Cross-posted with permission from Transparency International.
A newly discovered diamond field in Cameroon might contain as many as 250 million carats – 2.5 times the total world output of diamonds in 2007. The nearby village of Mparo, meanwhile, lacks running water, asphalt roads or telephones. Its mud-brick schools lack benches or books, No electricity flows through its power lines. An electrification project started last year lies dormant amid accusations of stolen funds.
The villagers have been promised 10 per cent of the taxes mine production, which should be enough to change their lives. But exactly what those proceeds will be is unclear as the South Korean company that won the mining contract does not have to disclose any information about its operations in Cameroon. Worse, the company is mired in corruption allegations amid claims that the reserve figures for the mine were artificially inflated to manipulate the share price,
If multinational companies were required to disclose the details of their payments to governments around the world, the citizens of Mparo would know just how much of this they are entitled to. When EU ministers meet today, they have the chance to do just that, shaping legislation that could transform the oil, gas, mining and forestry industries, as well as the lives of millions around the globe. Some extractive companies, however, do not want to disclose details of individual projects like a single diamond mine.
Compared to some of the countries in the neighborhood, Uganda is doing pretty well. Directly to the West lies the Democratic Republic of the Congo, ranked by Foreign Policy as the world’s fourth most failed state. With a per capita GDP of $189, it is one of the poorest nations in the world. In the last ten years, it has fallen into near chaos, with many areas lacking law, order, electricity, and medicine. Directly to the North of Uganda lies South Sudan, the world’s newest nation, which despite outward promises remains in a fearsome political deadlock with its northern counterpart. Its first year of nationhood has been marked by brinksmanship over the billions of gallons of oils that lie in the south, but must be piped through the north to reach international markets. Also nearby are the Central African Republic, one of the least-developed countries in the world, and Somalia, the world’s practical synonym for failed state.
Uganda, in comparison, looks pretty good. In 2011, Uganda held its fourth presidential and parliamentary elections in 20 years, although none included a peaceful transfer of power. Its economy is also doing comparatively well—government policies have encouraged a consistent pace of growth, including 7.2% in 2009 and 5.2% in 2010, very respectable numbers given that much of the rest of the world was still in recession in those years. Much of this growth is driven by the service, manufacturing, and agriculture sectors—the latter of which contributes to 80% of the country’s employment.
Like I said, pretty good.
This post is the second part of a two-post series. The first post, on the economic costs of Section 1504, is available here.
Embedded into the Dodd-Frank Wall Street Reform and Consumer Protection Act–also known as the “financial overhaul bill”—was Section 1504, which will require companies listed on the U.S. stock exchange to disclose payments to governments for oil, gas, and mining. The American Petroleum Industry (API), a U.S. trade association for the oil and gas industry, is pushing back against this provision. In a letter to the SEC, API claims Section 1504 defies Executive Order 13563, which Obama signed in 2011, to require federal agencies to “engage in a cost-benefit analysis…of proposed and existing regulations.” API argues the SEC has failed to conduct that compulsory cost-benefit analysis. They’re even threatening to sue.
This post establishes a theoretical framework for that cost-benefit analysis. In my first post, I addressed the costs of Section 1504. Below are the benefits.
Benefits of Section 1504
Economic and political benefit to impoverished residents of foreign countries. At its core, the intent of Section 1504 of the Dodd-Frank Act is to reverse the “resource curse” in developing countries. The resource curse is the tragic phenomenon that countries well-endowed with natural resources tend to have slower economic growth than their counterparts without. This theory has been demonstrated in strong quantitative terms. According to an analysis of developing countries by Jeffrey Sachs and Andrew Warner, the more an economy relies on mineral wealth, the lower its growth rate. Countries with significant natural resource endowments also tend to have an increased likelihood of experiencing war and violence and a decreased likelihood of having a democratic system of governance.
Crossposted with permission from Tax Research UK.
The Task Force on Financial Integrity and Economic Development, of which Tax Research UK is a member, has welcomed new moves to tackle tax dodging announced by the global body charged with fighting financial crime.
Under revised standards from the Financial Action Task Force (FATF), tax evasion will be an offence that can lead to a money laundering charge in the future. That means that, as I have long argued should be the case, banks will now be obliged to be on the look out for suspected tax evasion by their clients and report it if they suspect it is happening. The new FATF recommendation will provide authorities with a powerful tool to help prosecute individuals and corporations attempting to dodge financial obligations, hide ill-gotten gains or fund illegal activities.
Cross-posted with permission from the Tax Justice Network blog.
Last night, the University of Edinburgh Students Union became the first union in the UK to ban all SABMiller beers, including Grolsch and Peroni, from union outlets.
This unprecedented move follows extensive campaigning from the ActionAid student group against the multinational beer giant, which avoids paying its fair share of tax in developing countries.
ActionAid research has shown how SABMiller avoids millions in tax by shifting profits out of Africa and into tax havens like Switzerland, depriving the world’s poorest countries of funds that could be used to invest in vital public services. An estimated 250,000 additional African children could get an education if SABMiller stopped dodging its tax in poor countries.
The action taken in by Edinburgh University students sends a powerful message to SABMiller that people think tax avoidance by multinational companies is no longer acceptable.
As recent press reports have shown, systematic tax avoidance by multinationals is a very real and growing reputational risk. Companies like SABMiller need to need to have a serious rethink about the way they do business.
It’s no longer viable for multinationals to divorce their tax practices from their approach to corporate responsibility. Companies must develop an ethical dimension to their tax practices.
The public no longer believes that bending the rules is acceptable.
In July of last year President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act–also known as the “financial overhaul bill”—into law. Embedded into the Dodd-Frank Act was Section 1504, which required companies listed on the U.S. stock exchange to disclose payments to governments for oil, gas, and mining. Under these provisions, companies would provide this information in their SEC filings and it would be publicly available.
Unsurprisingly, the American Petroleum Industry (API), a U.S. trade association for the oil and gas industry, is pushing back. In a letter to the SEC, API claims Section 1504 defies Executive Order 13563, which Obama signed in 2011 to require federal agencies to “engage in a cost-benefit analysis…of proposed and existing regulations.” API argues the SEC has failed to conduct that compulsory cost-benefit analysis. They’re even threatening to sue.
But, yes, please. Let’s talk cost-benefit analysis.
Cross posted with permission from Oxfam America’s Politics of Poverty blog.
In the first Star Wars movie, Luke Skywalker and friends somehow blew up the Death Star. That’s a bit how we felt in 2010 when after years of fighting we got a new global financial transparency requirement into the Dodd-Frank Wall Street Reform Act. The provision requires oil, gas, and mining companies to disclose tax and other payments in every country of operation. As I’ve been writing about in the last two weeks, we now feel like we are in The Empire Strikes Back. The oil industry has threatened to sue the SEC if they don’t get a regulation they like and are using lobbyists and lawyers to try to roll-back our victory.
Now it’s time for Revenge of the Jedi and the gloves are off. Oxfam and our allies in the Publish What You Pay coalition are mounting a big campaign to tell oil companies to stop fighting transparency—join us to take action. We have a six-figure ad campaign running the next two weeks, including a full-page ad in the Wall Street Journal, and online ads in the Washington Post,The Hill, Politico, and the Huffington Post. (The Wall Street Journal ad is endorsed by Global Witness, Revenue Watch Institute, Global Financial Integrity, EG Justice, and the Task Force on Financial Integrity and Economic Development.)
Why Oil Exporting Countries Need Transparency
The Huffington Post (Slideshow), February 14, 2012
Activists push for disclosure of oil, gas payments to host nations
Fuel Fix, February 10, 2012
White House Economic Adviser: ‘We Need a Global Minimum Tax’
Fox News, February 13, 2012
Ugland House, Grand Cayman – home to almost 19,000 companies, offshore funds and financial entities
Finfacts, February 13, 2012
HMV slams ‘idiotic’ offshore tax dodging
MCV, February 14, 2012
Yesterday, CNBC announced it’s new documentary,”Filthy Rich.” From their press release:
CNBC INVESTIGATIONS INC. FOLLOWS THE TRAIL OF INTERNATIONAL CORRUPTION AND MONEY LAUNDERING TO A SHOCKING TAX HAVEN…THE UNITED STATES
A CNBC Investigations Inc. One-Hour Documentary Reported By CNBC Senior Correspondent Scott Cohn
ENGLEWOOD CLIFFS, N.J., February 13, 2012— White tigers, private jets, multi-million dollar mansions in the most luxurious spots on earth – all paid for with money that critics say was stolen by the ruling families of oil-rich nations. There are estimates that corruption worldwide costs as much as $1.5 trillion a year. In many countries, the ruling families simply take what they want, living lives of luxury while their people face poverty and oppression.
The documentary will air on Thursday, February 23rd, at 9pm, and re-air immediately afterwards at 10 pm. Global Witness’s Robert Palmer was interviewed for the documentary.
Standing at the pump, watching the numbers tick away, do you ever wonder where the money goes? You’re not alone: People on the other end of the pipeline are wondering too. While we feel the pinch in our pockets, citizens of oil-producing countries are often not seeing the profits.
Big oil wants the SEC to water down the landmark U.S. transparency laws passed as part of the Dodd-Frank Financial Reform law. Oxfam America, together with a coalition that includes the Task Force, Global Witness, and Global Financial Integrity, is waging a campaign to tell them that a weak transparency standard is unacceptable. Read more here, or take action at Oxfam America.
Cross posted with permission from Oxfam America’s Politics of Poverty blog.
The oil and gas industry loves to trumpet their support of international transparency initiatives and their tax contributions to the US government, but when a new law requires them to tell the public exactly how much gets paid to whom around the world, they bring out the lobbyists and lawyers.
Browse through the corporate social responsibility reports of the top oil and gas companies, and you’ll see them singing from the same transparency hymnbook. Chevron says it “believes that the disclosure of revenues received by governments and payments made by extractive industries to governments could lead to improved governance in resource-rich countries.”
Many oil and gas companies are also “supporters” of the global Extractive Industries Transparency Initiative (EITI). (Companies can become a “supporter” simply by declaring “their support publicly”.) Unless a country decides to implement EITI, though, they are obliged to disclose nothing. For a company such as Chevron, this means disclosing tax and other payments in Nigeria (perhaps years after the fact), but nothing in next-door Equatorial Guinea, a classic petro-dictatorship. For the citizens of Equatorial Guinea—mala suerte (tough luck)!
In July 2010, the Dodd-Frank Wall Street Reform Act was signed into law. Dodd-Frank contains an important provision (“Section 1504″) that requires each oil, gas, and mining company to disclose their tax, royalty and other payments to governments in every country of operation. (Oxfam and our allies in the Publish What You Pay campaign fought hard for the inclusion of this provision—alongside our support for EITI.)
In his State of the Union address less than a month ago President Obama brought up a basic minimum corporate tax. He noted that “companies get tax breaks for moving jobs and profits overseas” and that American companies should not be allowed to use these mechanisms to avoid paying their fair share.
But in order to change this status quo, legislators need to close the loopholes that allow companies to drive down their effective tax rates far below the official rate. This needs to happen. There are far too many corporate tax loopholes—which are deductions, credits, and other tax expenditures that benefit certain activities—and they often result in very different marginal tax rates for different companies who conduct very similar business activities. It is these loopholes which allow corporations to pay an average rate of 12%, even though the statutory rate is 35%. It is these loopholes that allowed the 100 largest U.S. multinational corporations to pay about $16 billion of U.S. tax on approximately $700 billion of foreign active earnings in 2004 – an effective tax rate of about 2.3%.We must close these loopholes to align the effective corporate tax rate with the official rate.
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