Financial Transparency Coalition http://www.financialtransparency.org Mon, 23 Mar 2015 16:58:41 +0000 en-US hourly 1 http://wordpress.org/?v=3.7.5 Can transparency exist behind closed doors? http://www.financialtransparency.org/2015/03/20/can-transparency-exist-behind-closed-doors/ http://www.financialtransparency.org/2015/03/20/can-transparency-exist-behind-closed-doors/#comments Fri, 20 Mar 2015 16:51:14 +0000 http://www.financialtransparency.org/?p=25953 2080966871_c08901a22d_z Lately, we've had quite a few reasons to get outraged as global citizens, especially when looking at the financial system, which seems all too well rigged in favor of a small, wealthy elite. We've learned of secret tax deals undoubtedly concocted in ominously tall office buildings between some of the worlds biggest companies and a tax haven; and we've also learned of billions of dollars that were being held by a Swiss bank by the world's wealthiest, amid claims that the bank was helping many of these people evade taxes in their home countries. But there's an important caveat to all of this.]]> 2080966871_c08901a22d_z

Lately, we’ve had quite a few reasons to get outraged as global citizens, especially when looking at the financial system, which seems all too well rigged in favor of a small, wealthy elite. We’ve learned of secret tax deals undoubtedly concocted in ominously tall office buildings between some of the worlds biggest companies and a tax haven; and we’ve also learned of billions of dollars that were being held by a Swiss bank for the world’s wealthiest, amid claims that the bank was helping many of these people evade taxes in their home countries.

But there’s an important caveat to all of this.

Without leaked documents from a few whistleblowers, we would have never known about any of it in the first place. I bring all of this up because this week the European Commission (EC) unveiled a new proposal aimed at stemming tax avoidance, dubbed the “Tax Transparency Package“. The plan was the EC’s direct response to the LuxLeaks investigation by the International Consortium of Investigative Journalists, which exposed “sweetheart” tax deals that let hundreds of multi-national corporations (MNCs) shift profits to Luxembourg, in some cases to be taxed at less than 1%.

Their plan was largely heralded by much of the media as a “crackdown” on tax avoidance:

Bloomberg News

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Wall Street Journal

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Associated Press

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AFP

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And while the package is certainly a welcome initiative—and one that will hopefully result in more government scrutiny of aggressive tax avoidance and outright tax evasion—is it really the “transparent” proposal that the European Commission’s document title would suggest?

Our colleagues at the European Network on Debt and Development had quite a smart opinion on this very question:

While governments will begin sharing information on tax rulings automatically, none of this information will be in the public’s purview under the current proposal. This is completely counter to the very definition of “transparent”, which describes something that is “open to public scrutiny”. It’s more than fine if the European Commission wishes to call the proposal a “tax avoidance package”, but to tack the word transparency on at the end is to imply that Europe’s citizens will be privy to the information, which they won’t.

This is even more curious when you look at the Communiqué released alongside the package, which admits that the initiative “has been fueled largely by the public demand” and was due in part to “recent public revelations” (LuxLeaks). Here, the EC basically acknowledges that they are reacting to the public’s outrage at these deals being secret, and that action has only come because some of the deals saw the light of day and became transparent.

Luckily, this proposal is just a starting point. There’s a chance to convince Europe’s policymakers that this sort of information should be made public by June 1st, when they revisit the issue. And from their own Communiqué, the European Commission has at least left this option on the table:

The Commission will consider whether additional public disclosure of certain corporate tax information should be introduced, in a way which goes beyond administrative cooperation and provides public access to a limited set of tax information of multinational companies.

The question of transparency requirements on aggressive tax planning arrangements, which are part of the OECD BEPS work also needs to be considered, taking into account, for example, the costs and benefits of transposing such rules into EU law.

While there are lots of hypotheticals and considerations in the EC’s Communique above, the fact that they are even exploring public disclosure is a start. However, it’s vital that we continue to stress the importance of public disclosure to policymakers so that their title of “transparency” can ultimately reflect what’s within the actual text.


Image used under Creative Commons License / Flickr User Lorenzo G

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Addressing Illicit Financial Flows in the FfD and SDG Processes http://www.financialtransparency.org/2015/03/19/addressing-illicit-financial-flows-in-the-ffd-and-sdg-processes/ http://www.financialtransparency.org/2015/03/19/addressing-illicit-financial-flows-in-the-ffd-and-sdg-processes/#comments Thu, 19 Mar 2015 17:13:08 +0000 http://www.financialtransparency.org/?p=25943 445546608_c4b2d7216f_b On Monday, the United Nations released a so-called “Zero Draft” of the Financing for Development (FfD) Conference Outcome Document. Simply stated, this draft lays out the current political consensus on a vast array of development issues including how to address the growing problem of illicit financial flows (IFFs). It is by no means the final word on IFFs—or any other issue for that matter—but it gives a good indication where things are heading.]]> This post originally appeared on the blog of Global Financial Integrity, a Coordinating Committee member of the FTC.

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The “Zero Draft” of the Financing for Development Conference Outcome Document Should be Improved to Aim to Halve Illicit Flows from Trade Misinvoicing

On Monday, the United Nations released a so-called “Zero Draft” of the Financing for Development (FfD) Conference Outcome Document. Simply stated, this draft lays out the current political consensus on a vast array of development issues including how to address the growing problem of illicit financial flows (IFFs). It is by no means the final word on IFFs—or any other issue for that matter—but it gives a good indication where things are heading.

The draft proposes three specific steps to address IFFs, including:

  • Developing “a proposal for an official definition of IFFs”,
  • Developing “a proposal to publish official estimates [of IFF] volumes and breakdown,” and
  • An international effort to “substantially reduce” the flow of IFFs.

These measures go a long way toward addressing a problem that has captured the attention of the development community over the last few years. For example, in 2013the World Bank noted that “there is little doubt” that IFFs have a caustic effect on development, and last year the African Union noted that “it is imperative to curtail” illicit flows.

Indeed, at an estimated $1 trillion annually, illicit capital flowing out of developing countries exceeds the combined total of official development assistance (ODA) and foreign direct investment (FDI) flowing into those economies. Moreover, the magnitude of illicit flows has more than tripled from 2003 to 2012 (the last year for which data are available). The stark reality is that this fundamental drag on development is acute and worsening each year.

It should be noted that of the total estimated annual outflows, close to 80 percent of the funds are moved offshore using trade misinvoicing (i.e. invoice fraud). This method of transferring wealth is at the crux of the development equation due to its direct linkage to domestic resource mobilization (DRM). The importance of domestic revenues was underscored in the 2002 Monterrey Consensus, which committed nations to improving their DRM efforts, and in a 2013 UN technical paper, which noted that domestic resources are “being severely undermined by” IFFs.

And in the most fragile of countries, adequate domestic funding is of even greater importance due to the inherent challenges to build economies when emerging from conflict. In the 2014 UN Peacebuilding Commission’s Annual Meeting summary it was noted that “countries emerging from conflict have difficulty mobilizing domestic resources, while . . . facing steep challenges to meet expectations for social service delivery. . . . ”

More recently, reports have been issued that highlight the role trade misinvoicing plays in undermining economic progress as well as human rights. In January, the Africa Union and UNECA’s High Level Panel on Illicit Financial Flows completed three years of work with a report, which recommended, among other things, that “African States’ customs authorities should use available databases of information about comparable pricing of world trade in goods to analyze imports and exports and identify transactions that require additional scrutiny.”

Given the importance of DRM to development and the corrosive role played by trade misinvoicing, it is imperative that this issue be addressed within the context of the FfD and the Sustainable Development Goal (SDG) processes. And, in that context, we urge the UN to go a bit further in the next iteration of the FfD Outcome Document by:

  1. highlighting “the pernicious impact trade misinvoicing has on domestic resource mobilization and the ability of developing countries—especially those emerging from conflict—to grow their economies and address poverty;”
  2. underscoring “the importance of cooperation between developed and developing countries to provide commercially available trade databases and relevant training to developing country customs departments, which will enable them to identify, investigate, and interdict goods when they have been misinvoiced;” and
  3. including a SMART target that would commit developed and developing countries to work together in the Post-2015 period to “reduce illicit financial flows related to trade misinvoicing by 50%.”

The impact of these steps will be to create both the political support (FfD) and the policy focus (SDG) needed to address illicit flows in a concrete manner over the next 15 years.   By having trade misinvoicing and IFFs anchored in both documents, the international community will include mutually-reinforcing references to a severe development challenge that has yet to be addressed in a coherent manner.


Image used under Creative Commons Licensing / Flickr User Jim Bowen

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New Report: Ten Reasons to Defend the Corporate Income Tax http://www.financialtransparency.org/2015/03/19/new-report-ten-reasons-to-defend-the-corporate-income-tax/ http://www.financialtransparency.org/2015/03/19/new-report-ten-reasons-to-defend-the-corporate-income-tax/#comments Thu, 19 Mar 2015 14:22:53 +0000 http://www.financialtransparency.org/?p=25939 [i] It is even more important for developing countries. And yet the corporate tax is disappearing fast. Average headline tax rates are around half of what they were in 1980, and on current trends will reach zero in the next two or three decades. We may not even have this much time, given the influence of the large accountancy firms and corporate lobbyists actively working to hasten its demise.]]> TJN square logo - NOV-2013

Trillions in public spending at risk as attacks on corporate tax intensify

Today the Tax Justice Network publishes a landmark report entitled Ten Reasons to Defend the Corporation Tax.

The short summary document is here, and the full document is here.


The corporate income tax is under attack. Nation states are scrambling to offer multinational corporations an ever growing feast of lower taxes, loopholes and incentives. Lobbyists and politicians constantly try to persuade us that the corporate tax is a bad, inefficient, unreasonable tax. Yet it is one of the most precious of all taxes.

One of our ten points concerns revenue. Corporate income taxes have added up to almost US$ 7.5 trillion since the global financial crisis erupted in 2008, in OECD countries alone. This is nearly half of all OECD public health spending and around double the amount spent on public tertiary education, one of the fundamental underpinnings of corporate profits.[i] It is even more important for developing countries.

And yet the corporate tax is disappearing fast. Average headline tax rates are around half of what they were in 1980, and on current trends will reach zero in the next two or three decades. We may not even have this much time, given the influence of the large accountancy firms and corporate lobbyists actively working to hasten its demise.

Since the 1970s, multinational corporate profits have soared but the constant attacks on the corporate tax mean nation states are capturing a dwindling share of this bonanza. The result is greater inequality, higher taxes for poorer sections of society, distorted markets, and rising fears of plutocracy.

The attached documents outlines ten reasons why it is essential to defend the corporate income tax. In summary, these are:

1. Corporate income taxes raise essential revenue for schools, hospitals and the rule of law.

2. Less well understood is the fact that the corporate tax helps hold the whole tax system together: without it, people will stash their money in zero-tax corporate structures and defer or even escape tax entirely.

3. The corporate income tax curbs inequality and protects democracy. The tax charge falls largely on the wealthy owners of capital: without it, corporations and their wealthy owners free-ride off the public services paid for by others.

4. Corporate taxes enhance national welfare. So-called “competitive” tax-cutting is fools’ gold, particularly for the larger economies.

5. Corporate tax cuts, incentives and loopholes ricochet around the world. A tax cut in one place may suck capital out of others and prompt other jurisdictions to follow suit, in a race to the bottom where the only winners are the very wealthiest sections of society.

6. The corporate income tax is particularly important for developing countries, which rely more heavily on it than rich countries do.

7. Corporate taxes can rebalance economies. Corporations around the world are hoarding cash, not investing it. Corporate taxes harness this idle cash and put it to productive uses, via government spending on education, roads and other public services.

8. The corporate tax curbs rent-seeking. Because rent-seeking tends to be more profitable than genuine productive activity, the corporate tax falls more heavily on it.

9. Tax cuts and special incentives don’t stop at zero: they turn negative. In this race to below the bottom there is no limit on corporations’ zeal for free-riding off public goods and subsidies paid for provided by others.

10. Corporate taxes spur transparency and more accountable government. To collect the tax, states must put in place good tracking measures.

Our document also addresses seven common myths about the tax: that it’s fine because tax avoidance ‘is legal;’ that taxes are ‘too high’; that tax is ‘theft’; that the corporate tax is unfair ‘double tax’; that it is inefficient and should be replaced by VAT; that corporate directors have a fiduciary duty to minimise tax; that the tax falls most heavily on ‘workers’; and that the Laffer Curve and so-called Dynamic Scoring are useful guides to policy.

In short, the corporate income tax is worth fighting for.


Please see the short summary and the full report.

John Christensen, Director of the Tax Justice Network, said:

“The corporate income tax is one of the best and most direct ways of taxing capital. On current trends the tax will soon disappear, ushering in an era of unaccountable, untaxed plutocracy and towering inequality in all countries.”

Nicholas Shaxson, the report’s main author, said:

“Corporate profits are soaring, as workers lose political battles with the owners of capital; as multinationals shake off pesky regulations; and as public assets are sold off. Yet taxpayers are seeing less and less of this bonanza, as corporations increasingly free-ride off public goods, leaving everyone else to pay the taxes they won’t. The result? Inequality rises, whole economies are thrown out of balance, and democracy and prosperity suffer.”

Louis Brandeis, a former U.S. Supreme Court Justice, said:

“We can either have democracy in this country or we can have great wealth concentrated in the hands of a few. But we can’t have both.”

Contact:

John Christensen, Director, Tax Justice Network
+44 7979 868 302

Nicholas Shaxson, Tax Justice Network
+49 170 356 5101

www.taxjustice.net

[i] From OECD Revenue Statistics, Comparative Tables, code 1210, corporate tax revenues as a share of GDP. (Data source excludes OECD members Chile, Hungary, Mexico, Poland and Slovenia.) GDP data sourced from OECD national accounts data, GDP, US$, current prices, current PPPs. Total for 2008-2013 is $6.2 trn, with an annual average just over $1tn/year. Adding estimate for 2014 gives $7.3 trn including 2014 . Education data from Education At a Glance, 2013 OECD indicators, and earlier years. The tertiary share has been stable at ca. 1.5 percent of GDP; corporate tax revenues have averaged 3.0 percent of GDP. Education data from OECD StatExtracts, General Government total current Expenditure, % of GDP.

 

 

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European Commission’s Tax Transparency Package keeps tax deals secret http://www.financialtransparency.org/2015/03/18/european-commissions-tax-transparency-package-keeps-tax-deals-secret/ http://www.financialtransparency.org/2015/03/18/european-commissions-tax-transparency-package-keeps-tax-deals-secret/#comments Wed, 18 Mar 2015 10:25:52 +0000 http://www.financialtransparency.org/?p=25934 The European Commission’s new measures to combat secret tax deals made between multinational companies and governments cannot be called tax transparency, as they fail to give citizens access to any information.  The Tax Transparency Package, published today in response to the Luxembourg Leaks scandal, makes some improvements to the information that tax administrations receive, but keeps tax rulings confidential, denying proper public scrutiny of governments’ tax administrations and large companies.  Tove Ryding, Head of Tax Justice at the European Network on Debt and Development (Eurodad), said: “This is not tax transparency or tax justice. The veil of secrecy remains in place.” Twenty-two EU member states currently offer tax rulings – also known as “comfort letters” - to multinational enterprises. These agreements have been abused to offer “sweetheart deals” to companies, which is why the public needs access to this information  The lack of public information also means that tax administrations in developing countries cannot identify corporate tax dodgers.]]> FINANCIAL TRANSPARENCY COALITION — EURODAD
Campaigners disappointed with unambitious package but European Commission has second chance to deliver in June

FOR IMMEDIATE RELEASE

The European Commission’s new measures to combat secret tax deals made between multinational companies and governments cannot be called tax transparency, as they fail to give citizens access to any information. 

The Tax Transparency Package, published today in response to the Luxembourg Leaks scandal, makes some improvements to the information that tax administrations receive, but keeps tax rulings confidential, denying proper public scrutiny of governments’ tax administrations and large companies. 

Tove Ryding, Head of Tax Justice at the European Network on Debt and Development (Eurodad), said: “This is not tax transparency or tax justice. The veil of secrecy remains in place.”

Twenty-two EU member states currently offer tax rulings – also known as “comfort letters” – to multinational enterprises. These agreements have been abused to offer “sweetheart deals” to companies, which is why the public needs access to this information 

The lack of public information also means that tax administrations in developing countries cannot identify corporate tax dodgers. 

“Though this tax transparency package is supposed to be a response to the Luxembourg Leaks, it’s only addressing a fraction of the problem,” said Koen Roovers, EU Advocate for the Financial Transparency Coalition. “Over 150 companies in the leak were associated with the United States, but they will simply be out of bounds under this proposal.”

“If all EU tax rulings were made public, companies would have a harder time negotiating the types of tax deals that don’t stand up to public scrutiny,” Roovers added.

Public tax rulings and country by country reporting – which would mean that multinational corporations would have to publish where they run their businesses and where they pay their taxes – would have delivered tax transparency.

Tove Ryding added: “The European Commission has the chance to make a real difference in June, when it releases its Corporate Tax Package. We hope that the baby steps taken in this package will turn into strides for real change in the summer.”

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For further information, or to request an interview, please contact: 

Christian Freymeyer, Press & Digital Media Coordinator, Financial Transparency Coalition at:

cfreymeyer@financialtransparency.org or +1.410.490.6850

Notes to Editors:

  • The Tax Transparency Package is the first of a set of measures which will be followed up by a Corporate Tax Package in June. This will be implemented from the summer onwards, under the new Luxembourg presidency.

 

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The world can’t afford to exclude developing countries from new anti-tax evasion system http://www.financialtransparency.org/2015/03/16/the-world-cant-afford-to-exclude-developing-countries-from-new-anti-tax-evasion-system/ http://www.financialtransparency.org/2015/03/16/the-world-cant-afford-to-exclude-developing-countries-from-new-anti-tax-evasion-system/#comments Mon, 16 Mar 2015 13:43:41 +0000 http://www.financialtransparency.org/?p=25923 BRUSSELS—Weeks after the shocking revelations of wide-spread tax evasion at HSBC’s Swiss branch, a new report from a European Commission expert group on the Automatic Exchange of Financial Information (AEFI) makes it clear that the world can’t afford to exclude developing countries from new anti-tax evasion measures. The expert group set out to address a number of questions around new efforts to clamp down on tax evasion through the automatic exchange of financial information between governments. Composed of business and industry associations, as well as some civil society groups, including the Financial Transparency Coalition (FTC), the panel concluded that the strongest cross-border exchange is one that includes all countries, not just the ones who are deemed ready to participate from the start.]]>  In the wake of ‘SwissLeaks’, European Commission expert group publishes recommendations on new anti-tax evasion measures 

For Immediate Release

BRUSSELS—Weeks after the shocking revelations of wide-spread tax evasion at HSBC’s Swiss branch, a new report from a European Commission expert group on the Automatic Exchange of Financial Information (AEFI) makes it clear that the world can’t afford to exclude developing countries from new anti-tax evasion measures.

The expert group set out to address a number of questions around new efforts to clamp down on tax evasion through the automatic exchange of financial information between governments. Composed of business and industry associations, as well as some civil society groups, including the Financial Transparency Coalition (FTC), the panel concluded that the strongest cross-border exchange is one that includes all countries, not just the ones who are deemed ready to participate from the start.

“If you set up a system that is poised to leave some countries out, you risk creating a vacuum that’s easily filled by secrecy and a system that lacks accountability, said Koen Roovers, Lead EU Advocate for the FTC and member of the expert group. “By excluding some countries, you may actually be helping to create new tax havens, which is completely contrary to the purpose of the new system.”

The current global standard being developed contains a reciprocity clause, meaning that a country can only receive information about its citizens’ accounts abroad if it can share information from its own financial institutions. But many low-income countries don’t yet have the capacity or technological requirements needed.

The expert group suggested the possibility of a “phased approach” for developing countries, allowing them to receive information while they build the capacity and technological requirements to share their own.

“Such a relatively small amount of money is moving from rich countries to poor ones, yet vast sums are moving the other way. For a global system to truly be global countries that are disproportionately affected have to be included,” said Roovers. “It is vital that developing countries losing billions to tax evasion receive information from the start.”

“This money isn’t simply vanishing, and we shouldn’t have to wait until the next leak from a bank to learn where it’s going,” Roovers added. “With a robust information exchange, we’d be able to prevent tax evasion from the start, rather than curing a problem that’s already run rampant.”

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Notes to Editors:

[1] The Financial Transparency Coalition is a global network of more than 150 allied civil society organizations, fourteen governments, and dozens of the world’s foremost experts on illicit financial flows.

[2] Journalist Contact:

Christian Freymeyer, Press & Digital Media Coordinator

+1.410.490.6850 (USA), cfreymeyer@financialtransparency.org

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Who’s in your backyard? Looking at anonymous companies and their ownership of London Property http://www.financialtransparency.org/2015/03/04/whos-in-your-backyard-looking-at-anonymous-companies-and-their-ownership-of-london-property/ http://www.financialtransparency.org/2015/03/04/whos-in-your-backyard-looking-at-anonymous-companies-and-their-ownership-of-london-property/#comments Wed, 04 Mar 2015 16:50:55 +0000 http://www.financialtransparency.org/?p=25892 UKUnmask

Do you know who owns the house behind yours? What about the one down the street, or that mansion in the nice part of town? When anonymous companies are involved, you can't just walk up and ring the door bell, which makes it tough to find out who really owns a house or property. We've seen anonymous companies come up in property ownership time after time, from former Ukrainian President Vktor Yanukovych's mansion to Iran's secret ownership of a Manhattan skyscraper. Now, Transparency International has released a new report looking at this very question, and set off to uncover just how many properties around London are owned by anonymous companies in secrecy jurisdictions or tax havens. Some of the results are pretty staggering.]]>
UKUnmask

Do you know who owns the house behind yours? What about the one down the street, or that mansion in the nice part of town?

When anonymous companies are involved, you can’t just walk up and ring the door bell, which makes it tough to find out who really owns a house or property. We’ve seen anonymous companies come up in property ownership time after time, from former Ukrainian President Vktor Yanukovych’s mansion to Iran’s secret ownership of a Manhattan skyscraper. Now, Transparency International has released a new report looking at this very question, and set off to uncover just how many properties around London are owned by anonymous companies in secrecy jurisdictions or tax havens.

Some of the results are pretty staggering. The findings, which pulled data from the UK Land Registry and the London Metropolitan Police Proceeds of Corruption Unit, found that 75% of properties whose owners are under investigation for corruption used offshore secrecy jurisdictions to hide their identities. This isn’t really a surprise when you look at how easily you can hide your identity via an anonymous company. In jurisdictions all over the world, from the British Virgin Islands to Delaware, it’s quite easy to set up a company without having to provide any information on who is the beneficial owner (the real person behind a company). In Delaware, for instance, you need to provide more information to obtain a library card than to start a company.

Almost one in ten properties in the City of Westminster are registered to companies in offshore secrecy jurisdictions, according to the new TI report. In Kensington and Chelsea, the number is about 7.3%. An amazing 36,342 properties in London are held by companies based in offshore jurisdictions. Leading the way is the time honored friend of secrecy, the British Virgin Islands, which accounts for 38% of the total number of properties.

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Alongside this report, Transparency International has launched an interactive microsite that allows you to visualize the data to truly understand the scope and breadth of the numbers. But this report, and similar reporting in a New York Times series on anonymous company ownership of properties in the United States beg a larger question: why are anonymous companies a thing?

There are countless reasons anonymous companies are controversial. They help politicians and the wealthy elite embezzle funds, they help arms dealers hide their identity, and aid corporations in tax evasion. They also contribute to the almost $1 trillion that leaves developing countries every single year in illicit financial flows. But the arguments as to why anonymous companies should exist are conspicuously absent.

Business mogul Mo Ibrahim said it best during the US-Africa Summit:

“there’s absolutely no good reason for someone to have an anonymous company”

That’s why we’re advocating for public registers of the beneficial owners of companies throughout the world. Fortunately, we’re seeing some movement in this direction. The U.K. has begun the process to create public registers of all companies incorporated there, and the EU recently finalized legislation within the European Anti-Money Laundering Directive that will create national-level registers of beneficial ownership information that will be accessible to authorities. The information, however, will only be available to journalists, NGOs or members of the public if they can prove a “legitimate interest” in obtaining the information.

But even with these movements, there is still a lot of work to be done. Secrecy jurisdictions, where company ownership information isn’t even collected, remain alive and well. From Delaware to Kenya, recently dubbed the easiest place in the world to start an anonymous company, those looking to steal, evade taxes and break the law have a number of havens to choose from. As more and more jurisdictions embrace financial transparency, the secrecy jurisdictions where illicit flows can hide will hopefully decrease as a result.

 

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Settling accounts: what happens after SwissLeaks? http://www.financialtransparency.org/2015/02/18/settling-accounts-what-happens-after-swissleaks/ http://www.financialtransparency.org/2015/02/18/settling-accounts-what-happens-after-swissleaks/#comments Wed, 18 Feb 2015 14:38:26 +0000 http://www.financialtransparency.org/?p=25886 cash withdrawals worth millions of dollars to setting up sham legal entities to obscure the ownership of the funds. The ‘Lagarde list’, as the files have come to be known, has been around for a couple of years and so many have been asking: ‘Why do we only see government action once a group of reporters put the spotlight on this?’ Another frequent question has been whether the bank has really (as it claims) cleaned up its act. Relatively few commentators have asked: how do we prevent this in the first place?]]> This article first appeared on openDemocracy, you can view the original article here.

A major leak of incriminating HSBC records last week resulted in print and television news coverage around the globe, trended on Twitter for several days and prompted several governments to start long-anticipated investigations. Through its Swiss entity, the British banking juggernaut helped customers from around the world to hide their money for tax evasion or other nefarious purposes without any questions asked. In fact, in several of the ‘scripts’ which accompany the accounts, banking personnel are seen to be very willing to accommodate dubious requests—from allowing cash withdrawals worth millions of dollars to setting up sham legal entities to obscure the ownership of the funds.

The ‘Lagarde list’, as the files have come to be known, has been around for a couple of years and so many have been asking: ‘Why do we only see government action once a group of reporters put the spotlight on this?’ Another frequent question has been whether the bank has really (as it claims) cleaned up its act.

Relatively few commentators have asked: how do we prevent this in the first place?

Information exchange

Last year, the Organisation for Economic Co-operation and Development (OECD)—a rich nations’ think tank—proclaimed the death of banking secrecywhen it launched its new ‘Common Reporting Standard’, a global system intended to enable automatic information exchange (AEoI) between governments on the deposits of residents, for tax purposes. The Financial Transparency Coalition (FTC) has been following this closely and questions whether the plan, in its current shape, will prevent the next global tax-evasion scandal.  The poorest countries suffer most from tax evasion and other illicit financial flows, and they may be left out of the plan.

The idea behind AEoI is simple: financial institutions everywhere will determine which of their clients are foreign tax residents. Each institution will provide information about them to its ‘home government’, which will forward this ‘automatically’ at set intervals to the government whose citizens it concerns. Essentially, instead of governments relying on their own tax residents to disclose their foreign accounts, a tax resident’s foreign bank will let its government know about them.

A good idea in principle, but the way it is intended to be put into practice is controversial. OECD members have made participation dependent on confidentiality standards yet to be defined. And some states—including Switzerland—have added further reservations, wanting to exchange only with countries with which they have political and economic ties.

To illustrate why such a requirement would be disingenuous, look at offshore holding around the world. Residents of Africa and Latin America are estimated to hold over a quarter of their assets offshore, whereas the volume of offshore assets from other countries held in the poorest countries is negligible. Nigeria, with one of the most developed financial sectors in Africa, holds less than 1% of its bank assets in the UK, for example. In other words, wealthier states generally have little to gain economically from exchanging information with poorer countries, whereas the latter have a great deal to gain. If the criteria for exchange include whether wealthier countries obtain a substantial economic benefit, the intended global development benefits of the plan will be lost before the first bytes of data are exchanged.

It is in everyone’s interest that automatic information exchange becomes a global standard, with all jurisdictions participating as soon as possible. But it is widely accepted that developing countries will face challenges in joining the AEoI system and fully benefiting. Both for OECD members and developing countries the stakes are high, as potential loopholes in the global system could be devastating. Creating a system where developing countries are effectively excluded risks the creation of new tax havens outside of the exchange, as well as depriving developing countries of the necessary information for them to enforce their tax systems effectively.

Significant challenge

Capacity in developing countries will need to be increased, so that any technical barriers to taking part in the global system can be overcome sooner rather than later. The scale of the challenge is significant: the UK-based charity Christian Aid has estimated that sub-Saharan Africa would need around 650,000 more tax officials to reach the world average. Inadequate information technology represents another barrier.

A good idea in principle, but the way it is intended to be put into practice is controversial.

Through the G8, the G20 and the Global Forum—a platform hosted by the OECD with 125 participating governments—rich states have promised help to poor countries to build the capacity they need, but these commitments have yet to be honoured. Investing in AEoI is one of many pressing issues facing developing countries, so if and when they make a commitment to it they should be ensured that support will be there.

Such technical assistance should engage developing-country tax authorities and investigative and prosecutorial personnel, to demonstrate how AEoI information can be mined for specific data or used to identify trends. For this to happen, developing countries need to be receiving data. The FTC strongly recommends a phased approach for the poorest countries (those with gross national income per capita of less than $4,125), to prepare them for full co-operation in a global system of information exchange.

Identifying assets

Meanwhile, potential benefits for developing countries can also be assessed by identifying the assets of their residents held overseas, for example using data collected by the Bank of International Settlements. As sufficiently disaggregated data are not available publicly, only government-led research is currently possible here. Governments are encouraged to publish the volume of data being exchanged, the number of individuals involved and the extent of the assets concerned.

These statistics would give citizens, journalists, politicians and organisations an idea about the potential impact of AEoI. Research on the deterrent effect—which may be the main impact—would very likely prompt countries to prioritise participation. And what, other than such a deterrent of tax evasion, would prevent the next big scandal?

But even if all the loopholes in global information exchange are fixed, this is a solution to today’s problems, not tomorrow’s. Criminals and their enablers are creative, so the only way to prevent future scandals is to shed light on what criminals and tax dodgers are trying to hide. This is why online registers of assets for all legal persons and arrangements are necessary and should be publicly available. And law-enforcement bodies around the world should have access to information about other stores of wealth, such as gold and art held in freeports.

If we turn a blind eye to these loopholes, economic development for all will continue to be undermined by illicit actors looking to exploit them.

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HSBC findings don’t surprise us. What will it take for things to change? http://www.financialtransparency.org/2015/02/13/hsbc-findings-dont-surprise-us-what-will-it-take-for-things-to-change/ http://www.financialtransparency.org/2015/02/13/hsbc-findings-dont-surprise-us-what-will-it-take-for-things-to-change/#comments Fri, 13 Feb 2015 20:05:04 +0000 http://www.financialtransparency.org/?p=25878 7241603398_414983169d_z (1) Fresh revelations from the Guardian today, paint an even bleaker picture of HSBC Geneva’s client list. According to the paper, the bank’s customers included those who faced allegations of drug-running, corruption, doping and money laundering. Over twenty years, Global Witness has campaigned to stop a lot of things, from blood diamonds to corrupt dictators, to the money flows that fuel conflict. It appears that HSBC has been playing its part in enabling the money flows that support such activities. In some cases, the Guardian claims to have evidence that HSBC bankers were aware of some of the allegations against their clients.]]> This post originally appeared on the blog of Global Witness.

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Fresh revelations from the Guardian today, paint an even bleaker picture of HSBC Geneva’s client list. According to the paper, the bank’s customers included those who faced allegations of drug-running, corruption, doping and money laundering.

Over twenty years, Global Witness has campaigned to stop a lot of things, from blood diamonds to corrupt dictators, to the money flows that fuel conflict. It appears that HSBC has been playing its part in enabling the money flows that support such activities. In some cases, the Guardian claims to have evidence that HSBC bankers were aware of some of the allegations against their clients.

Sadly, news of HSBC behaving badly isn’t news to us. HSBC has featured repeatedly in our investigations:

  • In 2007 we revealed how the bank was raising money for global forest destruction. HSBC appeared to violate its own environmental guidelines by arranging the stock exchange listing for Malaysian timber giant Samling, a company notorious for destroying tropical forests and the abuse of local communities.
  • In 2009, our Undue Diligence report highlighted how HSBC hid behind bank secrecy laws in Luxembourg to frustrate US efforts to find out if Equatorial Guinea’s oil revenues had been looted and laundered.
  • In 2010, we exposed how HSBC was one of a number of banks that had taken millions of pounds from corrupt Nigerian politicians. A UK High Court Judge found that some of the payments made through an account at HSBC were bribes, raising serious questions about the checks that the bank carried out on these transactions.
  • In 2011, Global Witness published leaked documents detailing where the Libyan sovereign wealth fund had invested $64 billion around the world. It turned out that HSBC held $1.4 billion of this money. Given the corruption allegations that have swirled around the Libyan fund, Global Witness wanted to know what the bank had done to prevent the misuse of state funds.
  • In 2012, we teamed up with Bill Oddie to highlight how HSBC had bankrolled logging companies causing widespread environmental destruction and human rights abuses in Sarawak, Malaysia, violating its sustainability policies and earning around US$130 million in the process.

On top of this, the bank was fined $1.9 billion in 2012 by the U.S. authorities after admitting allowing money laundering by drugs cartels and dealing with pariah states, in violation of US law. Over 35,000 people were killed at that hands of Mexican drug gangs during the time HSBC was providng banking services for one of the biggest and most vicious of them.

And yet despite of all of this, we’ve seen almost no action against the senior management who presided over these events. The HSBC case is just one symptom of a broader problem in the banking industry. At the moment the risk, reward is skewed in such a way that bankers are not incentivised to do their upmost to turn away dirty money.  This is in contrast to the penalties that members of the public around the world might face for wrongdoing, such as the three strikes and out approach in the US in which more minor offences can lead to long custodial sentences.

As my colleague Stuart McWilliam said on Tuesday, “If we want to clean up the system, we need much tougher penalties for those making decisions at big banks when things go this badly wrong – that’s how lessons get learned.”

Now surely it must be time for politicians and prosecutors to act.


Image used under Creative Commons Licensing / Flickr User Elliot Brown

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Leaked HSBC Records Shed Light on Culture of Corruption in the International Banking System http://www.financialtransparency.org/2015/02/09/leaked-hsbc-records-shed-light-on-culture-of-corruption-in-the-international-banking-system/ http://www.financialtransparency.org/2015/02/09/leaked-hsbc-records-shed-light-on-culture-of-corruption-in-the-international-banking-system/#comments Mon, 09 Feb 2015 21:12:24 +0000 http://www.financialtransparency.org/?p=25865 WASHINGTON, DC – Leaked HSBC documents revealed today by the International Consortium of Investigative Journalists (ICIJ) highlight a culture of corruption in the international banking system that goes far beyond the world’s second biggest bank, noted Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization. Featured Sunday evening on CBS News’ 60 Minutes program, the files allegedly highlight how the Swiss branch of the bank meticulously catered to some of the world’s biggest dictators and criminals, and they are but the latest example of a global bank gone rogue.]]> Swiss Leaks Findings Emblematic of Opaque System Illegally Draining US$1 Trillion Annually from Developing Economies

GFI: Bankers and Bank Executives Must be Held Accountable for their Behavior

WASHINGTON, DC – Leaked HSBC documents revealed today by the International Consortium of Investigative Journalists (ICIJ) highlight a culture of corruption in the international banking system that goes far beyond the world’s second biggest bank, noted Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization. Featured Sunday evening on CBS News’ 60 Minutes program, the files allegedly highlight how the Swiss branch of the bank meticulously catered to some of the world’s biggest dictators and criminals, and they are but the latest example of a global bank gone rogue.

“While the leaks do really expose a culture of corruption at HSBC, it seems almost unfair at this point to single them out,” said GFI Policy Counsel Joshua Simmons. “From Credit Suisse to UBS and BNP Paribas to Standard Chartered, it feels like nearly every major bank is either under investigation or subject to settlements for engaging in serious financial crimes. Even HSBC acknowledged in 2012 that it let US$200 trillion—roughly 3 times global GDP—flow through its New York office over a three-year period without applying the legally required anti-money laundering controls. Nevertheless, not a single bank employee or executive has been prosecuted in any of these cases. Until the U.S. Department of Justice—and financial regulators worldwide—begin holding individuals accountable for their actions, we’re going to continue living in a financial Wild West.”

GFI research estimates that opacity in the global financial system, consisting of tax haven secrecy, anonymous companies, trade-based money laundering, and lax financial crime enforcement, drains roughly US$1 trillion per year out of developing and emerging economies—more than these countries receive in foreign direct investment or foreign aid combined. Beyond bleeding the world’s poorest economies, this propels crime, corruption, and tax evasion globally.

“Illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies,” added Mr. Simmons. “But tax haven secrecy and lax enforcement also take a toll on developed countries like the United States, where offshore tax haven abuses cost American taxpayers roughly US$150 billion in revenue each year. Enough is enough: Now is the time for regulators and legislators to act.”

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Notes to Editors:

  • Click here to read an HTML version of this press release on our website.
  • Click here to read more on the Swiss Leaks files from the ICIJ.
  • Click here to watch Sunday evening’s 60 Minutes segment on the files.
  • Click here to read GFI’s latest annual global report on illicit financial flows, “Illicit Financial Flows from Developing Countries: 2003-2012,” published in December 2014.

Journalist Contacts:

Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740 x222 (Office)
+1 202 815 4029 (Mobile)

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How long does it take for an era to end? http://www.financialtransparency.org/2015/02/06/how-long-does-it-take-for-an-era-to-end/ http://www.financialtransparency.org/2015/02/06/how-long-does-it-take-for-an-era-to-end/#comments Fri, 06 Feb 2015 18:18:07 +0000 http://www.financialtransparency.org/?p=25845 As the G20 finance ministers assemble in Istanbul this weekend, there’s a good chance at least one of them will repeat the phrase ‘the era of bank secrecy is over’, heard several times since the 2009 G20 Summit. But before anyone thinks of repeating it again, they should instead look at the plans (or lack thereof) for including developing countries. As our new report, Information for the Nations, explains, while new reforms on financial transparency are welcome, the proposals could end up leaving a number of developing countries behind. At the heart of all this is the fact that vast amounts of money are held offshore (by some estimates up to $21 trillion); at best, only 20% of this is thought to be declared for tax. With little ability for tax authorities to find out who has cash stashed offshore, up until now little could be done to stop these tax evaders. That’s now set to change (for rich countries at least), as 52 of the biggest economies and the biggest tax havens have agreed to automatically share details of offshore accounts to tax authorities in other countries.]]>

As the G20 finance ministers assemble in Istanbul this weekend, there’s a good chance at least one of them will repeat the phrase ‘the era of bank secrecy is over’, heard several times since the 2009 G20 Summit. But before anyone thinks of repeating it again, they should instead look at the plans (or lack thereof) for including developing countries. As our new report, Information for the Nations, explains, while new reforms on financial transparency are welcome, the proposals could end up leaving a number of developing countries behind.

At the heart of all this is the fact that vast amounts of money are held offshore (by some estimates up to $21 trillion); at best, only 20% of this is thought to be declared for tax. With little ability for tax authorities to find out who has cash stashed offshore, up until now little could be done to stop these tax evaders. That’s now set to change (for rich countries at least), as 52 of the biggest economies and the biggest tax havens have agreed to automatically share details of offshore accounts to tax authorities in other countries.

The impact of this is huge. The OECD estimates that even before this system has come into operation an extra $37billion of tax has already been collected, as those that know they have something to hide have come clean before they were found out.

While this is great for countries that will be getting the information (mostly developed countries), for the rest, nothing is changing. So, why aren’t all countries involved? Well, there are a few hurdles in the road, and unfortunately, the hurdles look higher for poorer countries.

First, there is a requirement that if you want to receive information from other countries, you also have to provide information on the offshore cash in banks in your own country. In principle, this is fair and necessary in the long term. But in the short term, it can act as a barrier, and seems excessive for poor countries. Setting up the laws, regulations and processes to be able to ensure that all the banks and officials in your country are able to provide the necessary information is a lot of work, especially in countries that are already short of resources.

And it’s not clear how necessary it is to have developing countries provide this information. Lots of cash from developing countries is held offshore, mostly in tax havens and developed countries. It’s estimated that 33% of African and Middle Eastern owned assets and 25% of Latin American owned assets are held offshore (compared to a worldwide average of 6%). But since lots of cash from developed countries is not held in developing countries, there would appear to be no urgent need to deny developing countries the benefits of receiving information on their own citizens before they have the ability to send data out as well.

There are other hurdles too. Rather than having every country that signs up agree to share information with every other country that has signed up (a multilateral deal), a clause has been inserted that means there has to be an additional agreement signed by each country individually on which other countries they will share information with. Countries such as Switzerland and the Bahamas have indicated that they will use this clause to only share information with countries they have a political and/or economic need to (i.e. those that can make them), and, sadly, few developing countries will make that list.

Another hurdle looks likely to be prejudice. Every time I have a discussion about automatic exchange of information and developing countries, the issue of confidentiality is raised. In some respects this is fair, because this information is confidential and should be treated as such; but there seems to be a perception that developing country revenue authorities can’t be trusted. I say perception because if we look at peer reviews of countries on confidentiality standards, many developing countries have the best ratings, while some who are at the heart of building the new system have less desirable scores. Oddly, no one seems to be raising apprehensions about those jurisdictions. These perceptions are more than just scores on a piece of paper too; every country is allowed to refuse to share information with another country, if they deem there to be a confidentiality risk.

All of these hurdles have to be jumped before developing countries face the biggest one, but the one that will make the most difference: actually using the information received to increase government revenues need to tackle poverty.

If things stay as they are, we risk a two-tiered world where bank secrecy is over for some, yet it lives on elsewhere. The result will be the inability to improve the very public services that sow the seeds of economic growth and development. The G20 must now set a new course; a course that involves fewer hurdles and more support to help others over the ones that remain. When the hurdles come down, then it may be time to talk about the end of the secrecy era.


Image used under Creative Commons Licensing / Flickr User TheTaxHaven

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