992. She was twelve years old, at what was then the world’s biggest-ever political gathering. In an impassioned critique of unfettered industrialism, Severn lamented the decline of the natural world, and the many injustices that man has wrought upon it. “I’m fighting for my future,” she said.
Two decades have since passed and a child could still give the same speech. Perhaps they will, in one month when world leaders will again descend on Brazil. The UN Rio+20 Conference on Sustainable Development will serve as both an appraisal of progress (or regress) made during those twenty intermittent years, and a renewed study of how best to tackle poverty and forge the transition to a green economy.
Sustainability is one of those clumsy words that is flung about but eludes most of us. At its core, it means preserving our planet so that future generations can live safely and happily on it. One of the triumphs of the 1992 UN Earth Summit was that for the first time world leaders jointly and publicly acknowledged that sustainability was not a conundrum for environmentalists alone, but required serious thought about we how develop economically and socially.
On Sunday, The New York Times published an op-ed by Robert Morgenthau, the legendary former Manhattan District Attorney, who oversaw law-enforcement in the world’s financial capital for more than three decades. Mr. Morgenthau, who retired from public life in late-2009, highlights the systemic risks posed by tax haven secrecy around the world.
Tax havens, with little to no taxes, of course, facilitate tax avoidance and tax evasion in countries like the U.S., but it is the secrecy they provide that is the real problem. As Mr. Morgenthau, a member of Global Financial Integrity’s Advisory Board, explains:
The favorable tax rates encourage corporations to avoid paying American taxes by structuring complicated international transactions, like Apple’s “Double Irish With a Dutch Sandwich,” recently described by The New York Times. But it’s not just the low tax rates that make these jurisdictions attractive to those following the rules. The secrecy of offshore jurisdictions allows some individuals and corporations to engage in outright tax fraud, costing America at least $40 billion each year.
And that secrecy makes offshore tax fraud almost impossible for law enforcement to detect. When I was the Manhattan district attorney, we learned of offshore accounts only through whistle-blowers, cooperators and serendipity.
And this secrecy is not just about tax fraud. Indeed, as Morgenthau puts it:
The secrecy laws in these tax havens are at the root of serious crimes: fraud, money laundering and international terrorism.
In 2009, leaders of the world’s 20 most powerful nations gave the impression that offshore tax evasion would no longer be tolerated. The London G20 threatened tax havens with economic sanctions unless they agreed to exchange bank information. High-level international pressure forced commitments from all tax havens to cooperate. The G20 declared: “the era of bank secrecy is over.”
Three years later, bank secrecy is not over and many tax havens are thriving. In fact, the fight against offshore tax evasion has backfired. Information exchange agreements – the main policy tool that G20 countries use to curb tax evasion – have proven to be largely ineffective.
Each year, the UK’s Her Majesty’s Revenue and Customs automatically receives millions of reports from British banks about the amount their customers earnt in interest and dividends. This information makes tax evasion via UK bank accounts very hard.
The European Parliament voted through a resolution calling for measures against tax evasion. The resolution was passed with an overwhelming 538 votes in favour, and only 73 against and 32 abstentions. The resolution of 19 April goes far in echoing Eurodad’s demand in calling for Automatic Information Exchange (AIE), Country-By-Country Reporting (CBCR), a mandatory Common Consolidated Corporate Tax Base (CCCBT) amongst other useful suggestions.
Single EU tax base for companies
The resolution calls for a mandatory Common Consolidated Corporate Tax Base (CCCTB) This would create a single European standard for what income is taxable and what is exempt. Taxable income would then be split between the countries where the company operates on the basis of the real economic activity that takes place within those countries (calculated by looking at staff levels and other factors). Compulsory CCCTB would be a major step in the fight against transfer pricing abuse ensuring more income is taxed where it is actually made. The European Commission has a proposal to introduce CCCTB on a voluntary basis for countries and companies an approach which would make tax competition worse, unlike the mandatory approach Parliament asks which would improve the situation.
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 ...
November 5, 2013·
Most European Union countries fail to legally protect whistleblowers enough from retaliation in the workplace, shutting out an important actor in the ...