Financial Transparency Coalition http://www.financialtransparency.org Thu, 29 Jan 2015 20:04:04 +0000 en-US hourly 1 http://wordpress.org/?v=3.7.5 From the Atlantic to the Pacific, Civil Society Organizations across Africa Welcome AU Focus on Illicit Financial Flows http://www.financialtransparency.org/2015/01/29/from-the-atlantic-to-the-pacific-civil-society-organizations-across-africa-welcome-au-focus-on-illicit-financial-flows/ http://www.financialtransparency.org/2015/01/29/from-the-atlantic-to-the-pacific-civil-society-organizations-across-africa-welcome-au-focus-on-illicit-financial-flows/#comments Thu, 29 Jan 2015 15:51:06 +0000 http://www.financialtransparency.org/?p=25823 ADDIS ABABA— As African leaders are meeting in  Addis Ababa to discuss growing threats from extremist groups, instability, and poverty, Heads of State are urged to give priority to  a growing threat to their economies: illicit financial flows. On Saturday, African Union Heads of State will review a report produced by the AU High Level Panel on Illicit Financial Flows, which has been chaired by Thabo Mbeki. The new report looks at the dire consequences of illicit financial outflows from Africa, estimated at US$50 billion per year, according to Global Financial Integrity (GFI) and the African Development Bank. “The fact that our leaders are devoting a portion of their very full session to illicit financial flows underlines just how serious this issue is,” said Savior Mwambwa, Policy and Advocacy Manager for the Tax Justice Network Africa. “Illicit financial flows are not only an extreme hindrance to Africa’s development, they are growing rapidly every year.”]]> Civil society organizations call for African leaders to move quickly to implement recommendations in UNECA report on Illicit Financial Flows

 
ADDIS ABABA— As African leaders are meeting in Addis Ababa to discuss growing threats from extremist groups, instability, and poverty, Heads of State are urged to give priority to  a growing threat to their economies: illicit financial flows.

On Saturday, African Union Heads of State will review a report produced by the AU High Level Panel on Illicit Financial Flows, which has been chaired by Thabo Mbeki. The new report looks at the dire consequences of illicit financial outflows from Africa, estimated at US$50 billion per year, according to Global Financial Integrity (GFI) and the African Development Bank.

“The fact that our leaders are devoting a portion of their very full session to illicit financial flows underlines just how serious this issue is,” said Savior Mwambwa, Policy and Advocacy Manager for the Tax Justice Network Africa. “Illicit financial flows are not only an extreme hindrance to Africa’s development, they are growing rapidly every year.”

A new study from GFI notes that illicit financial flows are growing at an average rate of 9.4% per year. In sub-Saharan Africa alone, illicit financial flows amounted to 5.5% of the region’s total gross domestic product.

“The AU High Level Panel report will add African regional details to the global   problem of illicit financial flows, and how best to fix it,” said Tigere Chagutah of Oxfam. “We urge AU Heads of State to move quickly to adopt the recommendations contained in the report, in order to reap the benefits of new-found tax revenue that can address poverty and economic stagnation.”

“It’s important to note that this isn’t just an African problem; much of the money that leaves Africa illicitly by way of corporate tax evasion or corruption ends up in banks within Europe and the United States,” said Henry Malumo of Action Aid International. “It’s vital that global accounting and tax enforcement policies being established by the G20 and other international bodies fully encompass the needs and context of Africa.”

The report comes at a timely moment, as policy makers are meeting in New York this week to discuss the United Nations Financing for Development (FfD) agenda. Curbing illicit financial flows could jumpstart the ability of African nations to recoup tax revenue, and enable governments to better fund programs of sustainable development.

The report from the High Level Panel on Illicit Financial Flows will be presented to African leaders on 31st January and will be publicly released at an event on 1st February in Addis Ababa.

A consortium of CSOs  are  asking  AU Heads of States to  extend the High Level Panel’s mandate and fully resource the Panel as a standing committee or an AU agency that will oversee and monitor the implementation of the recommendations of the High Level Panel’s report .

For further media queries contact:

  1. Savior Mwambwa- Policy and Advocacy Manager, Tax Justice Network Africa(TJN-A) , mwambwa@taxjusticeafrica.net, Mobile in Addis, +251 912 990 864
  2. Henry Malumo – Africa Advocacy Coordinator, Action Aid International ,henry.malumo@actionaid.org , Mobile: +2510913942653
  3. Tigere Chagutah –Pan Africa Campaigner: Finance for Development and Essential Services ,  Oxfam, tchagutah@oxfam.org.uk , Mobile:           +251 946 689 854
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Tax Justice Network’s Illicit Finance Journalism Programme Now Accepting Applications http://www.financialtransparency.org/2015/01/28/tax-justice-networks-illicit-finance-journalism-programme-now-accepting-applications/ http://www.financialtransparency.org/2015/01/28/tax-justice-networks-illicit-finance-journalism-programme-now-accepting-applications/#comments Wed, 28 Jan 2015 16:13:48 +0000 http://www.financialtransparency.org/?p=25813 8704603297_92b41d11c1_k

We are delighted to issue a call to journalists and campaigners to attend the fifth Illicit Finance Journalism Programme. TJN’s financial investigative journalism training course takes place in London between Tuesday 12 May – Friday 15 May 2015 at City University London, Northampton Square, EC1V 0HB. This course is aimed at practicing journalists who have an interest in investigating business and the flow of money. Experience in financial reporting is an advantage but not a prerequisite. Class instructions will take place in English. There are bursaries for journalists from the developing world to cover visa fees, travel, accommodation and per diems for food and travel in London. Due to the limited number of bursaries, applicants will be selected based on their track record in investigative journalism, but you do not need to have a financial background to apply.]]>
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We are delighted to issue a call to journalists and campaigners to attend the fifth Illicit Finance Journalism Programme. TJN’s financial investigative journalism training course takes place in London between Tuesday 12 May – Friday 15 May 2015 at City University London, Northampton Square, EC1V 0HB.

Over four days, our course covers:

a) The history size and scale of the offshore world

b) Tax incentives

c) Beneficial Ownership

d) Accounts and balance sheet interpretation (a whole day)

e) A live Investigative Dashboard session

f) Freedom of Information

g) How to investigate Transfer Pricing

h) How to investigate Money

i) Extractives

j) Personal and IT security

This course is aimed at practicing journalists who have an interest in investigating business and the flow of money. Experience in financial reporting is an advantage but not a prerequisite. Class instructions will take place in English. There are bursaries for journalists from the developing world to cover visa fees, travel, accommodation and per diems for food and travel in London. Due to the limited number of bursaries, applicants will be selected based on their track record in investigative journalism, but you do not need to have a financial background to apply.

The course fee for journalists and campaigners from UK, Europe and North America is £650. Course fees go towards subsidizing travel and accommodation costs for other participants.

To apply or for more course information, please click here where you will see a link to apply.

The deadline for applications is Wednesday 18 February 2015. Applicants will be informed if they have a place the following week.


Image used under Creative Commons license / Flickr User Ronnie MacDonald

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Loophole USA: the vortex-shaped hole in global financial transparency http://www.financialtransparency.org/2015/01/26/loophole-usa-the-vortex-shaped-hole-in-global-financial-transparency/ http://www.financialtransparency.org/2015/01/26/loophole-usa-the-vortex-shaped-hole-in-global-financial-transparency/#comments Mon, 26 Jan 2015 16:36:36 +0000 http://www.financialtransparency.org/?p=25807 For years we at the Tax Justice Network were ridiculed for advocating AIE: pie in the sky, many people said. The OECD, the club of rich countries that dominates international rule-making on tax and tax-related information sharing, was for years pushing its so-called Internationally Accepted Standard which was, well, the internationally accepted standard for cross-border information exchange, despite being only slightly better than useless. The message was that we should just accept this, and move on.]]> This article originally appeared on the blog of the Tax Justice Network, a member organization of the FTC. 

If people stash their wealth or earn income overseas, that is fine with us — just as long as their tax authorities get the information they need to tax that wealth or income according to the law, and as long as money laundering and financial crimes can be effectively tracked, and so on. Where there are cross-border barriers to the instruments of democratic societies, then there is an offshore problem.

The only credible way to provide the necessary information is through so-called automatic information exchange (AIE), where governments make sure the necessary information is available across borders, as a matter of routine.

For years we at the Tax Justice Network were ridiculed for advocating AIE: pie in the sky, many people said. The OECD, the club of rich countries that dominates international rule-making on tax and tax-related information sharing, was for years pushing its so-called Internationally Accepted Standard which was, well, the internationally accepted standard for cross-border information exchange, despite being only slightly better than useless. The message was that we should just accept this, and move on.

How the world has turned since a couple of years agoThe OECD is now in the middle of putting in place a system – known as the Common Reporting Standards (CRS) – to implement automatic information exchange (AIE).  The CRS is the first ever potentially global system of AIE, and although it has major shortcomings and loopholes, as we’ve explained on several occasions, it’s potentially a giant step forwards from a largely transparency-free past.

Meanwhile the European Union had been moving ahead with plans to beef up its own, older plans for AIE, notably through amendments to tighten up its loophole-ridden Savings Tax Directive and other initiatives (for an overview of that, see here.) The United States, for its part, has been rumbling forwards with its Foreign Account Tax Compliance Act (FATCA), which is, at least technically speaking from a self-interested U.S. perspective, fairly strong. In fact, the OECD’s CRS is modeled on FATCA.

But – and here comes a big ‘but’ – how do these different initiatives mesh together? Might anything fall between the cracks?

The European Union, for its part, seems to be working hard and in fairly straightforward fashion to get its ducks in line with the CRS, the OECD’s emerging global standard. It will be incorporating a lot of the OECD technical standards into EU law, in cut-and-paste fashion, and will add categories to include in the mix: such as covering the all-important insurance sector more comprehensively than the CRS does, and covering other categories of income and capital including income from employment, directors’ fees, pensions, and ownership of and income from immovable property.

But the United States’ position on meshing FATCA with the global standards? Well, now there’s a story.

President Obama recently gave his State of the Union address, with an eye to his legacy. Here’s something that may seriously tarnish it, for a failure to take this seriously will make wealthy people wealthier and poorer people poorer, and will undermine crime-fighting, all around the world.

USA: we’ll pretend to join in

The U.S. position has basically been to say ‘we are doing our home-grown FATCA project, and it’s technically similar to the OECD’s CRS, so we don’t need to join the CRS.’ Which, at first glance, looks like a position that could be defensible, depending on the detail.

A crucial part of the detail, however – and this is where the vortex starts to come in – hangs on the all-important question of reciprocity. The United States is extremely keen for other countries to pony up information about U.S. taxpayers hiding their cash offshore and overseas – as it should. But when it comes to reciprocity, or providing information in the other direction, things change.

The U.S. (again, on the surface) has said that is committed to sharing FATCA-related information under so-called Intergovernmental Agreements (IGAs,) which are bilateral deals that stipulate how and in what circumstances the relevant information may be handed over to foreign governments. (There are three basic models: 1A, 1B and 2: only the Model 1A agreements are reciprocal; the Treasury’s U.S. public list of IGAs is here, with the gory details explaining the different modelshere.)

In May last year the Center for Global Development’s Alex Cobham (now TJN’s Director of Research) wrote a useful blog entitled Joining the Club: The United States Signs Up for Reciprocal Tax Cooperation, welcoming the U.S. commitment to reciprocal information exchange, as far as the announcement went. By November, though, as the details came through, he began to raise the alarm. In a post entitled Has the United States U-Turned on Tax Information Exchange? he wrote:

“A full commitment to reciprocal and automatic, multilateral information exchange, backed by legislation to ensure beneficial ownership information is available, has been replaced by an indication that the United States will seek to provide information in the few bilateral Foreign Account Tax Compliance Act (FATCA) agreements that require it, for which the United States accordingly commits to ‘advocate’ for domestic legal changes that would create the necessary beneficial ownership transparency.

After the midterm elections, the success of such advocacy seems unlikely. But it would be a sad irony if the legacy of an administration that began with such strong rhetoric on shutting down tax havens was to leave the United States as the biggest remaining centre of anonymous company ownership.”

Thus pre-empting today’s blog by quite some time, of course.

What we have now is updated information, source material, and details. Drill down to look at the precise details of what the U.S. is offering, and it the substance seems paper-thin.

The gory details

If you’re not a connoisseur of the details of cross-border financial transparency, this next bit is where we get into the weeds a bit.

The United States is already a tax haven for foreigners, as outlined in detail in Treasure Islandsand, more recently, here. To achieve effective reciprocity with other countries it would need to tighten up its rules considerably, and in various ways.

The U.S. Treasury’s Financial Crimes Enforcement Network (FINCEN) seems to be taking a lead on some of the internal stuff to prepare the ground for international co-operation, with new rules entitled “Customer Due Diligence Requirements for Financial Institutions.” 

How good are these rules? Well, for starters, on page 45152 Fincen says it

is proposing rules under the Bank Secrecy Act to clarify and strengthen customer due diligence requirements for: Banks; brokers or dealers in securities; mutual funds; and futures commission merchants and introducing brokers in commodities.”

Our emphasis added. The first thing to notice is that these are just proposals. To get approved, they’re going to have to get this lot past Senator Rand Paul, the combined lobbying power of the Big Four accounting firms and Wall Street banks, and a host of other vested interests.

Then there are the loopholes larded through this document.

For instance, the players identified in the Fincen paragraph above are just a subset of actors in the financial menagerie that is out there. The document continues:

“In addition to input from covered financial institutions, FinCEN sought and received comments on the ANPRM [Advance Notice of Proposed Rule Making] from financial institutions not subject to CIP [Customer Identification Program] requirements, such as money services businesses, casinos, insurance companies, and other entities subject to FinCEN regulations.”

There are no plans to cover these chaps as yet. And this is a problem: in many countries insurance policies, for example, are classic tax evasion and secrecy vehicles — and they’re already carved out.

Then there is the enormously important issue of trusts, where no useful beneficial ownership information seems to be required. There is this, mostly on p45160:

“There are many types of trusts. While a small proportion may fall within the scope of the proposed definition of legal entity customer (e.g., statutory trusts), most will not. . . .  identifying a ‘‘beneficial owner’’ among the parties to such an arrangement for AML purposes, based on the proposed definition of beneficial owner, would not be practical. At this point, FinCEN is choosing not to impose this requirement. “

Our emphasis, again, added.

There are even more egregious exemptions. Take a look at this corker:

“Financial institutions noted that a requirement to ‘‘look back’’ to obtain beneficial ownership information from existing customers would be a substantial burden. FinCEN proposes that the beneficial ownership requirement will apply only with respect to legal entity customers that open new accounts going forward from the date of implementation. Thus, the definition of ‘‘legal entity customer’’ is limited to legal entities that open a new account after the implementation date.”

Translation: we’ll accept a complete whitewash of everything in the past, because it will be a “burden” on those poor financial institutions. And even stuff that’s still going on won’t be covered if the account was opened before

Oh, and there is no “implementation date”, at least for now.

Wouldn’t it have been nice if it at least could come up with something strong, then expect it to be watered down at a later stage of law making? But no: they seem to be hobbling themselves from the outset. Is Fincen even trying?

And even then – if Fincen were to close all these loopholes and obtain all this customer information, it doesn’t seem clear to us that it would be authorised to pass it on to the U.S. Internal Revenue Service (IRS), which would be the body that would be mandated to hand over the necessary information to foreign governments that need it to tax or police their wealthy citizens and criminals.

A Europe-based expert we spoke to went as far as to call the U.S.’ adherence to the emerging global transparency standards, just based on what this Fincen document says, ‘farting in the wind.’ This document shows that the US is currently unable under its domestic law to reciprocate with information exchange, because its banks are not required to collect the necessary beneficial ownership information.

So much for the requirements for financial institutions in the U.S. to fish the information out of its customers. Now look at how the (non-)information they do obtain are to be shared out with the U.S.’ foreign partners. Article 6 from one of the U.S. Model IGAs (Intergovernmental Agreements) says:

“ReciprocityThe Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with [FATCA Partner].”

The U.S. government acknowledges the need to be reciprocal.  That’s nice. But will it be?

Turn to Article 2, and you get a picture of what the U.S. may obtain from other countries, versus what other countries may obtain from the U.S. Here’s a summary of some of the differences, from  TJN’s Andres Knobel. Just look at how thin the US banks’ reporting obligations are about Germans, compared to German banks’ reporting obligations about US persons.

German vs US Fatca IGA

You get the picture. A comparison with more details is available here.

Reciprocity, anyone?

Oh, and then there is the problem that only some countries, but not others, have signed or committed to sign these IGAs.

And then there’s the problem that the U.S. legislation required to tackle this stuff is all over the place, in different legislative nooks and crannies. Jack Blum, a Tax Justice Network Senior Adviser, gave a good overview of an earlier version of this mess to the U.S. Senate Finance Committee in 2008, and he added, in an email to us last week:

“after the current round of IRS budget cuts there is no way the United States could implement Information Exchange. Without the people nothing the law says really matters. Things here are in a real mess.”

Loophole USA: the big one. Will the OECD and its member states – not to mention developing countries – wake up to these issues? And will the United States itself realise that if it doesn’t play ball, others won’t want to play either?

If not, the world’s wealth will flood more upwards and out of sight rather more rapidly than it would have done. That’ll be quite a legacy.

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TaxCast January 2015: How Offshore Havens are Infiltrating Football and More http://www.financialtransparency.org/2015/01/26/taxcast-january-2015-how-offshore-havens-are-infiltrating-football-and-more/ http://www.financialtransparency.org/2015/01/26/taxcast-january-2015-how-offshore-havens-are-infiltrating-football-and-more/#comments Mon, 26 Jan 2015 16:14:39 +0000 http://www.financialtransparency.org/?p=25802 In the January 2015 Taxcast: how offshore is ruining the ‘Beautiful Game’: the Taxcast scrutinises football’s own goal. Also: how banks with criminal convictions are being allowed to continue to handle our money, how people may be allowed to apply for anonymity in the UK’s new register of beneficial owners of companies to be introduced in 2016, and the meeting of the world’s most powerful in that bastion of transparency, Davos, Switzerland. Plus more scandal and unique analysis.

The TaxCast is produced by Naomi Fowler for the Tax Justice Network.

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Closing Tax Loopholes is Great, But Tackling Anonymous Companies is Just as Important http://www.financialtransparency.org/2015/01/21/closing-tax-loopholes-is-great-but-tackling-anonymous-companies-is-just-as-important/ http://www.financialtransparency.org/2015/01/21/closing-tax-loopholes-is-great-but-tackling-anonymous-companies-is-just-as-important/#comments Wed, 21 Jan 2015 16:30:20 +0000 http://www.financialtransparency.org/?p=25781 President Obama wants to stop the billions of dollars that are moving offshore from U.S. companies.

Or he at least said so much during his State of the Union address last night:
As Americans, we don't mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. This year, we have an opportunity to change that. Let's close loopholes so we stop rewarding companies that keep profits abroad, and reward those that invest in America.
The topic of moving money to low tax jurisdictions has become a hotly debated issue over the last few months, following the LuxLeaks scandal that brought light to hundreds of secret tax arrangements between multinational corporations and Luxembourg.]]>
President Obama wants to end the loopholes that allow companies to shift billions of dollars in profits offshore.

Or he at least said so much during his State of the Union address last night:

As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight.

This year, we have an opportunity to change that. Let’s close loopholes so we stop rewarding companies that keep profits abroad, and reward those that invest in America.

The topic of moving money to low tax jurisdictions has become a hotly debated issue over the last few months, following the LuxLeaks scandal that brought light to hundreds of secret tax arrangements between multinational corporations and Luxembourg. By artificially moving profits to an offshore jurisdiction, corporations can avoid paying higher tax rates. Many of the tax deals highlighted in the LuxLeaks scandal meant that corporations were paying as little as 1% on a substantial portion of their profits.

P012710CK-0328

President Obama also mentioned those behind the financial system that proliferate the movement of money, and pointed out (correctly) the unfortunate truth that the more accountants you can buy will simply expand the number of places where you can move your money and often lower the amount you pay in taxes.

From the speech:

Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford.

This last statement is quite important. President Obama hints at one of the most obvious, yet undiscussed, parts of the financial system: the enablers of tax evasion and avoidance. While he may be talking about them in the context of tax loopholes, the same willing set of bankers, accountants, and lawyers help fuel illicit financial flows. But alongside these enablers is perhaps the United States’ biggest secrecy export: anonymous companies.

From Nevada to Wyoming, and perennial powerhouses like Delaware, the U.S. is one of the easiest places in the world to set up an anonymous shell company. Whether you’re an arms dealer, tax evader, or kleptocrat, shell companies that don’t track the real owner behind them serve as a perfect curtain to hide behind. A World Bank report revealed that more than 70% of large scale corruption cases of the last 30 years involved anonymous companies.

Anonymous companies started in the U.S. aren’t just a problem for American citizens, either; they are a global problem for the simple fact that they can be used by anyone. So, while it was promising that President Obama mentioned tax loopholes in his address last night, it’s vital that we also address the the corporate secrecy that is alive and well within the borders of the U.S.


Image used courtesy of Whitehouse.gov and the federal government copyright policy

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How Country by Country Reporting Could Have Made LuxLeaks Unnecessary http://www.financialtransparency.org/2015/01/20/how-country-by-country-reporting-could-have-made-luxleaks-unnecessary/ http://www.financialtransparency.org/2015/01/20/how-country-by-country-reporting-could-have-made-luxleaks-unnecessary/#comments Tue, 20 Jan 2015 16:34:47 +0000 http://www.financialtransparency.org/?p=25775 European Parliament committee of enquiry into the so-called ‘sweetheart deals’ that Luxembourg concluded with hundreds of multinational companies to minimise their tax bill. The Parliament’s political decision-making body, the Conference of Presidents, has yet to formally approve the enquiry but the genie seems to be well and truly out of the bottle now, even if there are reports that EPP deputies are being put under pressure to withdraw their signatures.  The enquiry will range more widely than the Luxembourg deals  – many other EU countries have similar tax rulings  in place – but there is the tantalising prospect of Jean-Claude Juncker testifying in front of MEPs on what he knew when he was Prime Minister. Secondly, and perhaps more significantly, the Commission announced its preliminary findings into the state aid case it launched into Luxembourg’s tax deal with Amazon, indicating that the Grand Duchy had indeed breached EU state aid rules by giving favourable treatment to the tech company over its transfer-pricing policy. The case focuses on the Luxembourg company that served as the headquarters of Amazon’s European operations, LuxOpCo, and in particular the royalties it paid to another Luxembourg company, Lux SCS, that were not subject to Luxembourg tax. The net turnover of LuxOpCo in 2013 was 13.6 billion euros – about a fifth of Amazon’s total worldwide sales.]]> This article originally appeared on the blog of Transparency International, a Coordinating Committee member of the FTC. 

The lux leaks saga moved up a couple of gears last week. First of all, a large number of MEPs broke ranks with their leadership to publicly back a European Parliament committee of enquiry into the so-called ‘sweetheart deals’ that Luxembourg concluded with hundreds of multinational companies to minimise their tax bill. The Parliament’s political decision-making body, the Conference of Presidents, has yet to formally approve the enquiry but the genie seems to be well and truly out of the bottle now, even if there are reports that EPP deputies are being put under pressure to withdraw their signatures.  The enquiry will range more widely than the Luxembourg deals  – many other EU countries have similar tax rulings  in place – but there is the tantalising prospect of Jean-Claude Juncker testifying in front of MEPs on what he knew when he was Prime Minister.

Secondly, and perhaps more significantly, the Commission announced its preliminary findings into the state aid case it launched into Luxembourg’s tax deal with Amazon, indicating that the Grand Duchy had indeed breached EU state aid rules by giving favourable treatment to the tech company over its transfer-pricing policy.

The case focuses on the Luxembourg company that served as the headquarters of Amazon’s European operations, LuxOpCo, and in particular the royalties it paid to another Luxembourg company, Lux SCS, that were not subject to Luxembourg tax.

The net turnover of LuxOpCo in 2013 was 13.6 billion euros – about a fifth of Amazon’s total worldwide sales.

fig1Amazon

The deal on royalties (“transfer-pricing”) which allowed Amazon to keep tax payments to a minimum were signed off by the Luxembourg authorities in 2003 in a couple of weeks.

Much of the outrage over these and other revelations has been directed at the tax rulings or ‘comfort letters’ supplied by the authorities which ensure that companies are complying with the letter of the law. The European Parliament has agreed at least one report on the use of such tax rulings and the European Commission’s competition authority will also investigate.

Less attention has been paid to the companies’ obligations. As a basic accountability measure, Transparency International has been calling for corporate reporting legislation that would make it mandatory for multinational companies to report key financial information in every country where they operate. That information would include the whopping turnovers and minimal tax recorded by Amazon in Luxembourg, which would have raised a huge red flag long before Lux Leaks came anywhere near a newspaper, and would have spared whistleblower Antoine Deltour the criminal charges he is facing.

Country-by-country reporting for all European companies was agreed by EU heads of state in their special summit on tax avoidance and tax evasion in 2013 but EU officials and MEPs subsequently back-pedalled on that commitment once the issue was out of the media limelight. Only the EU banking sector, facing a huge regulatory backlash after the financial crisis, failed to escape and European banks are now compelled to disclose this information from 2015, following a Commission report that noted that there would be no negative consequences and some postive effects for the European economy.

Today we publish a report on the state of play with country-by-country reporting legislation in the EU that shows that a broad range of stakeholders – not only NGOs, but auditors, investors, regulators – agree on the merits of extending this kind of reporting to all corporate sectors.

Doing so would mean that we could have a debate on tax policy that is not driven by media leaks and EU investigations, but by transparent, comprehensive and uniform reporting of the facts. Who could disagree with that?

We will soon have an opportunity to find out. The European Parliament’s Economic and Monetary Affairs committee will soon be discussing amendments to the Shareholders’ Rights Directive which propose a full country-by-country reporting regime. The Parliament’s  Legal Affairs committee, which is taking the lead in reviewing this legislation, may then have an opportunity to show its support for this initiative in March. It could be a very fruitful Spring for those seeking more corporate transparency.

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Will Antoine Deltour become a prisoner of conscience? http://www.financialtransparency.org/2015/01/16/will-antoine-deltour-become-a-prisoner-of-conscience/ http://www.financialtransparency.org/2015/01/16/will-antoine-deltour-become-a-prisoner-of-conscience/#comments Fri, 16 Jan 2015 17:50:14 +0000 http://www.financialtransparency.org/?p=25770  Antoine Deltour, is facing the combined massed might of Luxembourg, one of the world’s biggest and most aggressive tax havens, and PWC, one of the biggest and most aggressive lobbyists for offshore tax and secrecy legislation, the Big Four accounting firm. Deltour faces up to ten years in prison.]]> This post originally appeared on the blog of the Tax Justice Network, a member of the FTC.

So the latest big tax haven whistleblower, Antoine Deltour, is facing the combined massed might of Luxembourg, one of the world’s biggest and most aggressive tax havens, and PWC, one of the biggest and most aggressive lobbyists for offshore tax and secrecy legislation, the Big Four accounting firm.

Deltour faces up to ten years in prison.

Now there’s a new film coming out about Luxembourg whistleblowing, as it happens. But it isn’t about Deltour. More on him in a minute, but this one is about an earlier whistleblowing Clearstream saga exposed by the French investigative journalist Dénis Robert, and a couple of sources of information in Luxembourg.

The film looks good – watch the clip above – but we’ll single out a particular quote from the filmmaker, Vincent Garenq, in Variety magazine:

“There’s always that sacrificial dimension to whistle-blowers. They take enormous risks for moral reasons, and, in the short term, only ever cause great harm and inconvenience to themselves. We’re seeing it in the recent “Lux Leaks” scandal. Exposing how a state carefully puts together a system that allows multinationals to avoid paying taxes makes you liable to being brought to justice for “violation of secrets that affect state security”.

It’s the cynicism of the age we live in. But in the long run, as happens with Denis Robert, whistle-blowers will be duly recognized because we live in an era where, with the speed of Internet, it will be increasingly difficult to keep things quiet.”

It’s very important to bear this in mind. Now we haven’t seen the Clearstream film yet, but we’d offer a few thoughts.

First, if Deltour were to go to jail – as has happened to other tax haven whistleblowers such as Switzerland’s Rudolf Elmer – there is a pretty unarguable case that he would be a prisoner of consience. A tax justice and human rights community is steadily building up steam, and we are sure (having discussed this with a few people recently) that this is a runner.

What is a prisoner of conscience? Well, people may have different opinions, but Wikipedia has a definition that will surely satisfy most people:

“the term can refer to anyone imprisoned because of their race, sexual orientation, religion, or political views. It also refers to those who have been imprisoned and/or persecuted for the non-violent expression of their conscientiously held beliefs.”

That second sentence is the relevant one here, in our opinion.

A second related point, as we recently noted, it is time for the large human rights organisations – calling on Amnesty International and Human Rights Watch, just for example – to step up to the plate and start to get their heads around the fascinating, infuriating, enormous issue of offshore tax havens in all their glory. The offshore system hosts and triggers human rights violations, in a wide range of areas beyond whistleblowing – take a look at some early work, here.

For reasons of capacity we at TJN haven’t done justice to supporting many tax whistleblowers, but around Deltour we’re actively involved in starting to build an international support community for him. For one thing, we’ve got a good story to tell, with a pantomime villain (PWC), a hero (Deltour, who was motivated by the public interest, not money) plus a huge media appetite, judging from the international scale and scope of the Luxleaks scandal.

The scandal highlights another important element of the Luxleaks scandal: the destructive relationship between the secrecy state and the corporate secrecy industry. Something we’ve written about repeatedly, and at length.

And Garenq is right: it’s astonishing how cynical the case against Deltour is: the use of a criminal prosecution system to close down disclosure of information that is clearly and absolutely in the public interest.

Prosecuting whistleblowers like Rudolf ElmerHervé FalcianiHeinrich Kieber, and Deltour turns them into prisoners of conscience and violates human rights since the public has a right to information relating to deals being conducted by states in their name.

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Major economies move on money laundering, but what about the Cayman Islands? http://www.financialtransparency.org/2015/01/15/major-economies-move-on-money-laundering-but-what-about-the-cayman-islands/ http://www.financialtransparency.org/2015/01/15/major-economies-move-on-money-laundering-but-what-about-the-cayman-islands/#comments Thu, 15 Jan 2015 17:59:27 +0000 http://www.financialtransparency.org/?p=25761 the beneficial owners. Current levels of secrecy mean that global detection rates for illicit funds by law enforcement are as low as 1 percent for criminal proceeds.]]> This article was originally posted on the blog of Transparency International, a Coordinating Committee member of the FTC.


The final two months of 2014 saw a surge of positive news for civil society whose collaborative and consolidated efforts over recent years to push for greater corporate transparency measures are now seeing the light.

Civil society has called for greater light to be shed on the real living people who ultimately own or control companies – the beneficial owners. Current levels of secrecy mean that global detection rates for illicit funds by law enforcement are as low as 1 percent for criminal proceeds.

In 2014 the G20 rose to the challenge set by the G8 the previous year, adopting its own Beneficial Ownership Principles in November and thus corralling a much more diverse set of countries on the issue. Meanwhile the EU agreed on legislative reforms in December to require EU countries to capture this information in central registries and make it instantly accessible to law enforcement and government bodies and those with “legitimate interest”.

So it’s incredibly disappointing to hear that following a stock-take exercise last year, the Cayman Islands have decided to “continue its current method” when it comes to sharing beneficial ownership information, information which is essential in order to crack down on corruption and other illicit financial flows.

The UK British Overseas Territory  has rejected the idea of setting up a public central register to bring together this information to facilitate access to law enforcement, a proposal that Transparency International, Global Witness and Christian Aid advocated for during the consultation.

Why no New Year’s resolution?

Some of the world’s largest secrecy jurisdictions are British Overseas Territories, including Cayman, the British Virgin Islands and Jersey.

In 2013, with the UK under international pressure, the Territories announced a series of consultations regarding their company ownership registration systems. Having information on who really owns companies is crucial to law enforcement, because shell companies are often used to launder the proceeds of crime including corruption and tax evasion.

Almost a year after the consultations closed, Cayman has been the first to make its results public. As it turns out, of the 43 responses received, 44% were from local companies, and 26% from local private sector bodies such as the Cayman Islands Bankers Association (curiously, the report classifies them as “local NGOs”).

Unsurprisingly, 70% of total respondents said that Cayman’s measures “are quite robust and are at a level of compliance beyond those of other jurisdictions”.

The government’s main conclusion? Cayman has no need to improve, as its current system is good enough.

But is “good enough” really good enough for citizens who are the victims of corruption and tax evasion?

In Argentina, for example, investigative journalists have uncovered evidence that millions of dollars in public funds have been diverted into offshore jurisdictions by allegedly corrupt businessmen with links to political power. The funds originally intended for much needed infrastructure projects ended up in bank accounts held by shell companies, including in the Cayman Islands.

This case is just one of the dozens of international grand corruption and crime cases which have been found to involve shell companies. Having critical information on company ownership publicly available to law enforcement when they need it and not many hours or days after they have submitted a request would greatly aid cross-border investigations. A UK government studyestimated a public registry would save £30.3 million in police time alone.

Now that Cayman has decided to stay in the slow lane on beneficial ownership, doing the absolute minimum required to meet international standards rather than showing leadership, how will the UK respond if the rest of its Overseas Territories do the same? And will this satisfy other countries which are losing billions through tax havens, including the UK’s G8 partners such as China?

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Should Convicted Felon Credit Suisse be granted a Department of Labor Waiver? http://www.financialtransparency.org/2015/01/14/should-convicted-felon-credit-suisse-be-granted-a-department-of-labor-waiver/ http://www.financialtransparency.org/2015/01/14/should-convicted-felon-credit-suisse-be-granted-a-department-of-labor-waiver/#comments Wed, 14 Jan 2015 18:03:48 +0000 http://www.financialtransparency.org/?p=25754 5042453005_88181ee344_zNot that long ago, Credit Suisse AG (CSAG), the multinational financial services giant, pleaded guilty to felony criminal charges and paid fines of US$2.6 billion for aiding and assisting U.S. taxpayers “in filing false income tax returns and other documents with the Internal Revenue Service (IRS)”. In other words, Credit Suisse helped Americans evade taxes and showed them how to take advantage of the international financial system’s inherent secrecy, even brining secret airports and elevators into the picture, according to a U.S. Senate report. But now that they’ve admitted to criminal actions, it seems CSGA wants a waiver to avoid some of the very baggage that comes with being convicted of felony charges.]]> 5042453005_88181ee344_zNot that long ago, Credit Suisse AG (CSAG), the multinational financial services giant, pleaded guilty to felony criminal charges and paid fines of US$2.6 billion for aiding and assisting U.S. taxpayers “in filing false income tax returns and other documents with the Internal Revenue Service (IRS)”.

In other words, Credit Suisse helped Americans evade taxes and showed them how to take advantage of the international financial system’s inherent secrecy, even brining secret airports and elevators into the picture, according to a U.S. Senate report.

But now that they’ve admitted to criminal actions, it seems CSGA wants a waiver to avoid some of the very baggage that comes with being convicted of felony charges.

CSGA is considered a “qualified professional asset manager”, a status that allows it to administer pension funds worth billions of dollars. But Department of Labor (DOL) regulations could revoke its status as a QPAM, due to the felony convictions; unless, of course, the DOL issues them a special wavier.

If the past is any indication, these waivers are shockingly easy to come by. Since 1997, the DOL granted similar waivers to all 23 firms that applied for them. But as Heather Lowe of Global Financial Integrity points out, Credit Suisse has a checkered past when regulation and compliance are concerned.

From GFI:

“The felony conviction, to which Credit Suisse pled guilty this past year, is only the latest transgression in a long string of serious regulatory problems at the financial institution. Enough is enough: Credit Suisse needs to understand that there are serious repercussions for engaging in illegal activity that defrauds the U.S. Government and American taxpayers.”

So with a questionable history of compliance, along with a felony conviction that carried a price tag of $2.6 billion, why this is even being considered in the first place?

Fortunately, a few members of Congress agreed with this sentiment, and demanded that the DOL holds a public hearing on whether or not Credit Suisse should be granted a waiver. In a letter sent to Department of Labor Secretary Thomas Perez, Rep. George Miller, Rep. Stephen Lynch, and Rep. Maxine Waters question the very waiver process, and whether it is “sufficiently robust”.

From the letter:

Although we are pleased that the Department has indicated that it takes a case-by-case approach and ensures that any waiver it grants includes appropriate conditions, we are also concerned that the process is not sufficiently robust. Since 1997, the Department has reportedly granted waivers for all 23 firms seeking individual waivers. The beneficial status of qualified professional asset manager should be reserved for institutions that have shown a commitment to maintaining a high standard of integrity via compliance with the law. When the Department simply waives the disqualification provisions on a seemingly automatic basis, it undermines the firms’ incentives to obey the law.

This is particularly concerning in the case of large financial institutions such as Credit Suisse, where reflexively granting waivers may enshrine a policy of too big to bar.

Experts from two member organizations of the Financial Transparency Coalition, Global Financial Integrity and Tax Justice Network, will testify at the public hearing.

Hearing Details:

Time: 10:00am – 5:00pm EST (Lowe to testify at 1:15pm EST)
Date: Thursday, January 15, 2015
Room: C5320, Rm. 6 (5th Floor)
Venue: U.S. Department of Labor, 200 Constitution Ave NW, Washington, DC 20210


Image used under creative commons licensing / Flickr User Wally Gobetz

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The New Year Wrapper http://www.financialtransparency.org/2015/01/08/the-new-year-wrapper/ http://www.financialtransparency.org/2015/01/08/the-new-year-wrapper/#comments Thu, 08 Jan 2015 18:10:59 +0000 http://www.financialtransparency.org/?p=25732 Taxcast. One of the latest and most bizarre revelations to emerge from the scandal has been publication of an intercepted phone conversation between Massimo Carminati, the alleged boss of an organized crime group, and Paolo Pozzessere, a senior manager at Finmeccanica, the leading Italian arms manufacturer. Pozzessere, the former commercial director of Finmeccanica, was telling Carminati about his experiences working in Iran.]]> This post originally appeared on the blog of the Tax Justice Network, a member organization of the FTC.

Ahmadinejad: “he was my driver”

The Mafia Capitale scandal has been gripping Italy over the last few months. It involves the corrupt award of public sector contracts in Rome to a network of people associated with extreme right-wing and neo-fascist movements. To find out more listen to last month’s Taxcast.

One of the latest and most bizarre revelations to emerge from the scandal has been publication of an intercepted phone conversation between Massimo Carminati, the alleged boss of an organized crime group, and Paolo Pozzessere, a senior manager at Finmeccanica, the leading Italian arms manufacturer.

Pozzessere, the former commercial director of Finmeccanica, was telling Carminati about his experiences working in Iran.

It turns out Ahmadinejad, the recent president of Iran, was then a young man working in the office of Khomeini. Ahmadinejad, Pozzessere claims, used to drive him back to his hotel. Pozzessere describes the former Iranian leader as a serious man who has had a bad press.

This is more than an amusing anecdote. US officials may well be interested to know more about what Pozzessere was doing in Iran.

In 2006 Finmeccanica assured the US Embassy in Rome that the company had not sold any military equipment to Iran since 1979 when Ayatollah Khomeini returned from exile after the overthrow of the Shah.

A princess amongst “thieves”?

AppealingJust when you thought the Christmas pantomime season was over, along comes Princess Christina of Spain who is being prosecuted for tax fraud, with a trial scheduled this year.

The Swiss-based Christina could soon have “the honour” of being the first Spanish royal to stand trial since the monarchy was restored in 1975 though the beleaguered royal has appealed the decision to try her.

The affair is part of the fall out from the abdication of the previous monarch Juan Carlos, Christina’s father. This follows a series of scandals including an investigation into Christina’s husband for allegedly embezzling public funds.

The new king, Filipe, Christina’s brother, has started to reform the monarchy, by removing rights and privileges from his sister. So no ball for Christina.

Bank Leumi – the tax evaders second choice bank

Leumi - deeply embedded in tax havenryIsraeli Bank Leumi has been fined $400 million and forced to hand over the names of 1,500 account holders by the US government for helping US citizens engage in tax evasion.

Apparently Bank Leumi sought to profit from the flight of US tax evaders out of Switzerland after UBS and other Swiss banks came under investigation. Leumi sent private bankers scurrying around the world to meet clients in parks and coffee shops to discuss offshore banking and opened accounts for people leaving Swiss banks.

The bank also admitted using numbered accounts and fake names as well as companies and trusts in Belize and other offshore jurisdictions in order to hide the identity of account holders.

Bank Leumi is one of Israel’s largest banks with 13,000 employees. But it is not the only Israeli bank to be accused of these practices with investigations underway into two other banks. The affair has prompted an investigation into the role of the Bank of Israel into what it was doing (if anything) to supervise the banking system.

Zambia seeks to clamp down on tax dodging miners

This week the Zambian finance minister, Alexander Chickwanda pressed ahead with tax reforms which will increase royalties on miners in the southern African country.

The corporate PR machine squealed that the rate increases would mean lower production, fewer jobs, lower economic growth. The IMF also supported the mining giants.

But Chickwanda thinks that mining companies can well afford to pay more, since they artificially reduce their profits through transfer pricing.

In a speech before Christmas, the Finance Minister revealed that only two mining companies in Zambia are paying corporate income tax and said that the current tax regime on mining companies in Zambia is open to tax planning and tax avoidance schemes.

Support Antoine Deltour – a hero for our times

Whistleblower heroAntoine Deltour, a former lowly employee of PricewaterhouseCoopers, was one of the sources who passed on information about Luxembourg’s role in industrial scale tax abuse.

There can be no doubt that Deltour’s bravery was in the public interest. He has played a key part in exposing how billions of euros have been siphoned out of countries, with help from PwC, depriving governments of tax revenues.

It is as yet unproven whether the actions of PwC constitute criminal activity, but it is worth remembering that PwC will sell tax avoidance schemes which only have a 25% chance of withstanding a legal challenge in the courts. What they rely on is no one finding out. This is why secrecy jurisdictions are popular with bean-counters.

In many civilized countries, whistleblowers are protected when they make disclosures in the public interest. But not in Luxembourg, which is prosecuting Antoine for leaking commercial secrets.

website has been set up to support Antoine – do sign up to show your support!

Luxembourg caves in to EU

Luxembourg’s actions look particularly petty when we see that the country has now dropped its legal challenge to provide the European Commission with details of previous tax rulings – the very documents leaked by Antoine Deltour.

The Commission had requested the documents as part of its ongoing investigation into the tax practices of some of its member states. Luxembourg was seeking to prevent disclosure and argued that the Commission was singling them out. Now we all know why.

 

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