Financial Transparency Coalition http://www.financialtransparency.org Wed, 20 Aug 2014 16:40:27 +0000 en-US hourly 1 http://wordpress.org/?v=3.7.4 New Standard Chartered Settlement Underscores Insufficiency of Fines & Monitoring in Deterring Illicit Activity at International Banks http://www.financialtransparency.org/2014/08/20/new-standard-chartered-settlement-underscores-insufficiency-of-fines-monitoring-in-deterring-illicit-activity-at-international-banks/ http://www.financialtransparency.org/2014/08/20/new-standard-chartered-settlement-underscores-insufficiency-of-fines-monitoring-in-deterring-illicit-activity-at-international-banks/#comments Wed, 20 Aug 2014 16:37:07 +0000 http://www.financialtransparency.org/?p=25357 GFIWASHINGTON, DC – As New York regulators announced that British bank Standard Chartered PLC will pay a fine of $300 million for failing to rectify anti-money laundering deficiencies as required by the bank’s August 2012 settlement with New York regulators, Global Financial Integrity (GFI) warned that the agreement underscored the fact that fines and monitoring are insufficient for deterring illicit activity at international banks. “As I noted in August 2012 when the original Standard Chartered settlement was first announced, monitoring and paltry fines are not an effective response in this case,” said Heather Lowe, GFI’s legal counsel and director of government affairs.  “In 2004, Standard Chartered was forced to submit to monitoring by regulators for significant anti-money laundering deficiencies.  The illicit activity covered in the August 2012 settlement was happening while the first round of monitoring was already in place.  Now it appears that the monitoring and fines imposed in 2012 did little to rectify the situation at Standard Chartered.  They say that the definition of insanity is doing the same thing over-and-over-again and expecting a different result.  The settlement today is a prime example of that.”]]>
GFI
 

FOR IMMEDIATE RELEASE
August 20, 2014

GFI Warned of Shortcomings of Original Standard Chartered Settlement in August 2012

 

Regulators Fail Again to Hold Individuals Accountable for Serious Anti-Money Laundering Lapses, Providing No Deterrent to Future Misconduct

 
WASHINGTON, DC – As New York regulators announced that British bank Standard Chartered PLC will pay a fine of $300 million for failing to rectify anti-money laundering deficiencies as required by the bank’s August 2012 settlement with New York regulators, Global Financial Integrity (GFI) warned that the agreement underscored the fact that fines and monitoring are insufficient for deterring illicit activity at international banks.

“As I noted in August 2012 when the original Standard Chartered settlement was first announced, monitoring and paltry fines are not an effective response in this case,” said Heather Lowe, GFI’s legal counsel and director of government affairs.  “In 2004, Standard Chartered was forced to submit to monitoring by regulators for significant anti-money laundering deficiencies.  The illicit activity covered in the August 2012 settlement was happening while the first round of monitoring was already in place.  Now it appears that the monitoring and fines imposed in 2012 did little to rectify the situation at Standard Chartered.  They say that the definition of insanity is doing the same thing over-and-over-again and expecting a different result.  The settlement today is a prime example of that.”

GFI explained that the government must instead hold individuals at the financial institution accountable before they can expect large banks like Standard Chartered to comply with anti-money laundering rules.

“A fine is a cost of doing business, especially when it’s $300 million—or $340 million, as it was at Standard Chartered in 2012—for $250 billion worth of transactions,” added Ms. Lowe.  “The question everyone should be asking is, ‘are the people who have been participating in the bank’s illicit activity since 2004—not just the CEO, but also the department managers—still working for the bank and why?’”

GFI further warned that this problem is not unique to Standard Chartered, but is rather a systemic problem with anti-money laundering enforcement.  The deal follows similar recent settlements with BNP Paribas, Credit Suisse, HSBC, ING, UBS, and Wachovia for facilitating money laundering or tax evasion, in which the banks paid hefty fines while their executives and employees escaped any punishment for their participation.

“Standard Chartered had multiple opportunities over the past decade to clean up its act, and they clearly and repeatedly chose not to do that,” noted GFI Policy Counsel Joshua Simmons.  “The only way to stop this from occurring again at Standard Chartered, or at any other bank, is for any of their employees who knowingly violated the law to face appropriate consequences for their actions.  There will not be substantial progress on combating money laundering through major financial institutions until individual actors within those banks feel that they will be held accountable for their actions.”

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Notes to Editors:

  • Click here to read an HTML version of this press release on our website.
  • Click here to read the press release from the NY Department of Financial Services announcing the new settlement.
  • Click here (PDF) to read the full order from the NY Department of Financial Services.
  • Click here to read GFI’s August 14, 2012 press release on the original settlement, titled “GFI: Standard Chartered Settlement Insufficient to Deter Illicit Activity at International Banks.”
  • Click here to read Joshua Simmons’s January 2014 op-ed published by the Thomson Reuters Foundation, titled “An Indictment of Financial Crime Enforcement.”
  • Read Heather Lowe’s speech, “Players: The Role of Facilitators and Super-Fixers,” given on June 25th, 2012 before The Center for Complex Operations at the National Defense University, Washington DC.

Journalist Contact:

Clark Gascoigne
Global Financial Integrity
cgascoigne@gfintegrity.org
+1 202 293 0740 x222

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The U.S. Africa’s Leaders Summit and Illicit Financial Flows http://www.financialtransparency.org/2014/08/14/the-u-s-africas-leaders-summit-and-illicit-financial-flows/ http://www.financialtransparency.org/2014/08/14/the-u-s-africas-leaders-summit-and-illicit-financial-flows/#comments Fri, 15 Aug 2014 03:24:55 +0000 http://www.financialtransparency.org/?p=25352 U.S.-Africa Leaders Summit, which President Obama convened to strengthen and enhance relations between the United States and African nations. One of the stated missions of the Summit was to advance America’s “commitment to Africa’s security, its democratic development, and its people.” As such, a core promise of the Summit was more American investment in the African continent. Specifically, the Summit set the stage for more than $33 billion in new commitments to support economic growth across Africa. President Obama pledged $7 billion in new financing; U.S. companies announced $14 billion in deals in a variety of sectors, including energy and construction; and alongside the World Bank and Sweden, the United States also promised an additional $12 billion in investments for the President’s Power Africa initiative. Foreign investment can play an important role in economic development. One study, for example, found that foreign direct investment (FDI) promotes economic growth in developing countries by increasing the transfer of advanced technology and creating higher productivity in those nations. Other studies suggest that recipient nations of FDI can also benefit from increases human capital as their residents receive employee training through the investing company. Finally, and perhaps most importantly, several studies note that host nations benefit from FDI to the extent that it contributes to increased corporate tax revenue. ]]> Last week the White House wrapped up the three-day U.S.-Africa Leaders Summit, which President Obama convened to strengthen and enhance relations between the United States and African nations. One of the stated missions of the Summit was to advance America’s “commitment to Africa’s security, its democratic development, and its people.”

As such, a core promise of the Summit was more American investment in the African continent. Specifically, the Summit set the stage for more than $33 billion in new commitments to support economic growth across Africa. President Obama pledged $7 billion in new financing; U.S. companies announced $14 billion in deals in a variety of sectors, including energy and construction; and alongside the World Bank and Sweden, the United States also promised an additional $12 billion in investments for the President’s Power Africa initiative.

Foreign investment can play an important role in economic development. One study, for example, found that foreign direct investment (FDI) promotes economic growth in developing countries by increasing the transfer of advanced technology and creating higher productivity in those nations. Other studies suggest that recipient nations of FDI can also benefit from increases human capital as their residents receive employee training through the investing company. Finally, and perhaps most importantly, several studies note that host nations benefit from FDI to the extent that it contributes to increased corporate tax revenue.  

This is an important point. A critical means by which developing nations can benefit from FDI is, in fact, tax revenue. And, yet, while the Summit was heavy on promises about business and investment, it was light on ideas for improving business practices and gaining fair tax revenues from multinational corporations operating in Africa.

Here’s an example. Say a company decides to invest in a nation in Africa to build a new clean energy project. In a few years from now, the enterprise is successful and the company ends up making a sizeable profit on that investment. Under the current status quo, there is very little that can prevent that successful company from evading the corporate tax that it owes on those profits. There is very little to stop the company from misinvoicing its next shipment of wind turbines, shift its profits to an island nation in the Caribbean, and avoid taxes on most or all of the profit that was meant to benefit that African nation.

Take another similar example, this time from Sierra Leone’s Foreign Minister Samura Kamara. In a recent interview, Kamara noted that sometimes “multinationals will form subsidiaries in joint partnership with governments and then load the subsidiary with debt, reducing any dividends the government had expected to receive.” Again, the effect is that companies may look good for creating private-public partnerships or increasing investment in developing countries, but the real effect of those promises are less clear.

One important caveat to all this is that the Summit did address illicit financial flows, at least in words if not in concrete options. The Summit served as a platform for the creation of the U.S.-Africa Partnership to Combat Illicit Finance and through this announcement these leaders did take one step toward tackling illicit financial flows. This is an important symbolic moment, but in truth, it’s still light on the details.

Investment is important, but it must be paired with financial transparency and oversight. Domestically and internationally, we must watch both new and old business ventures for profit shifting, tax evasion, and trade misinvoicing. Again, as Kamara points out: “The tax structures used by multinationals must be addressed” and nations should achieve “greater transparency, particularly in the extractive industries.”

And so, we should be optimistic. We should be optimistic about the pledge of investment in Africa and the creation of the Partnership on Illicit Finance. Yet we should also be cautious. We should understand that profits from these investments are still susceptible to the same kinds of trade and financial manipulations that are today responsible more than $35 billion in illicit finance leaving the nation each year. Our work here is not done.

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Walgreens feels the heat, reconsiders tax flight http://www.financialtransparency.org/2014/08/12/walgreens-feels-the-heat-reconsiders-tax-flight/ http://www.financialtransparency.org/2014/08/12/walgreens-feels-the-heat-reconsiders-tax-flight/#comments Tue, 12 Aug 2014 18:17:32 +0000 http://www.financialtransparency.org/?p=25339 It all started last month when Walgreens, the iconic American pharmacy chain, announced that it would move its headquarters to Switzerland as part of a merger with the European chain Alliance Boots. The move, known as an “inversion”, essentially involves a company merging with another company that is based in a jurisdiction with lower taxes. Once they merge, the newly formed group will usually move its headquarters to the lower tax jurisdiction to avoid paying taxes in their home country. However, this move is usually a pure technicality, meaning that while the address may change, not much else does.]]> 14281884510_e63fd1c57b_z

It all started last month when Walgreens, the iconic American pharmacy chain, announced that it would move its headquarters to Switzerland as part of a merger with the European chain Alliance Boots. The move, known as an “inversion”, essentially involves a company merging with another company that is based in a jurisdiction with lower taxes.

Once they merge, the newly formed group will usually move its headquarters to the lower tax jurisdiction to avoid paying taxes in their home country. However, this move is usually a pure technicality, meaning that while the address may change, not much else does. The primary work of the headquarters will usually continue, uninterrupted, at the site of the original headquarters. Inversions have taken Wall Street by storm recently; a proposal from drug giant Pfizer, and another from Medtronic, a Minneapolis-based medical supply company, have come under intense scrutiny. Although some deals have attracted negative media attention, it hasn’t been enough to halt the practice altogether.

This time, something appears to be different. When Walgreens made the announcement last month, everyone from President Obama to investor and owner of the NBA’s Dallas Mavericks, Mark Cuban, criticized the move (you know you’re on shaky ground when you face criticism from other billionaires).

President Obama questioned the patriotism of companies pursuing inversion schemes and vowed to move quickly to halt the trend.

Last Wednesday, just one month after details of the planned inversion came to light, Walgreen’s backtracked and said it had reconsidered the inversion element of the merger with Alliance Boots, meaning the combined company would keep its corporate headquarters in Decatur, Illinois. Walgreen’s stock price took a hit, but analysts familiar with the deal noted that it was artificially high following the initial announcement of an inversion in July. And Ajay Jain, an analyst with Cantor Fitzgerald, advised his clients that an inversion would have actually been an investment risk.

It’s unclear whether Walgreen’s about face was actually a response to public pressure or more practical indications that it would not withstand a review from the Internal Revenue Service. While legislation being considered in Congress may or may not address earnings stripping and other inversion-related hijinks, the Walgreen’s story is a cautionary tale for would-be tax avoiders.


Image used under Creative Commons licensing / Flickr User: Mike Mozart

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Calling All Money Laundering Wonks – U.S. Treasury Seeks Comment on Rule to Keep Dirty Money Out of U.S. Banks http://www.financialtransparency.org/2014/08/08/calling-all-money-laundering-wonks-u-s-treasury-seeks-comment-on-rule-to-keep-dirty-money-out-of-u-s-banks/ http://www.financialtransparency.org/2014/08/08/calling-all-money-laundering-wonks-u-s-treasury-seeks-comment-on-rule-to-keep-dirty-money-out-of-u-s-banks/#comments Fri, 08 Aug 2014 16:57:32 +0000 http://www.financialtransparency.org/?p=25332 The U.S. Treasury is in the process of taking a big step toward making it harder for corrupt politicians, drug traffickers and terrorists to make use of the U.S. financial system, by forcing banks to know who their customers actually are. This is something we have been advocating for five years. Treasury recently released a proposed rule and is seeking comment until October 3, 2014. There’s info on how to do that here. It’s worth explaining precisely what we think the problem is, and what the rule should look like if it is going to do its job properly.]]> This post originally appeared on the blog of Global Witness, a member of the FTC.

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The U.S. Treasury is in the process of taking a big step toward making it harder for corrupt politicians, drug traffickers and terrorists to make use of the U.S. financial system, by forcing banks to know who their customers actually are.

This is something we have been advocating for five years. Treasury recently released a proposed rule and is seeking comment until October 3, 2014. There’s info on how to do that here.

It’s worth explaining precisely what we think the problem is, and what the rule should look like if it is going to do its job properly.

Right now, there is a gaping hole in U.S. law that enables corrupt individuals and other criminals to easily hide their identity behind anonymous companies. This allows them to launder dirty money through U.S. banks. The problem is twofold:

  • U.S. banks, with few exceptions, are not required to identify the real, or “beneficial,” owner of companies that open accounts. This means they are not doing nearly enough to identify the actual human that the money they are handling belongs to, or what might have been done to obtain it;
  • It is perfectly legal to set up a company in the U.S. without disclosing who ultimately owns it. This means that there is too little beneficial ownership information available to bankers or in the public domain. (We’re campaigning on this too here.)

Treasury’s rule would tackle the first of these issues, by forcing banks to identify and verify the real, ultimate owners of their corporate account clients. Unless a bank does this, it cannot meaningfully assess the risk that somebody is trying to launder the proceeds of crime.

Like the anti-money laundering wonks we are, we’ll be going through the proposed rule in detail and letting Treasury know what needs to be changed to make it really work. But on our first reading, the definition of beneficial ownership is still lacking.

To have the greatest impact, the final rule must include a stronger definition of beneficial ownership that:

  • Ensures each beneficial owner is a real person and not a nominee (someone who has lent or sold their identity to the real owner);
  • Includes individuals who control a company through unofficial means, such as trusts or power-of-attorney arrangements, outside of legal ownership or acting as a corporate officer;
  • Has no specific percentage threshold for legal ownership. This would provide money launderers with a blueprint for how to structure companies in order to avoid detection (i.e., under a 25% threshold, if five people own equal shares, none need to report).

The proposed rule must also be strengthened to:

  • Require financial institutions to turn away business if they are unable to identify a beneficial owner of the account;
  • Apply retroactively to all legal entity accounts, not just to new accounts; and
  • Oblige financial institutions to verify that the names of the beneficial owners provided by the company are in fact the company’s beneficial owners.

A rule like this would significantly strengthen the U.S. anti-money laundering framework and bring the U.S. in line with countries around the world.

The U.S. is way behind on this issue. All members of the European Union and many other financial centers, including Switzerland, Hong Kong and Singapore, already require their financial institutions to collect information about the beneficial owners of their clients.

The U.S. has known about this loophole in U.S. policy for many years. It allows those behind some of the worst problems of our time to get away with their crimes – as the spate of recent scandals with banks involved in laundering drug money, sanctions busting, tax evasion and other illegal behavior illustrates. To turn the tap of dirty money flowing into U.S. banks off, Treasury must act swiftly and issue a strong rule before the end of the year.


Image used under Creative Commons license / Flickr User: Squirrel83

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GFI Welcomes New U.S.-Africa Partnership to Combat Illicit Finance http://www.financialtransparency.org/2014/08/07/gfi-welcomes-new-u-s-africa-partnership-to-combat-illicit-finance/ http://www.financialtransparency.org/2014/08/07/gfi-welcomes-new-u-s-africa-partnership-to-combat-illicit-finance/#comments Thu, 07 Aug 2014 13:39:35 +0000 http://www.financialtransparency.org/?p=25325 WASHINGTON, DC – Global Financial Integrity (GFI) welcomed the announcement from the White House and African leaders today regarding the establishment of a bilateral U.S.-Africa Partnership to Combat Illicit Finance, but the Washington-DC based research and advocacy organization cautioned that any effective partnership must be sure to address deficiencies in both the U.S. and in Africa that facilitate the hemorrhage of illicit capital from Africa. “We welcome the move by President Obama and certain African leaders to form this partnership on curbing illicit financial flows from African economies,” said GFI President Raymond Baker, who also serves on the UN High Level Panel on Illicit Financial Flows from Africa. “Illicit financial flows are by far the most damaging economic problem facing Africa. By announcing the creation of the U.S.-Africa Partnership to Combat Illicit Finance, President Obama and African leaders have taken the first step towards tackling the most pernicious global development challenge of our time.”]]>
GFI
 

FOR IMMEDIATE RELEASE
August 6, 2014

Working Group Must Address Trade Misinvoicing and Role of U.S. Business and Government in Facilitating Illicit Finance to Be Truly Effective, Warns GFI

 

Illicit Financial Flows Drain US$55.6bn Annually from African Continent, Sapping GDP, Undermining Development, and Fueling Crime, Corruption, and Tax Evasion

 
WASHINGTON, DC – Global Financial Integrity (GFI) welcomed the announcement from the White House and African leaders today regarding the establishment of a bilateral U.S.-Africa Partnership to Combat Illicit Finance, but the Washington-DC based research and advocacy organization cautioned that any effective partnership must be sure to address deficiencies in both the U.S. and in Africa that facilitate the hemorrhage of illicit capital from Africa.

“We welcome the move by President Obama and certain African leaders to form this partnership on curbing illicit financial flows from African economies,” said GFI President Raymond Baker, who also serves on the UN High Level Panel on Illicit Financial Flows from Africa. “Illicit financial flows are by far the most damaging economic problem facing Africa. By announcing the creation of the U.S.-Africa Partnership to Combat Illicit Finance, President Obama and African leaders have taken the first step towards tackling the most pernicious global development challenge of our time.”

GFI research estimates that illicit financial outflows cost African (both North and Sub-Saharan African) economiesUS$55.6 billion per year from 2002-2011 (the most recent decade for which comprehensive data is available), fueling crime, corruption, and tax evasion. Indeed, GFI’s latest global analysis found that these illicit outflows sapped 5.7 percent of GDP from Sub-Saharan Africa over the last decade, more than any other region in the developing world.   Perhaps most alarmingly, outflows from Sub-Saharan Africa were found to be growing at an average inflation-adjusted rate of more than 20 percent per year, underscoring the urgency with which policymakers should address illicit financial flows.

The problem with illicit outflows from Africa is so severe that a May 2013 joint report from GFI and the African Development Bank found that, after adjusting all recorded flows of money to and from the continent (e.g. debt, investment, exports, imports, foreign aid, remittances, etc.) for illicit financial outflows, between 1980 and 2009, Africa was a net creditor to the rest of the world by up to US$1.4 trillion.

Trade Misinvoicing at the Heart of Illicit Outflows

According to GFI’s research, most of the illicit outflows from Africa—US$35.4 billion of the US$55.6 billion leaving the continent each year—occur through the fraudulent over- and under-invoicing of trade transactions, a trade-based money laundering technique known as “trade misinvoicing.” As GFI noted in a May 2014 study, trade misinvoicing is undermining billions of dollars of investment and domestic resource mobilization in at least a number of African countries. The organization emphasized the importance of ensuring that the new U.S.-Africa partnership prioritizes the curtailment of trade misinvoicing.

“The misinvoicing of ordinary trade transactions is the most widely used method for transferring dirty money across international borders, and it accounts for the vast majority of illicit financial flows from Africa,” said Heather Lowe, GFI’s legal counsel and director of government affairs. “While it is easy to place the blame for this on corrupt officials or transnational crime networks, the truth of the matter is that the bulk of these fraudulent trade transactions are conducted by normal companies, many of them major U.S. and European companies.”

Ms. Lowe continued: “Just yesterday, President Obama announced the Doing Business in Africa Campaign, a U.S. government initiative focused on boosting trade between U.S. and African companies, without a signal mention of the elephant in the room: trade misinvoicing. Increasing trade is important to boosting economic growth across Africa, but only if the trade is done honestly and at fair market values. The single most important step that wealthy nations like the U.S. can take to help African economies curtail illicit flows is to trade legitimately and honestly with Africa. While this topic was not addressed at the U.S.-Africa Business Forum yesterday, it must be on the table as the U.S.-Africa Partnership to Combat Illicit Finance commences its work.”

U.S. Must Clean Up Its Own Backyard

GFI further emphasized the need to address the role of the U.S. financial system as a major facilitator of such outflows.

“For every country losing money illicitly, there is another country absorbing it. Illicit financial outflows are facilitated by financial opacity in tax havens and in major economies like the United States,” said GFI Policy Counsel Joshua Simmons. “Indeed, the United States is the second easiest country in the world—after Kenya—for a criminal, kleptocrat, or terrorist to incorporate an anonymous company to launder their ill-gotten-gains with impunity.

“While governance remains an issue for many African countries, structural deficiencies in the U.S. financial system are just as responsible for driving the outflow of illicit capital. This initiative cannot place the onus entirely on the shoulders of African governments. The burden for curtailing these illicit flows must be shared equally by policymakers in the U.S. and in Africa for this partnership to be effective,” added Mr. Simmons.

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Notes to Editors:

  • Click here to read an HTML version of this press release on our website.
  • Click here for President Obama’s closing statement, which mentions the launch of the new U.S.-Africa Partnership to Combat Illicit Finance.
  • Click here for more information from the White House on the U.S.-Africa Summit.
  • Click here to read more on GFI’s May 2013 joint report with the AfDB, “Illicit Financial Flows and the Problem of Net Resource Transfers from Africa: 1980-2009.”
  • Click here to read more on GFI’s May 2014 study, “Hiding in Plain Sight: Trade Misinvoicing and the Impact of Revenue Loss in Ghana, Kenya, Mozambique, Tanzania, and Uganda: 2002-2011.”
  • Click here (.xlsx) to download an Excel spreadsheet with GFI’s latest estimates on illicit financial outflows from each African country (includes both North African and Sub-Saharan African countries).
  • Click here (.xlsx) to download an Excel spreadsheet with GFI’s latest estimates on trade misinvoicing outflows from each African country (includes both North African and Sub-Saharan African countries).

Journalist Contacts:

Clark Gascoigne
Global Financial Integrity
cgascoigne@gfintegrity.org
+1 202 293 0740 x222

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US-Africa Summit: One Day Left, Where Does Financial Transparency Fit In? http://www.financialtransparency.org/2014/08/06/us-africa-summit-one-day-left-where-does-financial-transparency-fit-in/ http://www.financialtransparency.org/2014/08/06/us-africa-summit-one-day-left-where-does-financial-transparency-fit-in/#comments Wed, 06 Aug 2014 15:05:20 +0000 http://www.financialtransparency.org/?p=25291 obamaThis week, almost 50 Africa heads of state are in Washington to meet with President Obama for the largest summit ever between the US and Africa governments. But civil society leaders often are the ones holding their governments accountable, so it's imperative that they are involved in the process, as well. On Monday, the State Department hosted a forum for civil society organizations that featured Secretary of State John Kerry and Vice President Joe Biden.]]> obamaThis week, almost 50 Africa heads of state are in Washington to meet with President Obama for the largest summit ever between the US and Africa governments. But civil society leaders often are the ones holding their governments accountable, so it’s imperative that they be involved in the process, too. On Monday, the State Department hosted a forum for civil society organizations that featured Secretary of State John Kerry and Vice President Joe Biden. In his remarks, Vice President Biden highlighted the importance of targeting government corruption through the creation of robust and independent oversight institutions:

Every country that has a vibrant democracy and has a minimum amount of corruption has a system like that. That’s how you stop illicit finance, that’s how you build transparent institutions.

Full video of Biden’s remarks (discussion of corruption starts around 11:44):

 

However, Vice President Biden focused primarily on rooting out illicit financial flows through the lens of ending corruption within one’s own borders and within one’s own institutions, like the courts, police, and military. While this is undoubtedly an important goal, the financial systems that proliferate illicit flows are global and don’t respect national boundaries.

On top of that, government corruption represents just three percent of the hundreds of billions of dollars in illicit financial flows that leave the developing world every year, while 65% of illicit flows come from trade manipulations and corporate tax evasion. (We discussed this very point in an opinion article written for The Africa Report ahead of this week’s summit). Some of the worst accomplices of illicit financial flows are corporations, bankers, and lawyers residing in the U.S., Europe, and other tax havens.

At a civil society event held Monday, that point was echoed by billionaire philanthropist Mo Ibrahim and Mojanku Gumbi, a trustee of the Thabo Mbeki Foundation and member of the UNECA High Level Panel on Illicit Financial Flows. During the event, Gumbi called for an honest conversation with business, asking “why are they stealing money from African economies?” Ibrahim reiterated the need for financial transparency, stating that “there’s no good reason for someone to have an anonymous shell company.”

Vice President Biden should understand the overarching correlation between addressing financial transparency and halting illicit flows. After all, he’s a native of Delaware. His home state is one of the easiest places to form anonymous companies, a primary vehicle for moving illicit money. Delaware is only rivaled by Kenya as the easiest place in the world to form a company without providing ownership information.

It’s indisputable that addressing corruption within African governments must be central to reforms, but if we’re really going to take care of the bulk of illicit financial flows, we have to look at the institutions in the U.S. and Europe that proliferate financial secrecy.


Image used under White House Copyright Policy / Original Image

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GFI Urges Obama, African Leaders to Prioritize Curbing Illicit Financial Flows at U.S.-Africa Summit http://www.financialtransparency.org/2014/08/05/gfi-urges-obama-african-leaders-to-prioritize-curbing-illicit-financial-flows-at-u-s-africa-summit/ http://www.financialtransparency.org/2014/08/05/gfi-urges-obama-african-leaders-to-prioritize-curbing-illicit-financial-flows-at-u-s-africa-summit/#comments Tue, 05 Aug 2014 19:38:51 +0000 http://www.financialtransparency.org/?p=25297 WASHINGTON, DC – As African leaders descend on Washington this week for the historic U.S.-Africa Leaders Summit, Global Financial Integrity (GFI) called on the Obama Administration and Heads of State from across the continent to prioritize efforts to curtail illicit financial flows from Africa, which GFI estimates cost the continent roughly US$55.6 billion per year over the past decade. “Illicit financial outflows are by far the most damaging economic problem facing Africa,” said GFI President Raymond Baker, who sits on the UN High Level Panel on Illicit Financial Flows from Africa.  “In 2011 alone, US$76.9 billion flowed illegally out of Africa.  That’s nearly US$77 billion that could have been invested in local businesses, in healthcare, in education, or in infrastructure.  It’s money that could have been used to help pull people out of poverty and save lives.  This Summit provides an historic opportunity for the United States and for leaders across Africa to focus their efforts on curtailing this hemorrhage of illicit capital.”]]>
GFI

FOR IMMEDIATE RELEASE
August 4, 2014

Illicit Financial Flows Draining US$55.6bn Annually from Continent

U.S. Must Address Its Role as a Major Facilitator of Such Outflows

 

WASHINGTON, DC – As African leaders descend on Washington this week for the historic U.S.-Africa Leaders Summit, Global Financial Integrity (GFI) called on the Obama Administration and Heads of State from across the continent to prioritize efforts to curtail illicit financial flows from Africa, which GFI estimates cost the continent roughly US$55.6 billion per year over the past decade.

“Illicit financial outflows are by far the most damaging economic problem facing Africa,” said GFI President Raymond Baker, who sits on the UN High Level Panel on Illicit Financial Flows from Africa.  “In 2011 alone, US$76.9 billion flowed illegally out of Africa.  That’s nearly US$77 billion that could have been invested in local businesses, in healthcare, in education, or in infrastructure.  It’s money that could have been used to help pull people out of poverty and save lives.  This Summit provides an historic opportunity for the United States and for leaders across Africa to focus their efforts on curtailing this hemorrhage of illicit capital.”

GFI research finds that US$555.8 billion flowed illicitly out of Africa between 2002 and 2011, fueling crime, corruption, and tax evasion, while simultaneously draining hundreds of billions of dollars from African economies.  The problem is so severe that a May 2013 joint report from GFI and the African Development Bank found that, after adjusting all recorded flows of money to and from the continent (e.g. debt, investment, exports, imports, foreign aid, remittances, etc.) for illicit financial outflows, between 1980 and 2009, Africa was a net creditor to the rest of the world on the order of US$597 billion and US$1.4 trillion.

“The traditional thinking has always been that the West is pouring money into Africa through foreign aid and other private sector flows, without receiving much in return. Our research has turned that logic upside down – Africa has been a net creditor to the rest of the world for decades,” added Mr. Baker, a longtime authority on financial crime.  “The implication of this finding is broad and profound: More money flows out of Africa than flows in.  Without concrete action, the drain on the continent is only going to grow larger.”

U.S. A Major Facilitator of Illicit Money

GFI, the Washington-based the research and advocacy organization, highlighted the role of the United States as a major facilitator of such outflows.

“For every country losing money illicitly, there is another country absorbing it. Illicit financial outflows are facilitated by financial opacity in tax havens and in Western economies like the United States,” noted Heather Lowe, GFI’s legal counsel and director of government affairs. “Indeed, the United States is the second easiest country in the world—after Kenya—for a criminal, kleptocrat, or terrorist to incorporate an anonymous company to launder their ill-gotten-gains with impunity.  It’s high time that the U.S. Government come to terms with this reality and lay out specific policies, which it intends to implement to curb its status as a dirty money haven.”

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Notes to Editors:

  • Click here to read an HTML version of this press release on our website.
  • Click here for more information from the White House on the U.S.-Africa Summit.
  • GFI is co-sponsoring a side-event to the Summit on Monday, August 4th from 12:30pm to 3:00pm EDT, titled “Resources for the Future: Partnering with Civil Society for Transparency and Accountability in Africa,” which will discuss natural resource governance and illicit financial flows.  Click here to watch a live-stream of the event.
  • Click here to read more on GFI’s May 2013 joint report with the AfDB, “Illicit Financial Flows and the Problem of Net Resource Transfers from Africa: 1980-2009.”
  • Click here to download an Excel spreadsheet with GFI’s latest estimates on illicit financial outflows from each African country.

Journalist Contacts:

Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740, ext. 222

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Join the Discussion: Next Week’s US-Africa Summit http://www.financialtransparency.org/2014/08/01/join-the-discussion-next-weeks-us-africa-summit/ http://www.financialtransparency.org/2014/08/01/join-the-discussion-next-weeks-us-africa-summit/#comments Fri, 01 Aug 2014 17:54:12 +0000 http://www.financialtransparency.org/?p=25279 obamaMonday marks the start of the US-Africa Summit, a three-day event hosted by President Obama that will bring 50 African heads of state together in Washington. While there will be ample opportunities for government officials to interact, it's vital that civil society organizations (CSO) are heard, as well. On Monday, in addition to a CSO event held at the State Department, Open Society Foundations, in partnership with a number of other CSOs, will be hosting an afternoon event to explore how financial transparency and good governance are vital to helping finance future development.]]> obamaMonday marks the start of the US-Africa Summit, a three-day event hosted by President Obama that will bring 50 African heads of state together in Washington. While there will be ample opportunities for government officials to interact, it’s vital that civil society organizations (CSO) are heard, as well. On Monday, in addition to a CSO event held at the State Department, Open Society Foundations, in partnership with a number of other CSOs, will be hosting an afternoon event to explore how financial transparency and good governance are vital to helping finance future development.

The event, Resources for the Future: Partnering with Civil Society for Transparency and Accountability in Africa, will be held at The Willard Hotel from 12:30 p.m. to 3:00 p.m. The event will serve as a forum to bring leaders of civil society and government together to explore how responsible resource revenue can help fund the development future. Speakers and panelists include George Soros, Founder of Open Society Foundations, Joseph Nyumah Boakai, the Vice President of Liberia, and Ali Idrissa, the National Coordinator of Publiez Ce Que Vous Payez (Publish What You Pay) Niger.

On the event:

This event alongside the U.S.–Africa Leaders Summit will offer a platform for representatives from civil society, the private sector, and governments to share experiences on efforts to improve natural resource governance, including fiscal and financial transparency.

The panel will feature keynote remarks and an interactive discussion of four representatives on topics including: civil society and citizen participation; open contracting and open companies; revenue and budget transparency; trade mis-invoicing; and the potential of existing African governance mechanisms.

While the event is full, you can still follow the discussion online via a live webcast. You can also follow us @FinTrCo; we’ll be live tweeting the event.

Ahead of next week’s events, Publish What You Pay, an extractive industry transparency group and co-sponsor of Monday’s CSO event, released an open letter to President Obama highlighting the importance of an open and transparent extractive industry.

From the letter:

We are not asking for your charity – we are asking for a level playing field. We see the US – Africa Leaders’ Summit as a crucial opportunity for all parties to make concrete commitments to enhancing extractive governance. We are calling on our governments to commit to an open and transparent bidding process for the allocation of extractive contracts and licenses, including the publication of contracts. We are calling on our governments to commit to creating open budgeting processes, so that we can ensure extractive revenues are responsibly spent. We also ask them to include beneficial ownership declaration forms in procurement and contracts.

The US once led on the issue of extractive transparency, we ask you to reclaim that mantle and commit to working with other G7/G20 countries to adopt and implement measures similar to Dodd-Frank 1504 and the EU Transparency & Accounting Directives.

You can view a PDF schedule for the week here.


Image used under White House Copyright Policy / Original Image

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Recent Efforts to Regulate Bitcoin Fall Flat http://www.financialtransparency.org/2014/07/31/recent-efforts-to-regulate-bitcoin-fall-flat/ http://www.financialtransparency.org/2014/07/31/recent-efforts-to-regulate-bitcoin-fall-flat/#comments Fri, 01 Aug 2014 01:42:44 +0000 http://www.financialtransparency.org/?p=25276 regulating and taxing the digital currency, Bitcoin. Specifically, the EU is looking to impose a Value Added Tax (VAT) on trades in bitcoin. Meanwhile, its plans to regulate the digital currency—whether imminent or not—are still unclear. Bitcoin presents short- and long-term risks to financial crime. Like tax havens and other jurisdictions with lax laws on beneficial ownership, Bitcoin presents criminals with an opportunity to keep their money and their transactions secret. Specifically, Bitcoin users don’t need to present an ID to receive a Bitcoin address—or key—so they are not necessarily tied to a flesh and blood person. This means Bitcoin transactions unidentifiable as long as the user takes care to anonymize his or her IP address. In the United States law enforcement officials have early and often expressed deep concerns about the digital currency. Both the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury and the U.S. Department of Justice have released official statements regarding the regulation of virtual currencies. FinCEN has also already imposed money laundering controls on Bitcoin usually reserved for traditional wire transfer services, like Western Union. These controls include bookkeeping requirements and mandatory reporting for transactions of more than $10,000.]]> This week several analysts reported that the European Union is considering regulating and taxing the digital currency, Bitcoin. Specifically, the EU is looking to impose a Value Added Tax (VAT) on trades in bitcoin. Meanwhile, its plans to regulate the digital currency—whether imminent or not—are still unclear.

Bitcoin presents short- and long-term risks to financial crime. Like tax havens and other jurisdictions with lax laws on beneficial ownership, Bitcoin presents criminals with an opportunity to keep their money and their transactions secret. Specifically, Bitcoin users don’t need to present an ID to receive a Bitcoin address—or key—so they are not necessarily tied to a flesh and blood person. This means Bitcoin transactions unidentifiable as long as the user takes care to anonymize his or her IP address.

U.S. officials have early and often expressed deep concerns about the digital currency. Both the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury and the U.S. Department of Justice have released official statements regarding the regulation of virtual currencies. FinCEN has also already imposed money laundering controls on Bitcoin usually reserved for traditional wire transfer services, like Western Union. These controls include bookkeeping requirements and mandatory reporting for transactions of more than $10,000.

It’s high time that the European Union follows suit with this, probably minimal, effort. While the European Central Bank has noted the dangers of the currency, the European Union has yet to pass any specific regulations on digital currency. Although it looks like that may change. A spokesperson for the European Commission’s financial services commissioner said this of the EU’s considerations: “It’s imperative to move quickly on this issue [...] The potential for money laundering and terrorist financing is too serious to ignore.”

In fact, the global approach to regulating digital currency has been unilateral, piecemeal, and spotty at best. A recent U.S. survey of forty foreign jurisdictions found that only a very few nations have any specific regulations applicable to Bitcoin. According to the survey, one notable exception to this finding was China. In a joint Notice issued at the end of 2013, the Chinese central bank and four other government ministries and commissions declared that Bitcoin “does not have the same legal status as currency, and cannot be used as circulating currency in the market.”

There are reasons that worldwide regulations on Bitcoin have been unilateral and spotty. At the Financial Innovators Summit at 10 Downing Street, one participant suggested the UK lead an international approach to regulating digital currency. Tom Robinson, co-founder of Elliptic, responded that such a move would be too difficult and would take far too long to envision and implement. He suggested the UK follow in the footsteps of the United States and “make their own decisions.”

Developing nations stand to lose a great deal from the rise of digital currency. And yet this is also the group of nations that does not have the power and capacity to track illicit activity in digital currencies and regulate their transactions. In fact, the piecemeal approach to regulating digital currency is reminiscent of the problems with the recent OECD regulations on automatic tax information exchange. An international framework that thoughtfully includes developing nations is imperative on both issues.

Developed nations need an international framework, too, though. While I mainly am interested in the creation of comprehensive and universal financial regulations because of its impact on economic development, that doesn’t mean that developed countries can’t pursue these universal standards out of self-interest.

An international approach is the only approach that will effectively mitigate the risk for crime and money laundering posed by digital currency. Any one nation that imposes regulations on digital currency will not substantially reduce the currency’s cross-border risk for financial crimes. And in world where crime is increasingly transnational, the world’s financial regulations will only be as strong as its weakest link. Without an international framework for regulating digital currency any unilateral effort is doomed to fail.

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INFOGRAPHIC: Automatic Exchange of Information Shouldn’t Leave Countries Behind http://www.financialtransparency.org/2014/07/28/infographic-automatic-exchange-of-information-shouldnt-leave-countries-behind/ http://www.financialtransparency.org/2014/07/28/infographic-automatic-exchange-of-information-shouldnt-leave-countries-behind/#comments Mon, 28 Jul 2014 14:02:19 +0000 http://www.financialtransparency.org/?p=25209 The Organization for Economic Cooperation and Development (OECD) is moving towards implementing a new tool for catching tax evaders: automatic exchange of financial information (AEOI). While the name might sound a bit confusing, the idea is pretty simple. Governments in the system will share financial information with each other at designated intervals, enabling authorities to find individuals and corporations that are stashing assets in foreign countries.

While it’s a welcome initiative, we have serious concerns about the OECD’s efforts thus far to include developing countries. Developing countries are some of the hardest hit by tax evasion and other types of illicit financial flows, and much of the money that leaves often finds its way into bank accounts in the US or Europe. It’s imperative that a global information exchange is written with all countries in mind.

The infographics below spells out some of our concerns:

AIEinfographic

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