Financial Transparency Coalition http://www.financialtransparency.org Fri, 17 Oct 2014 14:54:26 +0000 en-US hourly 1 http://wordpress.org/?v=3.7.4 EU Savings Tax Directive to be repealed? http://www.financialtransparency.org/2014/10/17/eu-savings-tax-directive-to-be-repealed/ http://www.financialtransparency.org/2014/10/17/eu-savings-tax-directive-to-be-repealed/#comments Fri, 17 Oct 2014 14:51:19 +0000 http://www.financialtransparency.org/?p=25531 Wall St. Journal reported:
“European Union finance ministers agreed Tuesday on a far-reaching crackdown on tax evasion that will bring the bloc’s standards on par with global rules by 2017, although Austria is getting an extra year to build up a data-exchange system with its banks.”
The DAC currently covers only EU Member states, while the EUSTD is extended by agreement to cover also a range of third countries in the EU’s orbit, including Switzerland and a bunch of British (and Dutch) tax havens. Both are systems ofautomatic information exchange (AIE), the new global financial transparency standard which TJN has been fighting for for years but only came into vogue in the past couple of years. The DAC was being beefed up to accommodate the new global Common Reporting Standards (CRS) led by the OECD. The CRS is another AIE system, which we have described as a vast improvement on a bad situation – but it still has various holes.]]>
This article originally appeared on the blog of the Tax Justice Network, a Coordinating Committee member of the FTC.

The EU Savings Tax Directive (EUSTD) has been the EU’s flagship transparency initiative since its introduction in 2003, and we have written about it on many occasions. It complements another EU transparency scheme called the Directive on Administrative Co-operation, which was beefed up this week, as the Wall St. Journal reported:

“European Union finance ministers agreed Tuesday on a far-reaching crackdown on tax evasion that will bring the bloc’s standards on par with global rules by 2017, although Austria is getting an extra year to build up a data-exchange system with its banks.”

The DAC currently covers only EU Member states, while the EUSTD is extended by agreement to cover also a range of third countries in the EU’s orbit, including Switzerland and a bunch of British (and Dutch) tax havens. Both are systems of automatic information exchange (AIE), the new global financial transparency standard which TJN has been fighting for for years but only came into vogue in the past couple of years. The DAC was being beefed up to accommodate the new global Common Reporting Standards (CRS) led by the OECD. The CRS is another AIE system, which we have described as a vast improvement on a bad situation – but it still has various holes.

Just a few days ago, the message was that the DAC and the EUSTD would continue complement each other. French Finance Minister Pierre Moscovici said at the press conference announcing the DAC’s extension this week (see about 3.00 minutes in on the video)

“Our objective is clearly to have a general principle of automatic exchange of information within the EU, without exception. The DAC in field of taxation already gives us a legal basis, but we should also move forward and settle the negotiation of the Savings Tax Directive as well as its extension to third countries.”

The idea had been that the DAC would incorporate the OECD’s CRS as its technical standards, while leaving the EUSTD to plug the gaps where the CRS has loopholes. But now, from an FAQ published by the European Commission:

“Q: Is the Savings Directive still relevant, given the new, full-scope automatic exchange now agreed by Member States?

A: The revised Administrative Cooperation Directive, agreed by Ministers yesterday, covers a wide scope of income and capital – including most of what is covered by the revised Savings Directive. Therefore, in order to have just one standard of automatic exchange and to avoid legislative overlaps, the Commission will now consider the repeal of the Savings Directive. Coordination of the likely repeal of the Savings Directive with the introduction of the revised Directive on Administrative Cooperation will ensure that we do not create or leave any loopholes for tax evaders. The Administrative Cooperation Directive is comprehensive and largely covers all areas that had previously been covered by the Savings Directive.”

If this happens then the DAC, we understand, is likely to adopt the role of the old EUSTD, as regards extending transparency to the third countries.

So it seems that things are in flux, and there may be some disagreements going on in there.

To be clear: the DAC covers a number of categories of income that aren’t covered, or aren’t adequately covered, by the OECD, so it adds value.

For the record, as regards another transparency scheme, the U.S. Foreign Account Tax Compliance Act (FATCA,) Moscovici added:

“we hope we [will] move forwards to agreement with third countries for full automatic information exchange with the EU, while in parallel we will be implementing the agreements that we just signed with the United States of America”

This statement by Moscovici raises question about the EU’s willingness to treat the US as another ‘third country’ to which to extend the information exchange system: we have in the past pointed fingers at Swiss chicanery by trying to wriggle out of this via various schemes such as cherry-picking countries to exchange information with. But we worry that the United States is, while hungry for other countries to provide it with data, much more reluctant to provide reciprocal data to other countries, raising the spectre of a large, rather monopolistic and still secretive offshore monster emerging on that side of the Atlantic.

Read more about Tax Haven USA here.

It is high time that the rhetoric that’s being applied to the likes of Switzerland is directed towards the United States.

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On the Eve of the Annual Conference http://www.financialtransparency.org/2014/10/13/on-the-eve-of-the-annual-conference/ http://www.financialtransparency.org/2014/10/13/on-the-eve-of-the-annual-conference/#comments Mon, 13 Oct 2014 23:46:20 +0000 http://www.financialtransparency.org/?p=25523 Untitled-1small We've arrived at the eve of the our annual conference, co-hosted this year in Lima, Peru by FTC member Latin American Network on Debt, Development, and Rights (LATINDAD). While the main conference begins tomorrow, journalists, civil society leaders and researchers are already hard at work. The week began today with a journalist training that included presentations from renowned investigative journalists like Hernán CapielloÁngel Páez, and former Wall Street Journal reporter Glenn Simpson. The training brought together more than 15 journalists from 10 different countries in Latin America to discuss how investigative journalism can be a tool for uncovering illicit financial flows. Alongside the journalist training, members of civil society gathered to discuss illicit flows, corruption, and financial transparency. As today's sessions have come to a close, we're looking forward to the launch of the conference tomorrow. You can view the full agenda for the event here. If you're unable to join us in Lima, you don't have to be left out. Follow along and add to the conversation on Twitter using the hashtag #FTC2014Lima and by following @FinTrCo.]]> Untitled-1small

We’ve arrived at the eve of the our annual conference, co-hosted this year in Lima, Peru by FTC member Latin American Network on Debt, Development, and Rights (LATINDAD). While the main conference begins tomorrow, journalists, civil society leaders and researchers are already hard at work. The week began today with a journalist training that included presentations from renowned investigative journalists like Hernán CapielloÁngel Páez, and former Wall Street Journal reporter Glenn Simpson. The training brought together more than 15 journalists from 10 different countries in Latin America to discuss how investigative journalism can be a tool for uncovering illicit financial flows. Alongside the journalist training, members of civil society gathered to discuss illicit flows, corruption, and financial transparency.

As today’s sessions have come to a close, we’re looking forward to the launch of the conference tomorrow. You can view the full agenda for the event here. If you’re unable to join us in Lima, you don’t have to be left out. Follow along and add to the conversation on Twitter using the hashtag #FTC2014Lima and by following @FinTrCo.

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Countdown to Lima Conference: Transforming the post-2015 momentum into an enduring fiscal justice movement http://www.financialtransparency.org/2014/10/09/countdown-to-lima-conference-transforming-the-post-2015-momentum-into-an-enduring-fiscal-justice-movement/ http://www.financialtransparency.org/2014/10/09/countdown-to-lima-conference-transforming-the-post-2015-momentum-into-an-enduring-fiscal-justice-movement/#comments Thu, 09 Oct 2014 12:57:13 +0000 http://www.financialtransparency.org/?p=25517 This blog is part of a series ahead of our annual conference, which takes place next week. Each piece is written by a conference speaker and aims to give a preview of some of the issues to be discussed. 

Written by Niko Lusiani, Director of the Human Rights in Economic Policy program at the Center for Economic and Social Rights (CESR)

Experts, advocates, government officials and journalists from all regions of the globe will be gathering next week in Lima, Peru to scale-up strategic efforts to curb illicit financial flows in ways which ensure sufficient, equitable and accountable financing of sustainable development.

The timing couldn’t be more auspicious. As governments move into the final stages of negotiating a set of new Sustainable Development Goals (SDGs) to replace the Millennium Development Goals after their expiration date next year, this post-2015 momentum represents a once-in-a-generation opportunity to shape the contours of national government priorities, policies and financing decisions in areas from education to ecology, housing to health, climate change to care work. Beyond national commitments, the post-2015 process is also an important strategic opportunity to secure global commitments on tax cooperation in a truly multilateral institution whose reason of being and higher-order imperative—unlike other bodies like the G20—is to promote human rights in development.

As the post-2015 process now starts to harden and fault lines become more pronounced, experts and activists from the development, environmental and human rights communities are converging around a fairly straightforward argument.[1] Unless governments agree to concrete tax and budgetary commitments which ensure robust, equitable and accountable fiscal foundations for sustainable development, the SDGs will end up merely dead letters.

In light of this unique moment, a special breakout session, “The 2015 Fiscal Revolution: Where Human Rights, Development, and Fiscal Policy Converge” will be held in Lima. Participants from the Center for Economic and Social Rights, Christian Aid, DAWN, Tax Justice Network and Jubilee USA will explore why the post-2015 debates matter, discuss concrete proposals to embed fiscal justice in the post-2015 commitments, and consider how human rights standards, accountability mechanisms and organizations like my own can be better leveraged to overcome some of the political obstacles to ensuring robust, equitable and accountable financing of sustainable development.

So join us as we together devise ways to transform this fleeting post-2015 momentum into an enduring fiscal justice movement.

 


[1] The convergence is striking, just starting with the UN Millennium Campaign Africa, Oxfam, Save the Children, Global Financial Integrity, Action Aid, the UN Special Rapporteur on Extreme Poverty and Human Rights, a wide array of experts, and “A Post-2015 Fiscal Revolution,” recently co-published by Christian Aid and my organization the Center for Economic and Social Rights.

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Publishing tax breaks and subsidies for corporations – a good idea whose time has come http://www.financialtransparency.org/2014/10/08/publishing-tax-breaks-and-subsidies-for-corporations-a-good-idea-whose-time-has-come/ http://www.financialtransparency.org/2014/10/08/publishing-tax-breaks-and-subsidies-for-corporations-a-good-idea-whose-time-has-come/#comments Wed, 08 Oct 2014 18:26:33 +0000 http://www.financialtransparency.org/?p=25512 Good Jobs Firsthas sent a fascinating email, which relates to the United States but could have general relevance for other countries. This one is located at the fascinating, busy intersection between tax and transparency.]]> The indefatigable US-based organisation Good Jobs First has sent a fascinating email, which relates to the United States but could have general relevance for other countries. This one is located at the fascinating, busy intersection between tax and transparency.

The intro:

“For many years, we at Good Jobs First have criticized GASB-the Governmental Accounting Standards Board, or “GAZ-bee”- for failing to require state and local governments to disclose economic development subsidy spending in a uniform way.

It appears that’s finally about to change, and if it does, it will be hard to overstate the significance of the news.

As the group that has been successfully shaming states and cities to disclose on subsidies all these years, with our 50-state and 50-locality “report card” studies, and as the group that has been collecting all the public data (and also lots of previously unpublished data) in our Subsidy Tracker database, we are intimately familiar with the irregularities and gaps that exist in these vital public records. And we have long shown how to fix them in our model legislation.”

Their generic criticisms and analysis, of course, are extremely valid, for any country. And they continue:

“Now, GASB is preparing rules that say: to meet GAAP, governments will have to publish an annual accounting of the revenue lost to economic development subsidies. The proposed wording of these rules has not been issued; all we have are board-meeting minutes of a low-profile process spanning more than two years, as GASB gathers information and debates how best to achieve this new standard.”

Now this is an interesting, and welcome, development. Investors welcome it, and citizens welcome it.

That’s the gist of it. For those who want the details, see here.

Endnote: the tax specifics are summarised:

“GASB is using the term “tax abatement” as an umbrella term (not just specific to local property tax exemptions) but “a reduction in taxes… in which (a) one or more governmental entities forgo tax revenues that [an individual] taxpayer otherwise would have been obligated to pay and (b) the taxpayer promises to take a specific action that contributes to economic development or otherwise benefits the government(s) or its citizens.” This would appear to also cover state corporate income tax credits and state or local sales tax exemptions, but apparently not tax increment financing.”

Note that in the race to the bottom between states, tax rates don’t stop at zero, but just keep going down. Pile the non-tax subsidies on that, and the overall equation can become very alarming.

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Countdown to Lima Conference: Tackling some of the biggest problems in the Americas http://www.financialtransparency.org/2014/10/08/countdown-to-lima-conference-tackling-some-of-the-biggest-problems-in-the-americas/ http://www.financialtransparency.org/2014/10/08/countdown-to-lima-conference-tackling-some-of-the-biggest-problems-in-the-americas/#comments Wed, 08 Oct 2014 16:59:57 +0000 http://www.financialtransparency.org/?p=25510 Hidden Money, Hidden Resources conference in Lima, organized by the Financial Transparency Coalition and Latindadd, and the agenda covers a number of topics which are highly relevant to the Americas. The panel I´ve been invited to moderate, for example, will be exploring the links between citizen security, organized crime, corruption and money-laundering. Latin America and the Caribbean as a region has the highest levels of citizen insecurity in the world, and is the only region where criminal violence increased between 2000 and 2010 according to UNDP.]]> This blog is part of a series ahead of our annual conference, which takes place next week. Each piece is written by a conference speaker and aims to give a preview of some of the issues to be discussed. 

There is just a week to go before the start of the Hidden Money, Hidden Resources conference in Lima, organized by the Financial Transparency Coalition and Latindadd, and the agenda covers a number of topics which are highly relevant to the Americas.

The panel I´ve been invited to moderate, for example, will be exploring the links between citizen security, organized crime, corruption and money-laundering. Latin America and the Caribbean as a region has the highest levels of citizen insecurity in the world, and is the only region where criminal violence increased between 2000 and 2010 according to UNDP.

While each of these issues could easily be the subject of a conference in itself (and they have – see for example here and here), we hope to focus specifically not just on how these issues are connected, but also on how to improve the coordination of responses to them.

The problem of organized crime – perhaps most often associated with Central America in the international media – is increasingly affecting the entire continent. The conference´s host country Peru is now the world´s number one cocaine producer, and is increasingly struggling to contain the influx of money from drug trafficking into the political system, with at least a quarter of candidates to regional governor positions currently under investigation for drug-related crimes.

Our guest speakers on the panel will include experts from the United Nations Office on Drugs and Crime (UNODC), the Financial Action Task Force (GAFISUD), the Institute for Strategic Studies and Public Policy of Nicaragua (IEEPP) and Costa Rica Integra.

For more information please check in next week, when we will be blogging the main outcomes and recommendations from the panel right after the conference.

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56 reasons why anonymous company ownership is the biggest problem you’ve never heard of http://www.financialtransparency.org/2014/10/08/56-reasons-why-anonymous-company-ownership-is-the-biggest-problem-youve-never-heard-of/ http://www.financialtransparency.org/2014/10/08/56-reasons-why-anonymous-company-ownership-is-the-biggest-problem-youve-never-heard-of/#comments Wed, 08 Oct 2014 15:11:31 +0000 http://www.financialtransparency.org/?p=25506 Anonymous company ownership doesn’t exactly trip off the tongue does it?  Nor is it a phrase that many people have heard of.  But it should be.  Anonymous company ownership is behind much of what is bad in the world.

It’s behind the fraudsters who cheat vulnerable people like the young, the old and the sick out of the resources they need to get by in life.  It’s behind the tax dodgers who don’t pay their fair share towards society.  It’s behind the dishonest public officials who use their positions for personal gain, and the corrupt multinationals that bribe their way into a lucrative contract.  It’s behind the people traffickers who condemn people to lives of modern-day slavery.  It’s even behind the terrorists, drug cartels and mobsters who run criminal enterprises.

Check out our new film, Mexico’s Drug Wars: Three Brothers, One Dirty Secret for an example of that. This is not an isolated case.

All these criminals need to move their dirty profits.  They can’t move the money in their own name, so they open a company – a company in which their control and ownership is hidden – and get the company to move the money instead.

We at Global Witness have been campaigning to end anonymous company ownership for a number of years now.  In March this year, our co-founder Charmian Gooch was awarded the $1million TED prize for this campaign.

We’ve had some successes, particularly the fact that the UK has committed to ending this practice – the first country in the world to do so.  But the problem won’t be fixed until all countries do the same. And that’s why we’ve created a map to highlight the extent of the problem.  It’s online, and interactive – have a play with it here.

Screen Shot 2014-10-08 at 11.09.52 AM

The map shows real life examples of anonymous companies and the harm they’ve caused.  It demonstrates the global scale of the problem.  The bigger the blue circle, the more stories about anonymous companies in that place.  The huge circle in the Caribbean?  That’s the British Virgin Islands.  All those circles over North America?  The problem of anonymous company ownership isn’t limited to the palm-fringed islands famed for being tax havens; we know that the United States is the biggest creator of anonymous companies used by the corrupt.  That probably means that American companies are popular with other criminals too.

Click on a blue circle to see how anonymous companies from that place have wreaked their havoc.  And then read about those cases – each a story of vulnerable people being ripped off, poor countries and taxpayers being ripped off, democracy and businesses and investors being ripped off.

So far, we’ve amassed 56 stories of anonymous company ownership and the problems it causes.  But it’s a work in progress. There are heaps more stories out there, and we’re continually adding them. What you can do:

  • Feel free to embed the map in your own website.
  • Feel free to re-use any of our case studies – we’ve made them all available to download and have licensed themsuch that you’re free to use or adapt them yourself as long as you acknowledge where you got them from, indicate whether you’ve made any changes and let others also do the same.
  • Find out about the harmed caused by companies in the place you live.  And let your local government and business leaders know you’re through with business being done in darkness.
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PWC report endorses country by country reporting for banks http://www.financialtransparency.org/2014/10/07/pwc-report-endorses-country-by-country-reporting-for-banks/ http://www.financialtransparency.org/2014/10/07/pwc-report-endorses-country-by-country-reporting-for-banks/#comments Tue, 07 Oct 2014 16:15:55 +0000 http://www.financialtransparency.org/?p=25501 9144964712_3a080060a2_zFrom Euractiv, a statement that would have been unthinkable even just a couple of years ago:
“Publishing turnover, staff numbers, taxes paid and subsidies received in every country banks operate in, could boost competitiveness, increase lending and bolster financial stability, the independent study by auditors PwC will find. It will fight tax evasion and not harm investment or result in excessive compliance costs for banks, the report will say once published.”
This research, carried out for the European Commission as due diligence for the fourth revision of the EU Capital Requirements Directive, is highly welcome, and it comes in the context of a statement by PwC’s chairman, summarised by the FT:
“The chairman of the world’s largest tax practice says tax advice has a moral dimension to it that professional services firms must keep in mind when advising clients.”]]> 9144964712_3a080060a2_zFrom Euractiv, a statement that would have been unthinkable even just a couple of years ago:

“Publishing turnover, staff numbers, taxes paid and subsidies received in every country banks operate in, could boost competitiveness, increase lending and bolster financial stability, the independent study by auditors PwC will find. It will fight tax evasion and not harm investment or result in excessive compliance costs for banks, the report will say once published.”

This research, carried out for the European Commission as due diligence for the fourth revision of the EU Capital Requirements Directive, is highly welcome, and it comes in the context of a statement by PwC’s chairman, summarised by the FT:

“The chairman of the world’s largest tax practice says tax advice has a moral dimension to it that professional services firms must keep in mind when advising clients.”

That’s a no-brainer, but it seems that Big Four firms in the past have had a hard time even considering it. This also follows a separate piece of research by PwC showing that most CEOs backcountry by country (CbC) reporting.

CbC reporting – a project originally set up by Richard Murphy for TJN - faced opposition and even derision for some years.   Large accountancy firms such as PWC have in the past been sceptical about country-by-country reporting, and this is a ringing endorsement of the general principle. Indeed, campaigners had earlier opposed PWC’s role in this research project, after it told a recent OECD consultation on the issue it wanted “a more stringent confidentiality regime” and called for “real sanctions for countries that violate confidentiality provisions.”

The EU Capital Requirements Directive, adopted by the European Parliament and European Council in 2013, requires that banks must publish CbC data from 2015, though a negative report from PwC would have given the Commission grounds to delay it.

Now get this grab-bag of goodies, again via Euractiv:

“PwC analysis will say the increased rigour of reporting would give a better picture of the true economic situation of a bank. This would make it easier for regulators to oversee it, resulting in more financial stability. PwC analysis also suggests increasing transparency will reduce the manipulation of earnings in order to pay less tax. . .  .Reducing manipulation could have a positive impact on firms’ competitiveness, according to the preliminary findings.

Calculations by economists found the reporting was unlikely to hurt banks’ ability to access capital markets, where long-term finance can be raised.”

Just as we have always argued. Slowly, the critics are being won over.


Image used under Creative Commons License / Flickr User: PwC Spain

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http://www.financialtransparency.org/2014/10/07/pwc-report-endorses-country-by-country-reporting-for-banks/feed/ 0 London Can’t Afford To Turn a Blind Eye To Corrupt Money http://www.financialtransparency.org/2014/10/02/london-cant-afford-to-turn-a-blind-eye-to-corrupt-money/ http://www.financialtransparency.org/2014/10/02/london-cant-afford-to-turn-a-blind-eye-to-corrupt-money/#comments Thu, 02 Oct 2014 16:08:44 +0000 http://www.financialtransparency.org/?p=25489 8704603297_92b41d11c1_k

This piece is cross-posted from the blog of Transparency International

Boris Johnson’s call for new homes in London to be sold first to Londoners, "not to oligarchs”, made headlines this week.

The Mayor of London making this demand at the Conservative party conference in Birmingham highlights a growing acknowledgement that a vast number of properties in the city are being used as safe investments by the world’s mega-wealthy.  In fact, foreign buyers bought up to 75% of new homes in central London over the past year, and foreign buyers reportedly accounted for 49% of all properties above £1m. £7bn of foreign investment was spent on high-end London homes in 2013. But what Johnson must consider when addressing the overheated top-end of London’s property market is the ease with which an overseas buyer can invest in a London property using stolen assets – the proceeds of corruption.]]>
By: Scott Edwards, Communications Officer for Transparency International – United Kingdom


8704603297_92b41d11c1_k

This piece is cross-posted from the blog of Transparency International

Boris Johnson’s call for new homes in London to be sold first to Londoners, “not to oligarchs”, made headlines this week.

The Mayor of London making this demand at the Conservative party conference in Birmingham highlights a growing acknowledgement that a vast number of properties in the city are being used as safe investments by the world’s mega-wealthy.  In fact, foreign buyers bought up to 75% of new homes in central London over the past year, and foreign buyers reportedly accounted for 49% of all properties above £1m. £7bn of foreign investment was spent on high-end London homes in 2013.

But what Johnson must consider when addressing the overheated top-end of London’s property market is the ease with which an overseas buyer can invest in a London property using stolen assets – the proceeds of corruption.

Currently, corrupt politicians, officials and businesspeople are able to launder money through the UK, buying much sought-after London lifestyles at very little personal risk. In London’s most exclusive postcodes, property is often bought using anonymous shell companies based in off-shore jurisdictions, such as the British Virgin Islands or the Channel Islands, with not even the Land Registry knowing who thereal owner is.

If corrupt individuals are able to buy London properties using stolen public funds, London represents one half of an equation that allows corruption to flourish. Money originally intended for health or education in a developing country is instead transferred to pay for an empty London property that slowly accumulates wealth for the buyer.

Encouragingly, the UK has committed to establishing a public register of company beneficial ownership and to increase powers to seize criminal assets. But more needs to be done, particularly in the British Overseas Territories and other ‘secrecy havens’.

Estate agents in the UK aren’t reporting suspicions of money laundering at anywhere near the rate they should be. Out of all ‘suspicious activity reports’ in 2013, estate agents only account for 0.07% of the total. This sector in the UK needs to wake up to its responsibilities.

In December last year, we launched a report, Closing Down the Safe Havens: Ending impunity for corrupt individuals by seizing and recovering their assets in the UK, that highlights the blocks in the system which are preventing stolen funds being identified, frozen and seized.

The TI movement has also launched a new campaign, Unmask the Corrupt, which has kicked off by asking G20 countries to make it impossible for the corrupt to hide their identify behind secret companies. We urge everyone reading this blog to sign up: unmaskthecorrupt.com.

And, if Johnson really wants to put Londoners first, we urge him to join TI in calling for more to be done to prevent corrupt money being invested in London’s properties. Londoners deserve better than their city being used as a cleaning closet for stolen money.


Image used under Creative Commons license / Flickr User Ronnie MacDonald

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How Shell Corporations Undermine Schools in California http://www.financialtransparency.org/2014/09/30/how-shell-corporations-undermine-schools-in-california/ http://www.financialtransparency.org/2014/09/30/how-shell-corporations-undermine-schools-in-california/#comments Wed, 01 Oct 2014 03:08:26 +0000 http://www.financialtransparency.org/?p=25484 Education Week in a national ranking of states and D.C., California ranks near the bottom, at 49th, in terms of per-pupil spending. There are reasons to believe that one cause of this problem is the system of property taxation in California—and its loopholes. The biggest player in property taxation and its policy in California is Proposition 13. Approved by California’s voters in 1978, Proposition 13 sets limits on the annual increases of assessed value of real property by an inflation factor. Proposition 13 also prohibits the government from reassessing a property’s new base year unless that property changes ownership. Broadly speaking, this means that in California, unless you sell your home, your property taxes cannot increase by more than a fixed percentage each year. In fact, the market value of properties in California has significantly outpaced this fixed percentage, leading to a discrepancy between what Californians would have paid in property taxes without Proposition 13 and what they actually pay.]]> California spends about $8,500 per year to educate its public school students. That’s about $3,300 less than the national average. In fact, according to Education Week in a national ranking of states and D.C., California ranks near the bottom, at 49th, in terms of per-pupil spending. There are reasons to believe that one cause of this problem is the system of property taxation in California—and its loopholes.

The biggest player in property taxation and its policy in California is Proposition 13. Approved by California’s voters in 1978, Proposition 13 sets limits on the annual increases of assessed value of real property by an inflation factor. Proposition 13 also prohibits the government from reassessing a property’s new base year unless that property changes ownership. Broadly speaking, this means that in California, unless you sell your home, your property taxes cannot increase by more than a fixed percentage each year.

In fact, the market value of properties in California has significantly outpaced this fixed percentage, leading to a discrepancy between what Californians would have paid in property taxes without Proposition 13 and what they actually pay.

That’s not where the story ends, though. Both commercial and residential owners pay property taxes, but the total share of property tax paid in California by homeowners has increased, while the share paid by businesses has declined.

Specifically, the assessed value of owner occupied homes rose from 40% of statewide valuation in the period before Proposition 13 to 56% in 2009. Meanwhile, the owners of commercial properties now pay a smaller percentage of statewide property taxes. Commercial-industrial property accounted for 47% of the tax roll before Prop 13, and it now accounts for about 31%.

It is difficult to know if the assessed value of commercial properties is below its market value. The limited available evidence suggests it is, however. Because the state updates the value of a property when it changes ownership, properties that turn over more frequently are closer to their market values than those that turn over less frequently. The available research suggests that California’s turnover rate for is higher for homes than it is for commercial properties.

In part, this low turnover rate reflects a truly different market structure. However, there is also reason to believe that this reflects the fact that commercial property owners in California are able to use disingenuous means to prevent reassessment.  Specifically, commercial property owners can prevent reassessment associated with turnover by holding their properties in shell companies, which maintain the legal ownership of the property even after transferring ownership to a new owner.

Say, for example, the owner of a shopping mall wants to sell his property. Instead of selling the mall “cleanly” he could deed the mall to a shell corporation in Nevada, whose sole asset is that mall. The owner can then sell the mall to a third party, but leave the property technically deeded to the corporation. In the eyes of the law, the property has not changed hands, and so the government would not reassess the value of the mall for tax purposes.

This dynamic has significant implications for California’s budget and its ability to pay for public goods like schools and roads. School finance – which is heavily tied to property tax revenue – suffers in particular. In fact, many have argued that California’s particularly low spending per-pupil is a direct outgrowth of Proposition 13. To the extent that shell corporations allow commercial property owners to avoid taxes –and further reduce needed property tax revenues—they also undermine California’s ability to fund its schools.

I guess we can add that to the (already very long list) of ways that shell corporations hurt our society.

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The “Big Mo” in the Drive to Address Illicit Financial Flows http://www.financialtransparency.org/2014/09/30/the-big-mo-in-the-drive-to-address-illicit-financial-flows/ http://www.financialtransparency.org/2014/09/30/the-big-mo-in-the-drive-to-address-illicit-financial-flows/#comments Tue, 30 Sep 2014 18:12:39 +0000 http://www.financialtransparency.org/?p=25473 On September 24th, tucked away in a quiet conference room in the basement of the UN General Assembly building, an extraordinary conversation took place on the future of global development.  But, despite the gathering of representatives from the OECD, UN, World Bank, USAID and the Mexican, Australian, and Nigerian governments, the event received exactly zero media coverage. Titled “Curbing Illicit Financial Flows for Domestic Resource Mobilization and Sustainable Development in the Post-2015 Era,” the focal point of the two-hour discussion was how the international community could, as the program description put it, “identify concrete international actions needed” to curtail illicit financial flows out of developing country economies.  While other events were given more airtime and other issues may require more immediate attention, some ideas presented at the panel could be transformational in terms of how countries address the scourge of illicit flows and how the development agenda is funded.]]> This post originally appeared on the blog of Global Financial Integrity, a Coordinating Committee member of the FTC. 

tomOn September 24th, tucked away in a quiet conference room in the basement of the UN General Assembly building, an extraordinary conversation took place on the future of global development.  But, despite the gathering of representatives from the OECD, UN, World Bank, USAID and the Mexican, Australian, and Nigerian governments, the event received exactly zero media coverage.

Titled “Curbing Illicit Financial Flows for Domestic Resource Mobilization and Sustainable Development in the Post-2015 Era,” the focal point of the two-hour discussion was how the international community could, as the program description put it, “identify concrete international actions needed” to curtail illicit financial flows out of developing country economies.  While other events were given more airtime and other issues may require more immediate attention, some ideas presented at the panel could be transformational in terms of how countries address the scourge of illicit flows and how the development agenda is funded.

With close to US$1 trillion in illicit capital being siphoned out of developing country economies as of 2011 (the last year for which data are available) and the countdown to the Post-2015 agenda underway, illicit financial flows have, according to the OECD, been pushed to “the forefront of the international agenda.”  It is this understanding of the problem, along with similar sentiments by the UN System Task Team on Sustainable Development and by the World Bank Group, that have driven the momentum (i.e. “the Big Mo”) to address IFFs at this level.

To be sure, the momentum has been slowly building for years.  The G20, in its 2009 Pittsburgh Final Declaration noted that it would commit “to take new steps to increase access to food, fuel, and finance among the world’s poorest while clamping down on illicit outflows,” a sentiment it reiterated in Cannes in 2011, and in Los Cabos in 2012.  By 2013, the UN’s High-Level Panel of Eminent Persons said that the international community needed to “crack down on illicit capital flows.”  And, most recently, the UN Open Working Group included a target to reduce illicit flows in its report to Ban Ki-Moon, and one outcome of the US-Africa Leader’s Summit in August was a commitment to create “a joint high-level working group” to address IFFs.

For its part the World Bank, during its annual meetings in mid-October, will host its own event (featuring GFI President Raymond Baker) on illicit flows, thereby pushing the agenda even further.  And with the continuing drumbeat comes the opportunity to take decisive action.

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