Financial Transparency Coalition http://www.financialtransparency.org Thu, 18 Sep 2014 16:39:25 +0000 en-US hourly 1 http://wordpress.org/?v=3.7.4 FTC Members Call On G20 Finance Ministers to Act in Sydney Morning Herald Op-Ed http://www.financialtransparency.org/2014/09/18/ftc-members-call-on-g20-finance-ministers-to-act-in-sydney-morning-herald-op-ed/ http://www.financialtransparency.org/2014/09/18/ftc-members-call-on-g20-finance-ministers-to-act-in-sydney-morning-herald-op-ed/#comments Thu, 18 Sep 2014 16:38:33 +0000 http://www.financialtransparency.org/?p=25435 Sydney Morning Herald, Alvin Mosioma of the Tax Justice Network - Africa, Subrat Das of the Centre for Budget and Governance Accountability, and Oriana Suarez of the Latin American Network on Debt, Development, and Rights called on the G20 Finance Ministers to act on a number of vital financial transparency issues. The ministers will meet this weekend in Australia, ahead of November's Leaders Summit. The article focused on the need to address all aspects of financial transparency, including beneficial ownership, automatic information exchange, and public country-by-country reporting.]]> In an opinion piece that ran in the Sydney Morning Herald, Alvin Mosioma of the Tax Justice Network – Africa, Subrat Das of the Centre for Budget and Governance Accountability, and Oriana Suarez of the Latin American Network on Debt, Development, and Rights called on the G20 Finance Ministers to act on a number of vital financial transparency issues. The ministers will meet this weekend in Australia, ahead of November’s Leaders Summit.

The article focused on the need to address all aspects of financial transparency, including beneficial ownership, automatic information exchange, and public country-by-country reporting.

From the piece:

One agenda point that should feature prominently when finance ministers sit down this weekend is the creation of public registers of beneficial ownership. These registers, which should be open and freely accessible, would hold information on who is ultimately profiting from or controlling a company.

In many places, it’s easier to open an anonymous company than it is to get a driver’s licence; often, you don’t even need to provide your name. This secrecy fuels the very illicit flows that are hindering growth in developed and developing countries, alike. Even countries enjoying economic growth are simultaneously losing billions of dollars every year. And some of the most egregious cases are found in Asia, Africa, and Latin America.

However, along with beneficial ownership, they also argued that public country-by-country reporting needs to be addressed.

At a first glance, public country-by-country reporting shouldn’t even be controversial. After all, a recent survey carried out by PricewaterhouseCoopers showed that 59 per cent of CEOs around the world actually support making that information public. Public reporting would help authorities, journalists, and civil society target corporations that are unfairly shifting profits into tax haven subsidiaries to evade taxes. Hockey has already used bold words to describe such arrangements, but now it’s time for bold action to match.

This comes on the heels of recommendations delivered by the Organization for Economic Cooperation and Development (OECD) that call on many aspects of country-by-country reporting to remain confidential. The authors additionally highlighted aspects of the planned automatic information exchange standard that may cause some developing countries to be excluded. The cross-border system would allow countries to share financial information to help authorities track down individuals and companies hiding assets in other jurisdictions to avoid taxes.

A German-language version of the opinion piece was featured in Handelsblatt, a leading economic newspaper in Germany, and a French-language version will run tomorrow in Les Echos.

You can read the full article in the Sydney Morning Herald here.

 

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Press Release: No Role for Public Scrutiny in OECD Plan to Curb Corporate Tax Dodging http://www.financialtransparency.org/2014/09/16/press-release-no-role-for-public-scrutiny-in-oecd-plan-to-curb-corporate-tax-dodging/ http://www.financialtransparency.org/2014/09/16/press-release-no-role-for-public-scrutiny-in-oecd-plan-to-curb-corporate-tax-dodging/#comments Tue, 16 Sep 2014 18:20:16 +0000 http://www.financialtransparency.org/?p=25429

No Role for Public Scrutiny in OECD Plan to Curb Corporate Tax Dodging

For Immediate Release
September 16, 2014

WASHINGTON, D.C. — The Organization for Economic Cooperation and Development’s (OECD) new recommendations to fight multinational corporate tax avoidance look robust from the onset, but there’s something missing. Since the most vital reporting information will remain out of the reach of ordinary citizens, the recommendations don’t do enough to bring transparency to a global financial system badly in need of it.

The OECD’s project on Base Erosion and Profit Shifting (BEPS) is intended to crack down on the ability of corporations to move profits overseas, through mis-invoicing trade transactions to avoid taxes, and other dubious practices. With nearly a trillion dollars leaving developing country economies each year in illicit cash, coordinated global action to plug the loopholes is desperately needed. But key elements of the financial data collected will be kept confidential, and out of the public’s view.

“Elements of the model template for country-by-country reporting are robust, but there’s a huge value in making this information public and they didn’t take that step,” said Koen Roovers, Lead Advocate in Europe for the Financial Transparency Coalition. “The new OECD recommendations offer a veil of confidentiality that could perpetuate the very secrecy it’s intended to address.”

Conscious consumers and concerned citizens were vital in putting this issue on the international agenda. By not making financial information public, ordinary citizens, journalists and watchdog groups will simply be locked out and unable to assess if companies are paying their fair share where they operate. Governments with thinly-stretched revenue authorities can benefit from the “crowd-sourcing” effect of making data public, as it enlists the public’s help in holding corporations accountable.

Recent surveys have shown that a majority of business executives are in favor of public disclosure of thise type of financial information.

“If CEOs support making this information public, why hasn’t the OECD followed suit?” Roovers added.

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Contacts: 

Verena von Dershau (Europe)
Vvonderschau@financialtransparency.org
+33 6 95 43 29 28

Christian Freymeyer (U.S.)
cfreymeyer@financialtransparency.org
+1 410 490 6850

Notes to Editors:

[1] The Financial Transparency Coalition is a global network of nine NGOs spanning five continents, and 150 allied organizations. We work to curtail illicit financial flows through the promoton of a transparent, accountable and sustainable financial system that works for everyone. 

[2] The international auditing firm PriceWaterhouse Coopers carried out a survey of more than 1,300 CEOs around the world. 59% said they supported a requirement for multinational corporations to make country-by-country financial information publicly available.

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Why Are So Many Tax Havens Islands? The View from Economics http://www.financialtransparency.org/2014/09/15/why-are-so-many-tax-havens-islands-the-view-from-economics/ http://www.financialtransparency.org/2014/09/15/why-are-so-many-tax-havens-islands-the-view-from-economics/#comments Mon, 15 Sep 2014 04:01:41 +0000 http://www.financialtransparency.org/?p=25425 Ireland, which is well known for its emerald hills and low tax rates, is about the same size as South Carolina. Luxembourg, a tax haven nestled in Western Europe between France and Germany, is about 2,500 square kilometers, or about a third of size of Rhode Island. Bermuda, a group of islands off the coast of South Carolina, is just over 50 square kilometers. That’s about one third of the size of Washington, DC. Singapore has about the same land mass as El Paso, Texas. Hong Kong is about the same size as Suffolk, Virginia. The notorious Cayman Islands have the same land mass as Shreveport, Louisiana. These statistics might be surprising. How can nations so small garner such strongly negative reactions in the international community? Any why are so many tax havens so small? Is it coincidence? Or is there something else going on?]]> We often think of tax havens as tropical islands or tiny nations nestled in the mountains. We know most of them are geographically and demographically small. Very small. Given their huge reputations, just how small they are just might surprise you.

Ireland, which is well known for its emerald hills and low tax rates, is about the same size as South Carolina. Luxembourg, a tax haven nestled in Western Europe between France and Germany, is about 2,500 square kilometers, or about a third of size of Rhode Island. Bermuda, a group of islands off the coast of South Carolina, is just over 50 square kilometers. That’s about one third of the size of Washington, DC. Singapore has about the same land mass as El Paso, Texas. Hong Kong is about the same size as Suffolk, Virginia. The notorious Cayman Islands have the same land mass as Shreveport, Louisiana.

These statistics might be surprising. How can nations so small garner such strongly negative reactions in the international community? Any why are so many tax havens so small? Is it coincidence? Or is there something else going on?

Economists have studied this question and their literature offers one strong hypothesis for why small countries tend to have an incentive to lower their tax rates compared to larger countries.

In a series of papers in the mid-80s to early 90s, Bucovetsky, Wilson, Zodrow, and Mieszkowski (among others)  laid out the rationale for this phenomenon in the basic model of asymmetric tax competition. Under this framework, tax competition is defined as “non-cooperative tax setting by independent governments, under which each government’s policy choices influence the allocation of a mobile tax base.” That is, under tax competition, governments do not cooperate in setting tax rates. When one government raises (or lowers) taxes, we expect that action to have an effect on the location decisions of individuals’ and businesses’ for capital allocation. That is, people can and will choose to move their money in response to changes in tax rates.

Suppose we are in a world of only two nations: a large nation (Largenia) and a small nation (Tinyland). The residents of each nation are equally rich, but there are many more residents in Largenia than in Tinyland. As a result, Largenia’s economy is much bigger in absolute terms. Both nations can tax their citizens in one of two simplified ways. They can tax their earnings as they work (labor tax) or they can tax their earnings on their assets (a capital tax).

If capital is mobile, then Tinyland has a clear incentive to keep its capital taxes low. Specifically, if Tinyland raises its capital taxes even a little above Largenia’s, then its residents will transmit all of their capital abroad. Labor, while also mobile, is not so responsive.

We are left with a lower capital tax rate in Tinyland, which allows the nation to subsume a great deal of capital from Largenia. As a result, Tinyland winds up with more capital per capita than Largenia, which allows the nation and its residents to spend more on public and private goods. The conclusion of this model is that small nations have a strong incentive to lower their taxes and become tax havens.

The tax competition literature focuses on source-based taxes—which are taxes on capital located within a country’s boundaries—rather than resident-based taxes—which are imposed on residents of a nation, regardless of where their capital is located. In part, this evolution has occurred because of the difficulty policymakers have in taxing worldwide income.

Many of these papers conclude that the result of these phenomena is that taxes are below their efficient level; they are too low. As such, governments will under-supply public goods, which are goods enjoyed by everyone, such as public parks and national defense. Bucovetsky and Wilson (1991) even go so far as to conclude that it is “the absence of residence-based taxes on capital income, not taxes on wage income, which is responsible for the under-provision of public goods.” That is, in order to maintain an efficient level of taxation and government-supplied goods, we must tax capital where it is earned, not where it is located.

The world’s ability to do that, in turn, depends on its ability to increase transparency in the global financial system. And that’s where we come in.

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US$401.6 Billion Flowed Illegally out of Brazil from 1960 to 2012, Finds New GFI Report http://www.financialtransparency.org/2014/09/08/us401-6-billion-flowed-illegally-out-of-brazil-from-1960-to-2012-finds-new-gfi-report/ http://www.financialtransparency.org/2014/09/08/us401-6-billion-flowed-illegally-out-of-brazil-from-1960-to-2012-finds-new-gfi-report/#comments Mon, 08 Sep 2014 13:45:07 +0000 http://www.financialtransparency.org/?p=25416 RIO DE JANEIRO, Brazil / WASHINGTON, DC – More than US$400 billion flowed illegally out of Brazil between 1960 and 2012— draining domestic resources, driving the underground economy, exacerbating inequality, and facilitating crime and corruption—according to a new report to be published Monday, September 8th at a press event in Rio de Janeiro by Global Financial Integrity (GFI), a Washington DC-based research and advocacy organization. Titled “Brazil: Capital Flight, Illicit Flows, and Macroeconomic Crises, 1960-2012,” the study finds that trade misinvoicing—the fraudulent over- and under-invoicing of trade transactions—accounted for the vast majority (92.7 percent) of the country’s illicit financial outflows over the 53-year period analyzed.]]>
GFI

Fraudulent Misinvoicing of Trade Transactions Accounts for 92.7% of Brazil’s Illicit Outflows; Underground Economy Averaged 38.9% of Brazil’s Official GDP

 

Customs Enforcement, Transparency Measures, Political Will Seen as Key to Curbing Crime, Corruption, and Tax Evasion

 
RIO DE JANEIRO, Brazil / WASHINGTON, DC – More than US$400 billion flowed illegally out of Brazil between 1960 and 2012— draining domestic resources, driving the underground economy, exacerbating inequality, and facilitating crime and corruption—according to a new report to be published Monday, September 8th at a press event in Rio de Janeiro by Global Financial Integrity (GFI), a Washington DC-based research and advocacy organization.

Titled “Brazil: Capital Flight, Illicit Flows, and Macroeconomic Crises, 1960-2012,” the study finds that trade misinvoicing—the fraudulent over- and under-invoicing of trade transactions—accounted for the vast majority (92.7 percent) of the country’s illicit financial outflows over the 53-year period analyzed.

“Brazil has a very serious problem with illicit financial flows, and curtailing them should be a priority for whichever administration wins the forthcoming elections,” noted GFI PresidentRaymond Baker, a longtime authority on financial crime. “Illicit outflows are draining billions of dollars each year from the official Brazilian economy; money that could otherwise be used to help the nation’s economy grow.  Beyond the direct loss to the economy, these outflows are driving the underground economy, fueling crime and corruption, and costing the government significant revenue.”

Findings

Authored by GFI Chief Economist Dev Kar, the study estimates that illicit financial flows from Brazil totaled US$401.6 billion from 1960 through 2012, with annual average illicit outflows increasing from US$310 million in the 1960s to US$14.7 billion in the first decade of the twenty first century before jumping to US$33.7 billion over the last three years of the study, 2010-2012.  On average, Brazil’s illicit outflows are equivalent to 1.5 percent of the country’s GDP.

“Illicit outflows drain capital from the Brazilian economy, facilitate tax evasion, exacerbate inequality, and deplete domestic savings,” said Dr. Kar, who served as a senior economist at the International Monetary Fund before joining GFI.  “Even more troubling, our study finds that illicit outflows have grown over time—averaging just over US$300 million per annum in the 1960s, they’re averaging over US$30 billion per year today.  Unless corrective actions are taken, the economic toll of these illicit flows only will continue to grow.”

The report reveals that the vast majority of Brazil’s illicit outflows—92.7 percent, or US$372.3 billion of the US$401.6 billion in total outflows—were channeled through the misinvoicing of trade transactions.  The remaining US$29.4 billion in the illicit outflows detected by GFI occurred via hot money outflows, such as unrecorded wire transfers.

“Trade misinvoicing is the dominant channel for illicitly moving money out of Brazil,” noted Dr. Kar.  “While our global analyses find that trade misinvoicing constitutes roughly 80 percent of illicit flows worldwide, the problem is particularly severe in Brazil, where it accounts for 92.7 percent of the country’s illicit outflows.

Broad Capital Flight

In addition to estimating illicit outflows of capital from Brazil, the study also estimates that broad capital flight—a combination consisting of both licit and illicit outflows—amounted to US$590.2 billion between 1960 and 2012.  Illicit outflows constituted 68 percent of total capital flight, and they were shown to drive broad capital flight from Brazil.

Underground Economy

The report also found that the underground economy averaged 38.9 percent of official GDP over the 53-year period, increasing from an average of 45.8 percent in the 1960s to 55.1 percent in the 1970s before slowly falling to an average of 21.8 percent from 2010 through 2012, as a result of faster economic growth.

Just as with broad capital flight, the study finds that illicit financial outflows drive the underground economy, implying that efforts to curtail illicit financial outflows would also curtail broad capital flight and significantly reduce the size of the underground economy.

Policy Recommendations

“For many years we have observed reticence in Brazil to address problems of capital flight and illicit outflows,” stated Mr. Baker, who will launch the report at a press event Monday morning in Rio de Janeiro.  “It is, however, a real and growing problem, as our research shows, and it merits serious attention by policymakers.”

GFI recommends a number of steps the Brazilian government can take to ameliorate the problem of illicit financial flows from the country revolving around two principles:

  1. Greater transparency in domestic and international financial transactions, and
  2. Greater cooperation between governments to shut down the channels through which illicit money flows.

These steps include taking stronger legal measures against trade misinvoicing, instituting transparency of company ownership, and building the technical and human capacity needed to effectively utilize the data that will be shared under emerging tax information exchange arrangements.

“Overall, Brazil has an established financial infrastructure, a strong commitment to democratic governance, and many of the laws and procedures needed to curb illicit financial flows and rein in the underground economy already in place,” noted GFI Policy Counsel Joshua Simmons, who contributed to the policy section of the report.  “However, these advantages must be coupled with the capacity and political will to fully implement and enforce such measures. Curtailing illicit financial flows must become a priority throughout the Brazilian government.”

Methodology

The study is one of the most methodologically rigorous analyses of illicit financial flows produced by GFI to date.  Dr. Kar—assisted by GFI Associate Economist Brian LeBlanc—developed robust economic models consisting of ten different equations that highlight the drivers and dynamics of illicit flows.

Nevertheless, Dr. Kar cautioned that the methodology is very conservative and that there are likely to be more illicit flows from Brazil that are not captured by the models.

“The estimates provided by our methodology are likely to be extremely conservative as they do not include trade misinvoicing in services, same-invoice trade misinvoicing, hawala transactions, and dealings conducted in bulk cash,” explained Dr. Kar.  “This means that a large amount of the proceeds of abusive transfer pricing between arms of the same multinational corporation as well as much of the earnings from drug trafficking, human smuggling, and other criminal activities—which are often settled in cash—are not included in these estimates.”

Press Event: Monday

Global Financial Integrity will launch the report at press conference at the JW Marriott Hotel Rio de Janeiro on Monday, September 8, 2014 at 11am local time.  The event will feature a brief presentation of the report and its findings by GFI President Raymond Baker, followed by a question and answer period for journalists. Simultaneous English/Portuguese translation will be provided.

Full Day Conference: Tuesday

Following the launch of the report, GFI is partnering with the Rio de Janeiro-basedMultidisciplinary Institute for Development and Strategies (MINDS) to host a one-day conference, titled “Illicit Financial Flows in Brazil: A Hidden Resource for Improving Prosperity and Economic Stability,” on Tuesday, September 9, 2014 featuring remarks from Brazilian and international experts on the scale, causes, and consequences of illicit financial flows in Brazil and potential policy responses.

GFI trusts that the report and the conference will begin a constructive dialogue with the Brazilian government about measures that can be taken to curtail illicit flows.

“We hope that this study will spur the Government of Brazil to consider effective legislative and regulatory measures to curb the flow of illicit money from the country, thereby maximizing domestic resources for economic growth,” added Mr. Baker. “GFI’s goal is to work constructively in conjunction with government officials to curtail these harmful illicit flows.”

Funding

Funding for the new report, “Brazil: Capital Flight, Illicit Flows, and Macroeconomic Crises,1960-2012,” was generously provided by the Ford Foundation.

To schedule an interview with Mr. Baker, Dr. Kar, or Mr. Simmons, contact Clark Gascoigne atcgascoigne@gfintegrity.org / +1 202 293 0740, ext. 222 (Office) / +1 202-815-4029 (Mobile).  On-camera spokespersons are available in Washington, DC (perpetually) and in Rio de Janeiro (beginning September 7th).

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Notes to Editors:

  • Click here to read an HTML version of this press release on GFI’s website.  Click here[PDF | 252 KB ] to download a PDF version of this press release.
  • More information about the GFI report—including .zip files of the report’s data—is available on the GFI website here.  A PDF of the full report can be downloaded here[PDF | 2.31 MB].
  • The report will be launched at a press conference at the JW Marriott Hotel Rio de Janeiro on Monday, 8 September 2014 at 11am local time (Rio de Janeiro).  Complimentary, coffee, juice, and snacks will be provided. To RSVP for the press conference, contact Clark Gascoigne at cgascoigne@gfintegrity.org / +1 202 293 0740, ext. 222 (Office) / +1 202-815-4029 (Mobile).
  • On Tuesday, September 9, 2014, GFI is partnering with the Rio de Janeiro-basedMultidisciplinary Institute for Development and Strategies (MINDS) to host a one-day conference, titled “Illicit Financial Flows in Brazil: A Hidden Resource for Improving Prosperity and Economic Stability,” exploring the scale, causes, and consequences of illicit financial flows from Brazil and potential policy responses.  The conference will be held at the JW Marriott Hotel Rio de Janeiro in Rio de Janeiro. Click here to learn more about the conference and to register.
  • All monetary values in the report and in this release are expressed in U.S. dollars (USD).

Journalist Contacts:

In Rio de Janeiro:

Clark Gascoigne
Communications Director
Global Financial Integrity
cgascoigne@gfintegrity.org
+1 202 815 4029 (Mobile)

In Washington, DC:

Joshua Simmons
Policy Counsel
Global Financial Integrity
jsimmons@gfintegrity.org
+1 202 293 0740 ext. 273

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State Department Panel on Corruption to Include GFI’s Heather Lowe http://www.financialtransparency.org/2014/09/02/state-department-panel-to-include-gfis-heather-lowe/ http://www.financialtransparency.org/2014/09/02/state-department-panel-to-include-gfis-heather-lowe/#comments Tue, 02 Sep 2014 18:33:31 +0000 http://www.financialtransparency.org/?p=25404 Global Financial Integrity will participate in a panel discussion organized by the U.S. Department of State. The event, hosted at the OpenGov Hub in Washington D.C., will also include officials from the World Bank's Stolen Assets Recovery Initiative, the State Department, and Transparency International USA. The discussion will focus on the inherent links between governance and corruption, and how to combat them. If you aren't based in Washington, or are unable to attend the event, there's no need to worry, as a live stream will be available on the Internet. You can submit questions to the panelists via Twitter using the hashtag #StateofRights, as well.]]> Tomorrow, Heather Lowe of FTC member organization Global Financial Integrity will participate in a panel discussion organized by the U.S. Department of State. The event, hosted at the OpenGov Hub in Washington D.C., will also include officials from the World Bank’s Stolen Assets Recovery Initiative, the State Department, and Transparency International USA. The discussion will focus on the inherent links between governance and corruption, and how to combat them.

If you aren’t based in Washington, or are unable to attend the event, there’s no need to worry, as a live stream will be available. You can submit questions to the panelists via Twitter using the hashtag #StateofRights, as well. 

Here’s a full list of the panelists participating:

The event, which begins at 10 a.m. will be moderated by Nathaniel Heller, Executive Director of Global Integrity. For more information, click here.

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Is Thomas Piketty Right About Tax Havens? http://www.financialtransparency.org/2014/09/02/is-thomas-piketty-right-about-tax-havens/ http://www.financialtransparency.org/2014/09/02/is-thomas-piketty-right-about-tax-havens/#comments Tue, 02 Sep 2014 06:01:41 +0000 http://www.financialtransparency.org/?p=25402 Capital in the Twenty-First Century, written by French economist Thomas Piketty. And Capital concerns two subjects that are very near and dear to us at the Financial Transparency Coalition: inequality and taxes. Piketty’s book is all the rage among economists and policy wonks. Perhaps for good reason. In a unique exploration of a new dataset, Piketty parses through literally centuries of tax data to discern long-term trends in inequality and wealth. His conclusions are broad and many, but one of his main findings is this: wealth inequality was high before World War I, it fell after and for much of the century, and it has been on the rise again since the 1980s. That income inequality is already extreme (and getting worse) should come as no surprise to readers of this blog. We’ve heard that the richest one percent of Americans earn about a fifth of the nation’s income. Central to Piketty’s thesis, inequality is even starker in terms of wealth, rather than income. By contrast to the top earners who make one-fifth of the nation’s income, the wealthiest one percent of Americans hold about one-third of the nation’s wealth.]]> If you have had much contact with the disciple of economics in the last year, you’ve heard of the book Capital in the Twenty-First Century, written by French economist Thomas Piketty. And Capital concerns two subjects that are very near and dear to us at the Financial Transparency Coalition: inequality and taxes.

Piketty’s book is all the rage among economists and policy wonks. Perhaps for good reason. In a unique exploration of a new dataset, Piketty parses through literally centuries of tax data to discern long-term trends in inequality and wealth. His conclusions are broad and many, but one of his main findings is this: wealth inequality was high before World War I, it fell after and for much of the century, and it has been on the rise again since the 1980s.

That income inequality is already extreme (and getting worse) should come as no surprise to readers of this blog. We’ve heard that the richest one percent of Americans earn about a fifth of the nation’s income. Central to Piketty’s thesis, inequality is even starker in terms of wealth, rather than income. By contrast to the top earners who make one-fifth of the nation’s income, the wealthiest one percent of Americans hold about one-third of the nation’s wealth.

Piketty’s findings about inequality have received much more attention than his solution to the problem: a global wealth tax. In Capital, Piketty proposes a highly progressive tax on wealth –beginning with those who have assets worth more than one million euros. This tax would increase to about five to ten percent for those who own assets worth more than a billion euros. Assets (net of debts) would include everything a person owned—including stocks, art, land, and houses. Again, his tax would be global, which under this proposal, means that every nation on earth would agree to tax its citizens in this way.

The challenges associated with measuring an individual’s net assets aside, Piketty argues vehemently that this tax is technically achievable. Politically, however, even Piketty himself acknowledges that his tax is utopian. Raising taxes on the wealthy is already difficult in any country, levying an entirely new tax on the wealthy is likely impossible.

Even if a nation like the United States or United Kingdom did pass a wealth tax there is strong reason to believe that their wealthy individuals would transfer their assets abroad to tax havens.

Piketty has cited two distinct solutions to this problem: the international community should either (1) force the tax havens to participate or (2) force them to share their data on non-resident assets. What makes Piketty believe either of these solutions lie in the realm of the possible for the world of the living? Relative size, he argues. “If the U.S. (a quarter of world GDP) and the EU (another quarter of world GDP) want this to happen, then this can happen,” Piketty says. “Again, this is political, not technical.”

I truly believe that Piketty is a deeply intelligent man. Perhaps a little optimistic and impractical, but deeply intelligent nonetheless. This statement, though, makes me wonder. The United States and the European Union have, what seems like in serious earnest, attempted to pressure tax havens into compliance with existing tax laws. Tax havens, for example, were a very high priority of the 2013 G8 summit. And yet little progress has been made. So what gives?

Perhaps we have not, in serious earnest, really pressured tax havens, at all. There has been a lot of strong language and big talk, but little real action. Despite the harsh words at the G8, the group of leaders is a long way off from a real agreement with tax havens.

We’re also still making disappointing progress on existing efforts. The United States has yet to pass the Stop Tax Haven Abuse Act. The OECD’s standards on automatic tax information exchange exclude too many nations. Outside of the United Kingdom, there has been little headway on public registries of beneficial ownership. Even recently, the U.S. Congress has been reluctant at best to seriously tackle the publicly-visible, unpopular practice of tax inversion.

Maybe Piketty is right.

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South Africa’s Deputy President: Tax Evasion a Crime Against the State and its People http://www.financialtransparency.org/2014/08/28/south-africas-deputy-president-tax-evasion-a-crime-against-the-state-and-its-people/ http://www.financialtransparency.org/2014/08/28/south-africas-deputy-president-tax-evasion-a-crime-against-the-state-and-its-people/#comments Thu, 28 Aug 2014 19:55:51 +0000 http://www.financialtransparency.org/?p=25379 196266116_9c4decfddb_z

The Deputy President of South Africa, Cyril Ramaphosa, has issued some strong words against individuals and corporations funneling money out of the country to avoid taxes. Speaking at the National Council on Provinces, Ramaphosa called on citizens to report cases of tax evasion.]]>
196266116_9c4decfddb_z

The Deputy President of South Africa, Cyril Ramaphosa, has issued some strong words against individuals and corporations funneling money out of the country to avoid taxes. Speaking at the National Council on Provinces, Ramaphosa called on citizens to report cases of tax evasion.

Deputy President Ramaphosa noted the importance of tackling illicit flows and tax evasion. An article in the South African outlet, iOLNews, highlights his remarks:

Ramaphosa said the issue of tax evasion “clearly is a very important one” in South Africa. “It should be important for all citizens in South Africa. Tax evasion and the illegal transfer of capital across borders are dealt with by relevant authorities in our country.”

Calling it a crime against both the state and its people, Ramaphosa asked citizens to report those who may be guilty of tax evasion.

“I think we are on record as government that tax evasion is not only a crime against the state it’s also a crime against the people of our country, ordinary people. It is a practice we would like to discourage; to root out of our body politic so that people do not avoid paying tax. And to the extent that anyone, be it an individual or a company, should be pursued.

“If anyone of us knows people or companies that are evading taxes, that should be reported to the authorities and they should take action,” said Ramaphosa.

He continued by highlighting profit shifting, which is when a corporation uses loopholes and inconsistencies within different financial jurisdictions to artificially move profits from one place to another. Often, profits are routed to a low-tax jurisdiction, so that the amount of tax owed is significantly lower.

He said the most significant form of tax evasion was often done through so-called base erosion profit shifting.

“(This) describes tax-planning strategies that rely on mismatches and gaps that exist between tax rules and different jurisdictions. These strategies are designed to minimise the corporation tax that is payable, either making tax profits to disappear or shifting profits,” said Ramaphosa.

He added that in most cases, the various strategies were not illegal.

“This essentially is a global problem,” said Ramaphosa.

But even with a focus on curbing them, illicit financial flows remain to be a huge problem in South Africa; more than $US100 billion has left the country illicitly between 2002 and 2011, according to FTC member Global Financial Integrity. In 2011, for example, illicit financial flows equated to roughly 6% of the country’s total Gross Domestic Product (GDP).

Here’s a look at illicit financial flows in South Africa by year:


Image used under Creative Commons license / Flickr User Chris Eason

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TaxCast: August 2014 http://www.financialtransparency.org/2014/08/26/taxcast-august-2014/ http://www.financialtransparency.org/2014/08/26/taxcast-august-2014/#comments Tue, 26 Aug 2014 15:18:38 +0000 http://www.financialtransparency.org/?p=25367 The latest edition of TaxCast, the podcast produced by the Tax Justice Network, is out! In this edition, you'll hear about a tug of war between Switzerland and India for information on tax evaders, how Russian sanctions are affecting business in Europe, and much more. ]]> In the latest Tax Justice Network podcast:

TJNlogo

When was the last time you used a $100 bill, a 500 euro note or a 1,000 Swiss Franc note? We look at how Western banks and Treasuries are facilitating crime through high denomination bills. Also, tax haven reputation damage-management, Switzerland pulls a fast one on India, the European bankers raking in the bonuses from sanctions against Russia and how the tax haven of Mauritius is…erm…expanding its portfolio.

 You can watch via the embedded video below, or check it out on YouTube.

The TaxCast is a project of the Tax Justice Network and is produced by Naomi Fowler.

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Why Tax Inversion Is Wrong http://www.financialtransparency.org/2014/08/22/why-tax-inversion-is-wrong/ http://www.financialtransparency.org/2014/08/22/why-tax-inversion-is-wrong/#comments Fri, 22 Aug 2014 17:53:15 +0000 http://www.financialtransparency.org/?p=25365 began assembling administrative options for deterring or preventing U.S. companies from inverting—or reorganizing overseas to avoid paying federal taxes. This move follows on the heels of a strong statement from President Obama who accused inverting firms of "cherry-picking the rules.” As he put it: "My attitude is I don't care if it's legal, it's wrong.” Particularly common among pharmaceutical and life-sciences companies, inversions are primarily a means for U.S. companies to avoid corporate taxes. In an inversion, a smaller foreign company “acquires” a large U.S. firm, allowing the domestic firm to reincorporate overseas and pay a lower foreign tax rate. Usually, this process does not change the operational or functional structure or location of the company – it just changes the way that company has to pay taxes. Historically, these tax inversions haven’t been all that common. In fact, according to the Congressional Research Service, only been about 76 companies have inverted or planned to do so since 1983. The practice has become much more frequent, however, which is why inversion has garnered the spotlight from Treasury. Of the 76 inversions since 1983, 47 occurred in the last decade, and 14 occurred just this year.]]> This week the Treasury Department began assembling administrative options for deterring or preventing U.S. companies from inverting—or reorganizing overseas to avoid paying federal taxes. This move follows on the heels of a strong statement from President Obama who accused inverting firms of “cherry-picking the rules.” As he put it: “My attitude is I don’t care if it’s legal, it’s wrong.”

Particularly common among pharmaceutical and life-sciences companies, inversions are primarily a means for U.S. companies to avoid corporate taxes. In an inversion, a smaller foreign company “acquires” a large U.S. firm, allowing the domestic firm to reincorporate overseas and pay a lower foreign tax rate. Usually, this process does not change the operational or functional structure or location of the company – it just changes the way that company has to pay taxes.

Historically, these tax inversions haven’t been all that common. In fact, according to the Congressional Research Service, only been about 76 companies have inverted or planned to do so since 1983. The practice has become much more frequent, however, which is why inversion has garnered the spotlight from Treasury. Of the 76 inversions since 1983, 47 occurred in the last decade, and 14 occurred just this year.

Many have argued that, at 35 percent, the corporate tax rate forces U.S. corporations to invert to remain competitive. “You can’t maintain competitiveness by staying at a competitive disadvantage. I mean you just can’t,” says Heather Bresch, the chief executive of Mylan, a generic drug maker that recently incorporated in the Netherlands using tax inversion.

It is true that the United States has a statutory tax rate of 35 percent, which is the second highest among developed nations. However, through loopholes like inversion and many others, corporations in this country pay an effective tax rate of just 12.6 percent.

There is a lot of talk about whether all of this is fair. Organizations like the conservative Tax Foundation echo Bresch’s sentiment that U.S. corporations need to invert to keep up with the rest of the world. Others have argued inversion is the unfortunate, but inevitable byproduct of the Affordable Care Act and U.S. tax policy.

What these statements ignore, however, is all of the benefits and perks that businesses do enjoy by establishing and doing business in the United States. For years or decades, companies employ our skilled workforce educated by our public schools; they use our taxpayer provided roads to deliver their products; and they enjoy the safety and security provided by our publicly-funded policemen and fire fighters. These benefits are not trivial – they are what allow our corporations to become successful and profitable – and our corporations should pay taxes in exchange for these benefits.

I must agree with President Obama, I don’t care if it’s legal. It’s wrong.

As Jack Lew put it: “Many of these companies are for all intents and purposes still based in the United States, and they remain here to take advantage of everything that makes the United States the best place in the world to do business: our rule of law, our universities, our research-and-development capabilities, our innovative culture and our skilled workforce.”

Democrats and Republicans in Congress generally agree that we should deter this practice, although they differ on the proposed policy solutions. I don’t want to get too far into the specifics because the Citizens for Tax Justice has some excellent proposals and you should just read that. Suffice it to say, however, we should seriously consider these solutions that would allow the United States to maintain competitiveness, to keep our tax base, and pave the way for U.S. corporations to continue to pay for all of the benefits they enjoy from establishing a business in this country.

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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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