Learn About Illicit Financial Flows
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Dec
21

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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Dec
20

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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Dec
19

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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Dec
16

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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Dec
15

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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Dec
15

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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Dec
13

Illicit Financial Flows and the World Bank

Ann Hollingshead

In July of this year the World Bank Group took a big step forward in the field of illicit financial flows with its report Barriers to Asset Recovery. The study explicitly concerns reforms that will “enable the recovery of stolen assets” as the result of corruption. It is a topic which has been given a fair amount of attention this year, particularly in the wake of the Arab Spring. Ben Ali of Tunisia, Hosni Mubarak of Egypt, and Muammar Qaddafi of Libya all hid millions of dollars abroad, money that was frozen and publicized soon after revolutions began in their (respective) countries.

Of course, as I’ve noted, injustice also lives outside the headlines. It is not only countries’ most powerful leaders that steal money from their citizens and stash it abroad. In fact, proceeds of corruption escape the boarders of developing countries from nearly all levels of government. In its paper, the World Bank paper specifically addressed this issue by noting governments and institutions could be more effective in recovering stolen assets if central bank registries “identify the beneficial owner of the account and any power of attorney related to the account. By helping to identify accounts, central bank registries…speed the work of law enforcement authorities in asset recovery cases.”

The flip side of this coin is acknowledging and then seeking to understand the delirious effect these flows of money have on developing economies. Of course, the stolen assets of kleptocrats are only one piece of the pie. There are other avenues by which valuable financial resources escape developing economies—trade mispricing, smuggling, hawala transfers, and good old fashioned tax evasion are some examples of ways criminals rob developing countries. Together, these currents of money are termed “illicit financial flows”

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Dec
12

Philippines Lost $142 billion in Illicit Financial Flows between 2000 and 2009, Global Financial Integrity Finds

Sarah Freitas

Manilla, Philippines - flickr / tEdits

According to an upcoming report that estimates the magnitude of illicit money leaving developing countries, the Philippines lost US$142 billion between 2000 and 2009.  The amount of illicit money that left the economy puts the Philippines in the top 15 countries in outflows during the period.  The report, titled Illicit Financial Flows from Developing Countries Over the Decade ending 2009, will be published by Washington, DC-based research group Global Financial Integrity on December 15.

The study found that the majority of the illicit outflow, US$113.7 billion, is due to the mispricing of imported and exported goods. Trade mispricing is a phenomenon where individuals and corporations use fraudulent commercial invoices to smuggle money out of the country, usually in order to facilitate tax evasion. A large corporation or very wealthy individual in the Philippines will trade with a counterpart in another country, but will manipulate the price and quantity of exported goods to send more money offshore than represented by what they report to the government. The individual or corporation then collects the extra money later, usually in a bank account in a tax haven or secrecy jurisdiction.

This means that while the Philippines has seen significant outflows from corruption, bribery, and kickbacks, their biggest priority when addressing illicit capital flight should be to tackle trade-related tax evasion. Tax revenue loss represents teachers that are not hired, hospitals that are understaffed, and additional taxes levied on those already paying their fair share. We believe that the very real cost in human suffering and loss of life from tax evasion in the Philippines, and elsewhere throughout the developing world, is massive.

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Dec
9

The IFC’s incomplete approach to offshore abuse of aid

Alex Marriage

The World Bank Group’s new policy on offshore financial centers will aim to improve the effectiveness of its private sector arm by helping countries tackle tax evasion but effective rules must be made for partner companies.

As part of the World Bank Group, The International Finance Corporation (IFC) has a mission to promote development. The IFC uses public aid money, to fund private companies’ operations in poor countries, which should generate growth and increased government revenues. But reports by IBIS and Eurodad found these companies using tax havens, taking revenue from those countries that they are meant to benefit.

To prevent is partners from undermining its mission the IFC should require transparency from companies that it funds. Firstly by demanding sufficiently detailed country-by-country reporting and secondly requiring beneficial ownership disclosure; meaning a company must reveal all subsidiary companies that it owns a stake in or exercises control over. By setting an example of good practice for governments to follow the IFC could really leverage its impact and ensure the private sector contributed much more to development by paying its share of tax.

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Dec
9

Friday’s Daily News Digest

EJ Fagan

On International Anti-Corruption Day, the US should not enable corruption
The Hill (Op-Ed), December 9, 2011

India among best in fight with tax evasion
Zeebiz (India), December 9, 2011

Human rights abuses? Blame the parents
The Guardian (blog), December 9, 2011

Statement at the UN High-Level Dialogue on Financing for Development
Statement at the UN General Assembly, December 7, 2011

Wal-Mart Discloses Internal FCPA Review
The Wall Street Journal (blog), December 9, 2011

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Dec
9

Why the UN’s International Anti-Corruption and Human Rights Days Are Back-to-Back

Nick Mathiason

UN Human Rights Day Logo

Is it a coincidence that the UN’s International Anti-Corruption and Human Rights Days follow on consecutively. (Friday 9 and Sat 10 December)? Possibly not. After all, human rights abuse and corruption are linked. Not least by opaque corporate ownership structures that can prevent legal redress

People living in the Niger Delta where land and rivers are indelibly polluted after decades of oil extraction have long suffered violations of several internationally recognised human rights.

These rights comprise the right to food, the right to work, the right to an adequate standard of living, and the right to health and a healthy environment.

The sheer scale of environmental degradation which has wrecked farming and fishing livelihoods in the Delta was confirmed by the United Nations Environment Programme in August when it called for an initial $1bn fund to clean up oil related pollution.

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Dec
9

Why Jon Stewart is Right about Taxes

Ann Hollingshead

In 1992 the U.S. Supreme Court made a decision that directly affected the profitability of future powerhouse online retailers like Amazon.com and Overstock.com. In Quill v. North Dakota, the Court ruled that retailers who have no physical presence (or “nexus”) in a state are exempt from collecting sales taxes in that state. Obviously internet shopping in 1992 wasn’t what it is now. Actually the case dealt with a catalog mail-order company, but online retailers now use the rule to avoid sales taxes.

Of course since e-commerce sales have soared and displaced business of local retailers, this ruling has become am increasingly thorny budgetary problem for states.  According to a study at the Universityof Tennessee, yearly e-commerce sales rocketed from $995 billion in 1999 to an estimated $4 trillion in 2011. These conditions also give online retailers like Amazon and Overstock a pretty nice advantage over the general store down the street, since in some states sales taxes amount to nearly 10% of the purchase price. Or as Bill Dombrowski, president of the California Retailers Association, put it: “You can’t give one segment of retail a 10% discount every day. It’s just not fair.”

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Tax Justice Network Africa · January 29, 2015

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Financial Transparency Coalition · December 17, 2014

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