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Apr
17

Tom Cardamone: SEC now a year late on crucial transparency rules

EJ Fagan

flickr / Securities and Exchange Commission

Today is not just Tax Day in the United States. It is also the first anniversary of the deadline for the SEC to issue rules on Dodd-Frank Secti0n 1504 – the breakthrough transparency provision for the oil, gas, and mining sectors. Task Force Managing Director Tom Cardamone, as a guest post at Trust Law, writes,

A year after the deadline, established by Congress when Dodd-Frank passed, the SEC has still not yet issued the final rule on Section 1504. The delay comes as the regulator faces intense pressure from oil industry lobbyists, including from the American Petroleum Institute (API). The API wrote a letter to the SEC laying out the basis for a legal challenge to potential rules, which some have characterized as an implicit threat of expensive litigation. These demands include shifting the reporting requirement from a project-by-project basis, which is explicitly required in the statute, to a geographic basis, such as by a geological basin or province. This move would maintain opacity in the extractive industries, and allow an environment that fosters corruption and bribery to continue.

The SEC needs to stop delaying and issue the strong transparency rules that Congress passed nearly two years ago. Further delay only serves as an invitation to industry lobbyists to continue to push for loopholes that allow them to execute unaccountable deals with governments. These rules are already long overdue.

Resource-rich developing countries often face a Faustian relationship with their extractive industries wealth. While exports of oil, gas, and minerals can create significant wealth for a society, it can also invite staggering levels of corruption. Many lack the governing institutions necessary to maintain an effective rule of law.

You can read the rest of the article here. More coverage of the anniversary at Revenue Watch.

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Apr
16

Murder of a British Businessman Offers a Glimpse into the Scale of Chinese Corruption

Sarah Freitas
Just One Example of Massive Illicit Outflows from China, Which Lost US$2.74 Trillion Last Decade

Gu Kailai, the wife of Bo Xilai, a rising star in the Chinese Communist Party, has been arrested by Chinese police on suspicion of arranging the murder of Neil Heywood. Heywood was, according to Reuters, poisoned this past November. The article reports that no motive for the murder had surfaced, until now,

Bo’s wife, Gu Kailai, asked Heywood late last year to move a large sum of money abroad, and she became outraged when he demanded a larger cut of the money than she had expected due to the size of the transaction, the sources said.

She accused him of being greedy and hatched a plan to kill him after he said he could expose her dealings, one of the sources said, summarising the police case. Both sources have spoken to investigators in Chongqing, the southwestern Chinese city where Heywood was killed and where Bo had cast himself as a crime-fighting Communist Party leader.

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Apr
11

Does the Government Have the Right to Tax? And Other Unlikely Questions

Ann Hollingshead

flickr / afagen

Officially Dan Mitchell is a Senior Fellow at the Cato Institute, a conservative public policy research organization, and a researcher on tax reform. Unofficially, he has (perhaps ironically?) called himself the “world’s self-appointed defender of so-called tax havens.”

Oddly enough, Mitchell and I agree on many of the facts about these havens. We both have observed, for example, that there are buildings in Delaware and the Cayman Islands that house thousands of corporations. Mitchell concludes there is nothing wrong with either; I conclude there is something wrong with both. Mitchell also agrees that the United States “could be considered the world’s largest tax haven.” On that topic, he’s even cited my paper on non-resident deposits in secrecy jurisdictions. In his comment, he does not take issue with my methodology or my results, but rather concludes that my finding that the United States is the largest holder of non-resident deposits “makes the case for pro-market policies.” I, on the other hand, have argued that these findings support across the board reform, rather than that limited to traditional offshore financial centers.

So how is it that two (relatively intelligent?) people can draw such different conclusions? I would argue our differences lie not in our facts, or perhaps even our economics, but in our underlying philosophical and theoretical differences.

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Apr
11

Frustrated by an Endless Maze of Shell Companies, Uncooperative Officials, Germany Drops Probe into Russian Corruption

EJ Fagan

Following traces of money flowing through the criminal underworld has long been an important strategy for law enforcement. German investigators were trying to do just that, following US$150 million in corrupt money back from Germany to a number of Russian officials. However, the investigators were forced to give up their search after the trail brought them to an anonymous corporation, and uncooperative Russian officials. From Corruption Currents:

Under the settlement, all five people maintained their innocence. Four defendants will pay between EUR5,00o to EUR40,000 ($6,500 to $52,000) in exchange for dropping the charges, the Journal report said, citing a court spokesman. Charges against the fifth defendant, a banker still employed by Commerzbank, were dropped because the statute of limitations had expired, the spokesman said.

The spokesman said, according to the Journal, that because the statute of limitations loomed on the others, the court told prosecutors to give up and settle.

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Apr
10

Ngozi Okonjo-Iweala on Illicit Financial Flows and the World Bank

EJ Fagan

flickr / World Economic Forum

At the Center for Global Development / Washington Post forum yesterday, Nigerian Finance Minister and nominee for the World Bank Presidency Ngozi Okonjo-Iweala answered a series of questions about the World Bank, and the challenges it faces moving into the future. The whole interview is available on video here.

The subject of illicit financial flows, and their impact on development, was brought up at 66:00-70:00. The transcript:

Question: When you mention the word ‘taxes’, I thought immediately of the illicit financial flows issue and the amount of money escaping from developing countries. Not principally through corruption or, you know, gangs of drug lords, but rather the use of mispricing through transfer pricing, the transfer mispricing phenomenon where corporations don’t pay their fair share. Does the World Bank have a role in addressing that issue as countries lose substantial amounts of money?

Ngozi Okonjo-Iweala: “The question of taxes and illicit financial flows and mispricing is a very important one. And I think that, when I think about who should be dealing with this, I think the IMF should also be brought into the picture on this one. They have more of a comparative advantage in dealing with this than the World Bank.

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Apr
9

Kyrgyzstan’s Anti-Corruption Watchdog Applicants Take Exam On Live TV

EJ Fagan

Kyrgyzstan is a country that has long been riddled with corruption. Endemic graft and nepotism was a major factor in the 2010 revolution that the country underwent, and attempts by the government to tamp down corruption have been largely unsuccessful since. The country completely disbanded the Finance Police, who used to be their anti-corruption watchdog. In a unique exercise in transparency, Kyrgyzstan will this week be broadcasting the entrance exam for a new anti-corruption agency on live television,

The prime minister’s office released a statement upon completion of the first session of 100-minute-long quizzes Monday, naming and shaming the lowest scorer and praising the best performer for answering 95 out of a total of 100 questions.

The tests, to be held over four days, will initially whittle the 1,400 applicants aspiring to join the State Service for Combating Economic Crimes to 400.

After medical examinations, fitness tests and interviews, a group of 177 successful candidates will be admitted to the agency.

Such exercises in transparency are virtually unheard of in a country where many obtain government posts through personal recommendations or by paying bribes.

This type of action is more symbolic than anything, but definitely seems like a step in the right direction.

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Apr
6

Is the EU ready to take on tax havens at home and away for €1 Trillion Euro Prize?

Alex Marriage

flickr / European Parliament

With the €1 Trillion the EU governments lose each year to tax dodging at stake. The prospect of a debt ridden jobless future has EU the asking questions. DG TAXUD the tax arm of the EU civil service will prepare a communication by December on the broad topic of tax havens and unfair tax competition.

One facet of this problem is double non-taxation, this happens as countries try to divide the proceeds of trade so companies and individuals don’t get taxed twice. However many have taken advantage to pay nothing at all. Until May DG TAXUD is seeking the views of people and organisations on double non taxation the results will feed into the Commission’s communication. The language is encouraging but Taxud’s hands are probably tied because whatever it and the European Parliament suggest on tax any member state can veto. This veto does not apply to ongoing measures to promote financial transparency through measures such as  Anti-money Laundering reform and country-by-country reporting.

The UN vs OECD: Representativeness and policy positions

The UN Represents 192 countries and most of the World population the OECD 34 Countries and only about a fifth the world’s population. No one is saying that the UN is perfect and agencies are more effective that others. However most developing countries want the UN Tax Committee to have more say. Understandably the rest of the World are increasingly tired of the OECD’s undemocratic dominance of international tax policy. Especially when its transfer pricing standards and the Global Forum process with which it is very closely associated are so ineffective. So many developing countries are calling for the UN Tax Committee to have more power. The Indian Government has made this point clearly in a letter to the OECD .

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Apr
6

Getting serious on banks that take dictators’ loot

Robert Palmer

Last week Coutts, banker to the Queen, was fined £8.75 million for failing to take corruption risk seriously enough. The Financial Services Authority (FSA) found problems with over 70 percent of the client files they reviewed; in some cases, allegations that customers were involved in looting state funds were brushed aside by bankers keen to increase the bank’s profits – and presumably their own bonuses.

This fine is part of a belated crackdown by a financial regulator that has, at least a decade too late, finally woken up to the fact that British banks are looking the other way when it comes to potentially corrupt customers.

Last year a damning FSA report found that in far too many cases banks were ignoring an extremely high risk that they were handling the proceeds of corruption, if the bank felt that they would not get caught or suffer bad publicity. The FSA rather sheepishly admitted that not much had changed since its previous review 10 years ago, after a billion pounds of funds linked to former Nigerian dictator Sani Abacha were found to have flowed through British bank accounts.

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Apr
5

Rush: The Dynamics of Kenya’s Oil Strike

Ann Hollingshead

flickr / teachandlearn

It’s an interesting time for east Africa. Until recently, no one believed it had much energy wealth at all—6 billion barrels, tops, compared to its western counterpart, which boasts at least 60. But the times they are a-changin’. At the end of last month, Kenya sent the world and the markets a buzz when the government announced Canada’s Africa Oil Corp discovered oil in the northern region of Turkana. Given the geographical proximity and similarities, this discovery also has implications for Ethiopia. And additional discoveries have already been made in neighboring Tanzania and Mozambique.

The oil strike in Turkana does have the potential to transform Kenya’s economy and propel its ambitions to become a leading regional power. But despite the almost-auditory-cheers echoing from Kenya’s leaders, the discovery is not all good news. Of course, analysts are already cautioning the country against falling victim to the resource curse. Many point to Uganda, another in the east African nation that recently joined the energy club, as an example of what not to do.

No one is going to start drilling tomorrow. For one thing, a worldwide rig shortage is delaying production. But in many ways, Kenya itself isn’t ready. The discovery was unexpected enough that the country does not have the experience or the regulatory framework to handle the oil sector. James Phillips, chief operating officer of Canada’s Africa Oil Corp., said “the company won’t…move ahead with its plans in the area until Kenya’s energy ministry develops rules that would determine how that gas could be produced and sold.” Kenya has insisted it is ready. Yet the country regulates oil and gas production and exploration with the Kenya Petroleum Act, a 13-page law passed around 1986. And Kenya’s leaders are on the verge of passing an exemption in its value-added tax for oil and gas exploration companies, in an effort to avoid the “cooling effect” that the tax would have on imports and purchases in the scramble.

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Apr
4

The Economist Exposes Shell Corporations, and the Agents Who Create Them

EJ Fagan

The Economist came out today with two great investigative articles on shell corporations. Shell, or anonymous, corporate structures are used to do business without the real actor behind the activity being known. While we usually associated shell corporations with, to quote one of the articles, “sunny places for shady business”, the reality is that the United States and the United Kingdom are some of the world’s worst offenders. Cottage industries have developed in many of the  U.S. states where incorporation is easiest.

The first article documents this quickly-growing new business around the world,

As in any industry, incorporation includes a mix of wholesalers and retailers. The wholesalers, such as Hong Kong-based Offshore Incorporations Ltd (OIL), sell companies to legal and accounting firms, banks, corporations and also (often in bulk) to web-based resellers. Martin Crawford, the chief executive, says reputation is crucial in this market segment.

The two largest providers offshore may each have 10% of the global market, estimates Jason Sharman, an Australian professor who studies the industry. Onshore markets are more concentrated. Two firms handle two-thirds of all Delaware companies: CT Corporation (part of Wolters Kluwer of the Netherlands) and CSC—though both companies’ websites give little hint of this, focusing on their less controversial compliance services.

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Apr
3

Tuesday’s Top Stories

EJ Fagan

Re: Tax Me If You Can
The New Yorker (Letter to the Editor), April 2, 2012

Capital flight is a hemorrhage for Africa
El Pais (Español), April 2, 2012

Swiss take fall as US and UK ‘havens’ thrive: report
The Local (Switzerland), April 3, 2012

India puts UK in a fix over Vodafone case
India Today, April 3, 2012

Tax loopholes still not closed
The Edmonton Journal, April 3, 2012

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Apr
3

The Corruption Crisis in Greece

EJ Fagan

flickr / NASA Goddard Photo and Video

Valentina Rigamonti at the Task Force’s Transparency International posted today on their blog about Greece, corruption, and how values and culture connect the two. Corruption and tax evasion are seriously undermining the integrity of the Greek state, and are severe contributors to the current crisis in the Euro area. Bribery is endemic, with the cost of the average bribe estimated at €1406 – a massive sum. She writes,

The engagement of people in Greece in these issues is fundamental – not only to help resolve the financial crisis but also in the fight against corruption. Engaging the public is one of the priorities of TI-Greece and they are working on this now, sharing information, and organizing workshops and seminars in cities and towns around the country in order to present the findings of the NIS Report and engender greater discussion and debate.

Greece is facing multiple challenges and the fight of corruption is one of them. The question is whether the citizens of Greece and the political establishment alike understand that important link between the political and economic crises and corruption.

When you go to Greece, it is very striking how deep the crisis is. The public anger is noticeable. On the anti corruption side there is a paradox: on the one hand top public officials say it is not a top priority for the interim government because of other more pressing priorities. On the other hand, there was huge interest in the NIS launch – it received widespread coverage in the Greek media and around the world – and people clearly see a nexus between corruption, the political and economic crisis and financial integrity.

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Financial Transparency Coalition · December 17, 2014

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