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Friday’s Daily News Digest

Cliff Dalson

Dirty money is beyond Lokpal
Tehelka, 6 January 2012

Secrecy in private banking under Western siege
The Business Times, January 6, 2012

FinCEN Sees Uptick In Reporting, Annual Report Says
Wall Street Journal, January 5, 2012

Spanish Government to Crack Down on Tax Evasion
The Latin American Herald Tribune, January 5, 2012

Nick Clegg vows clampdown on tax avoidance
The Telegraph, January 5, 2012

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Five Achievable Steps for Transparency in 2012

Ann Hollingshead

The New Year is a great time for resolutions. Of course most of these resolutions are made on a personal basis. But resolutions can also be made on a national and international level. So in that spirit, here are five realistic resolutions to help theUnited States and the international community achieve more financial transparency in 2012:

  1. The U.S. passes the Incorporation Transparency Act. This bill would require companies to disclose the names of the beneficial owners of corporations and limited liability companies (LLCs) when formed. This would close a major loophole that criminals exploit to launder their funds within U.S. boarders and strengthen law enforcement officials’ ability to keep criminal and tax evading money out of the United States.
  2. FATF lists tax evasion as a predicate offense to money laundering. If FATF implemented this reform banks and financial institutions in member countries would need to examine and evaluate incoming deposits for signs of tax evasion for reporting. As Rebecca Wilkins, senior counsel at Citizens for Tax Justice, put it: “Tax evasion — whether committed by individuals or corporations — is a crime and its victims are honest taxpaying citizens all over the world. The proceeds of those crimes are the funds that should have been paid to the government and are badly needed to fund critical services, especially in these difficult times.”
  3. The U.S. Passes the Stop Tax Haven Abuse Act. This bill would permanently close offshore tax loopholes, which in turn would raise revenue and increase transparency and accountability for multinational businesses. The bill would also require annual country-by-country reporting by SEC-registered corporations related to their employees, sales, purchases, sales, financing arrangements, and taxes. Raymond Baker, director of Global Financial Integrity, has called it a “game changer.”
  4. FATF creates a new government requirement for trusts to be registered with the relevant authorities. The World Bank, the OECD, and the FATF have all observed that money launderers often use trusts to their identities and distance themselves from the proceeds of their crimes. There is no requirement for legal structures like trusts to register with government agencies and as a result there is little information about them, which makes them vulnerable to money laundering. Should the FATF implement this recommendation, trusts would have to provide the same information that other covered institutions collect on their customers. This would aid financial institutions in performing their due diligence.
  5. The U.S. Passes the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act. This bill, proposed by Senators Chuck Grassley (R-IA) and Dianne Feinstein (D-CA), would make all felonies trigger crimes for a money laundering charge, no matter where in the world a person committed the crime. According to current U.S. anti-money laundering laws, there is a difference between what is criminalized if it occurs inside U.S. borders and what is criminalized if it occurs outside them. Which means that it is perfectly legal for U.S. banks to accept the profits from some crimes, provided the original crime occurred in another country, when it would be illegal to do so if the same crime was committed in the United States. The bill would close this large loophole.

As with personal resolutions, these steps would not be easy. But also, like any good goal should be, these steps are achievable. In that spirit, here’s to a happy, healthy, and transparent New Year!

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Cheating: A Game as Old as Games

Ann Hollingshead

Cheating in sports has existed for as long as the sports themselves. During the ancient Olympic Games in Greece, officials placed pedestals inscribed with athletes’ names at the entrance of the stadium. The names were not of great athletes, but of those who violated the rules of the Games, in order to punish them into perpetuity. In today’s version of public dishonor, our media nationally broadcasts the names and crimes of steroid-injecting baseball players, blood-doping cyclists, and plotting figure-skaters. Other athletes, who are perhaps not directly cheating in their sports, are engaging in morally reprehensible behavior. Nearly daily, headlines read of stories like Michael Vick’s dog fighting, allegations against Ben Roethlisberger for sexual assault, and Tiger Wood’s extramarital affairs.

It doesn’t seem to be getting any better. In a 2008 article on the “death of honor in sports,” Marc Ellenbogen grieves the loss of athletes like Babe Ruth and Hank Aaron, noting that sports are now riddled with “greed, dishonor, and arrogance.”  But at the end of his article, in what is now a twisted irony, he murmurs he is thankful there are “still athletes like Tiger Woods …who young people can look up to.” Less than two years after these words were written, Woods publicly admitted to having been unfaithful to his wife, telling reporters he had believed his athlete status meant that “normal rules didn’t apply.”

It’s not just athletes. In May of last year, the International Federation of Association Football (in French: Fédération Internationale de Football Association or FIFA), suspended two of its officials: Mohamed bin Hammam of Qatar and Jack Warner of Trinidad and Tobago. The national body accused these men  of attempting to bribe the 25 heads of the Caribbean football associations who were voting in an upcoming FIFA presidential election. Allegedly, Warner offered them cash gifts of $40,000 each in exchange for their votes for Bin Hammam. Warner adamantly denied the allegations against him.

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Will South Sudan Defy the Resource Curse?

Ann Hollingshead

United Nations Photo / flickr

The resource curse is a tragic phenomenon that countries well-endowed with natural resources tend to have slower economic growth and poorer development than those without. This theory has been demonstrated very strongly in 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.

In January of 2011 the people of Southern Sudan—this also included expatriates and those living in the north—voted overwhelmingly in favor of independence from their northern neighbors. Their vote led to formal independence on July 9th, 2011, when South Sudan became the world’s newest nation. Given its declaration of independence has followed decades of conflict with the north—in which an estimated 1.5 million people have been killed—the secession itself was relatively painless. In a move emblematic of this relative ease, Sudan was the first nation to officially recognize its new Southern neighbor.

But now that South Sudan has officially asserted its independence, it faces numerous other obstacles. One of the most poignant is its vulnerability to the resource curse, which Secretary of State Hilary Clinton has already strongly cautioned the new nation to beware. South Sudan holds over 75% of what was the united country’s 500,000 barrels per day of oil output. Of the oil, Clinton noted: “We know that it will either help your country finance its own path out of poverty or you will fall prey to the natural resource curse which will enrich a small elite, outside interests, corporations and countries and leave your people hardly better off than when you started.”

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Senator Carl Levin: Watchdog for America

Ann Hollingshead

Last week, Global Financial Integrity (GFI) awarded its most prestigious honor, the Award for Exemplary Leadership, to Senator Carl Levin (D-MI). The Senator is the third person to receive this award and, given his long and exemplary career of leadership, it was well-deserved. He accepted the award at The Army and Navy Club inWashington,DC.

Senator Levin’s record of protecting American families, particularly by holding powerful institutions accountable, began with the first piece of legislation he proposed as a U.S. senator–a bill to end discrimination by credit card companies. Over his tenure in the U.S. Senate, Senator Levin has proved himself a formidable adversary for those powerful interests who seek to take advantage of weakness in our economic and financial system at the expense of ordinary Americans. He led investigations of the 2008 financial crisisabusive credit card practices, the Enron collapse, and speculation in energy and food markets.

Senator Levin has forcefully pursued his role as watchdog for Americain the field of overseas tax evasion and foreign bribery. To this end he has sponsored three pieces of legislation that promote transparency and financial integrity:

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One Step Ahead of Trade-Based Money Laundering

Ann Hollingshead

To effectively respond to criminal and terrorist threats, law enforcement officials pursue evolving technologies. Take the Transportation Security Administration, which since September 11th, regularly unrolls new procedures, technologies, and rules. Sometimes, as with the 2001 Shoe Bomb Plot after which passengers must remove their shoes for screening, these adaptations come as a response to a specific terrorist attack or attempt. Other times, TSA unveils new technologies to keep ahead of those threats that are still unknown.

The same is true with money laundering. Governments and law enforcement officials are continually seeking new methods of detection, new financial rules, and new procedures in hopes of staying one step ahead of the criminals.

Mexico, which has a particular problem with money laundering, also has crafted some particularly innovative anti-money laundering responses. Mexican President Felipe Calderon, who has called illicit money “vital for criminals,” has crafted a variety of money-laundering laws to help stem the flow of dirty money. For example, some reforms bar cash purchases of real estate and limit cash purchases of items like cars and planes with a price tag that exceeds $10,000.  In June, Mexico announced it would on cash deposits and withdrawals made in American dollars. Under the new rules “Mexicans with bank accounts can deposit as much as $4,000 in cash per month, but Mexicans without accounts can exchange only $300 a day up to $1,500 a month.”

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Global Trade Unions support CSO proposals to address corporate tax dodging

Alex Marriage

Crucial practical recommendations of global trade unions include taxing profits where they are generated and ensuring corporate and financial transparency. Corporate tax minimization has been taken to such an extreme that many developed countries’ economic and political systems are in danger of collapse. Trade unions could play a key, constructive role in changing the harmful systems and mindsets behind this crisis, according to the Council of Global Unions and Education International’s (EI) new report Global Corporate Taxation and Resources for Quality Public Services.

How to determine where real economic activity takes place

Formulary apportionment involves taking a company’s total profit worldwide (or amongst those countries taking part) and deciding the amount to be taxed in each country in proportion to measures of real economic activity such as staff numbers and sales figures.  Formulary apportionment is already used successfully within countries including between the U.S. states, Canadian provinces, and German Lander. The hardest part of implementing such as system internationally would be getting agreement amongst participating countries, so it is effectively a matter of political will. Formulary apportionment has been proposed at the EU level, with the potentially fatal flaw that it is voluntary, meaning companies can chose the most favorable option between the EU proposal the Common Consolidated Corporate Tax Base (CCCBT) and national rules.

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Our Own System, Against Us

Ann Hollingshead

Many times when we (and by “we” I mean all of those of us who aren’t involved in the intimate details of U.S.intelligence and counter terrorism efforts)… Many times when we think about terrorism, we imagine events transpiring many miles away. We believe terrorist attacks are brewed in distant countries, financed with drug money and untraceable transactions in cash, and executed by men and women who live in remote villages, towns, and cities, ruled by governments who can’t (or won’t) conduct effective counter terrorism. All of it comes together to make a phenomenon that is difficult, if not nearly impossible, to understand, track, and most importantly, predict.

The image above is excessively simplified. However, there is one part of the picture that is downright false. Which part? The financing.

As it would turn out, terrorists are not only financed by cash in suitcases. They aren’t only financed by accounts in remote banks in uncooperative tax jurisdictions. Yes, terrorists are financed by drugs and cash and accounts in secrecy jurisdictions. But they are also financed by bank accounts right here on U.S. shores. Even those in Manhattan.

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Monday’s Daily News Digest

EJ Fagan

Corporate tax evasion undermines Philippines remittances
The Vancouver Sun, December 19, 2011

Africa: Capital Flight Updates
Africa Focus, December 17, 2011

Taking the plunge
Republica (Nepal), December 19, 2011

Nepal: Illicit financial flows
The Nepal Telegraph, December 19, 2011

Look into alleged illicit money outflow
Borneo Post, December 17, 2011

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Mirage or Real?: The Claim Bribery is a Declining Problem for Russia

Ann Hollingshead

flickr / didkovskaya

Foreign bribery is a huge problem for the Russian economy. Investors are threatening to flee in droves in the face of ever increasing official depravity and the tightening of domestic laws on bribery abroad. Transparency International estimates that the total annual amount paid in bribes in Russia is worth $300 billion—equivalent to the GDP of Denmark.  Global Financial Integrity estimates that the country lost an average $47 billion in illicit financial flows per year, a number which money transferred abroad stemming from tax evasion, corruption, and trade mispricing.

Corruption has become an endemic characteristic of Russia’s public sector. As internal State Department memos made public by WikiLeaks revealed, the top levels of Russia’s government are engaged in a much deeper and more pervasive type of corruption than most of the world has realized.  One cable notes that 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.

Bribery is also pervasive part of the private sector’s culture. According to Transparency International’s Bribe Payers Index, Russian businesses were the most likely to pay bribes abroad compared to companies in 28 other leading economies, below both China and Mexico. Elena Panfilova, the Director of Transparency International’s Russian Chapter, believes this is the result of “stabilized corruption,” which means “that even if new laws are adopted, it does not have the desired effect on those involved in corruption because they are not enforced.”

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David Cay Johnston on TJN and Richard Murphy’s Tax Evasion Report

EJ Fagan

Reuter’s David Cay Johnston wrote on Richard Murphy and Tax Justice Network’s report on worldwide tax evasion this week. The best part? An excellent graphic of the top-10 countries by amount of tax evasion, set up against the size of their informal economies:


He writes:

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From Today’s Report on Illicit Financial Flows: Which Countries Lost the Most Relative to 2008?

Sarah Freitas

Today, Global Financial Integrity released our newest report,Illicit Financial Flows from Developing Countries Over the Decade Ending 2009. In the report, we found that despite the global financial crisis and subsequent drop in international trade and foreign direct investment, illicit financial flows still approached US$1 trillion out of the developing world. This represents a decline from the US$1.55 trillion we estimated flowed out of the developing world in 2008, but still represents a horrible tragedy for developing countries.

Despite this trend, a number of countries actually saw significant increases in illicit financial outflows in 2009. Here are the 10 countries that saw the largest increase:


To read more important findings or to download both a PDF of the report and all the data it contains, click here.

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